Deepwater GoM rigs: What's next? Report

Insight 15 March 2016

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Report summary

Many operators in deepwater Gulf of Mexico (GoM) are locked into long-term rig contracts at high day rates, a legacy of the tight rig market in the first half of this decade. The increasing complexity of deepwater projects and rise in exploration and development of the basin's frontier plays drove an increase in the number of new-build, high-specification drillships in the region. Since the collapse of oil prices, operators have adapted by allowing contracts to expire, terminating contracts early and sub-contracting rigs at discounted rates. The current oversupply in the rig market will lead to decreases in rig rates that may spur additional infill activity, but the resulting cost savings alone will not be enough to sustain growth in the frontier plays of deepwater GoM if the low oil price environment persists.

Executive Summary
Rig count and utilisation decline
- Operators terminate contracts and idle rigs to conserve capital
- New rigs enter GoM but existing rigs offer opportunities for savings
- Majors are most exposed to long-term contracts but carry the most reserves upside
Scenario Analysis: MODU demand under varying future price levels
- Demand deteriorates in sub-US$30 Brent world
- Demand stagnates if Brent remains between US$30-50
- Supply-demand imbalance corrects if Brent rises above US$50
- Declining day rates impact marginal projects