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Transocean Sees Most Promising Offshore Outlook "In Many Years"

transocean spitsbergen
File image courtesy Transocean

Published Aug 2, 2022 3:44 PM by The Maritime Executive

Top offshore drilling company Transocean beat earnings predictions by 25 percent in the second quarter, another sign that the offshore market is heating up after years of contraction and consolidation. The $100-plus price of oil is certainly helping, according to CEO Jeremy Thigpen. 

"While we have experienced volatility, commodity prices have remained within a range that is still extremely healthy for offshore development," Thigpen said in an earnings call Tuesday. "Indeed, the outlook . . . is the most promising it has been in many, many years."

The other driver of demand for offshore services is a period of years of  underinvestment in E&P. After the 2015 oil crash, energy companies have faced pressure from their investors to keep capex low and deliver returns. At the same time, climate activists and (some) regulators have pushed to sunset fossil fuels in the medium- to long-term. These factors have not supported a favorable business environment for offshore field development, which requires billions of dollars of up-front spending with a long time horizon to achieve breakeven. 

"As a consequence, the long-term replacement of hydrocarbon reserves has consistently fallen short to production levels, and consequently depleted global inventories," said Thigpen. "This consistent shortfall in production leads us to conclude that we're in the early stages of a sustainable recovery."

Other signs point to the sector's long-term prospects: rising charter rates for the highest-spec rigs, now exceeding $400,000 a day; rising day rates and utilization for offshore supply vessels in most regional markets; and a tripling of offshore EPC contracting activity in the first half of 2022, reflecting multiple major new project approvals. Market analytics firm Westwood predicts a long upcycle through 2026, with offshore EPC spending totaling about $275 billion over the period. 

Though there are favorable winds in the sector's sails, Transocean sees some complications. According to Thigpen, the oil majors are experiencing supply chain challenges that "hamper their near-term ability to secure key capital equipment and consumables" for drilling campaigns. However, these are expected to be temporary issues and will likely be resolved by the end of 2023, he suggests.