OSLO • Demand for offshore rig rental globally is starting to recover from its worst-ever downturn, led by oil firms' growing demand for harsh-environment exploration, oil firm executives said.
This has triggered multi-billion-dollar tie-ups among drillers hoping to profit.
While the 2014-2016 oil price crash caused firms to cut exploration budgets, ending a boom in rig demand and bankrupting many owners, energy companies are now seeking to replenish their hydrocarbon reserves.
The nascent demand for harsh-environment rigs, particularly for North Sea drilling, could lead to increased rates for these units as soon as next year, and other categories may follow in 2019 or 2020, companies and analysts said.
Transocean chief executive Jeremy Thigpen told UBS analysts he would not be surprised to see next fixtures for such rigs to rise to US$300,000 (S$408,000) from current levels of about US$200,000.
Oslo-based Pareto Securities said it expected day rates for modern harsh-environment rigs to rise to between US$250,000 and US$300,000 in contracts awarded next year, with other segments rising later.
Nordea Bank said it saw the rig market in the North Sea tightening next year, particularly for high-end rigs, with Odfjell Drilling signing in August a nine-month contract with Aker at a day rate of US$250,000.
Analysts mostly have "buy" or "strong buy" ratings for Borr Drilling, Odfjell Drilling, Transocean and Northern Drilling, according to Thomson Reuters data, as they have the most exposure to harsh-environment rigs, the newest fleets and the lowest debts in the sector.
However, Mr Simen Lieungh, chief executive of Odfjell Drilling, said he did not expect day rates rising significantly to between US$350,000 and US$400,000 until late 2019.
Historically, the percentage of the global fleet being utilised had to rise to 85 per cent or more for day rates to increase significantly.
Today, they are about 60 per cent to 70 per cent, depending on the rig segment.
"I think we can see utilisation moving into the 80s during the next 12 months," Borr's chief executive Simon Johnson said, referring to jack-up rigs, used in shallow waters.
Some, however, pointed out a large supply overhang in the jack-up market, with total supply counting more than 500 units, while current demand is about 300.
Nordea said about 100 to 200 jack-up rigs may need to be scrapped before day rates improve.
Eyeing a market upturn, some executives are now busy seeking mergers and acquisitions.
London-based Ensco's shareholders will vote today on whether to approve the board's proposal to buy smaller rival Atwood Oceanics.
Some shareholders have questioned the timing and the value of the deal, but the management has defended it.
"We believe the offshore drilling sector is entering a recovery phase following an extended downturn," Ensco's chief executive Carl Trowell told investors last month. "Now is the time to make counter-cyclical investments in the highest-specification assets."
Other recent deals include Transocean buying Norway's Songa Offshore and Borr Drilling acquiring 15 jack-up rigs from Transocean in March. Seadrill, controlled by Norwegian-born billionaire John Fredriksen, expects the recovery to help it to emerge from bankruptcy proceedings next August.