Drillers face difficult period due to low oil price and Covid-19  

North Sea drilling contractors look set for difficult period over the next few months which could possibly extend until end-year. The dual effects of a low oil price plus the concerns over the spread of Covid-19 have already forced a number of major oil companies to enforce major cuts in their 2020 expenditure which will have a direct effect on drilling contractors’ finances. The offshore rig market was perhaps just beginning to establish early signs of a recovery from the previous and prolonged downturn that took hold in 2016. However, any improvemnent gained over the past 12 months or so may soon be eradicated.

Rig utilisation has already come under strain. For example, semi-submersible utilisation edged up to 62% at end-February but by end-March had dropped down to 53%. So far, the jack-up sector has been less affected, with an end-February utilisation figure of 72% only falling to 69% by end-March. However, it is estimated up to 23 rigs are due to come off contract during the remainder of this year; none of which have forward contracts in place. With so many rigs due to be released within a fairly short period this creates conditions which will put renewed downward pressure on dayrates as drillers clamber to secure new contracts.

The size of the jack-up fleet has been reduced after Borr Drilling decided to sell the B391 rig for scrap and Valaris also offloaded the 1981-built Valaris JU-70. The North Sea fleet now contains 39 jack-ups, although the count will rise again once recent arrival Valaris JU-248 finally starts its maiden North Sea contract with Premier, drilling in the UK sector.

New contract activity recorded in first-quarter 2020 has been reasonably light, with only 11 deals being confirmed: seven allocated to semi-submersibles and four to jack-ups. Most of the awards cover short-term drilling consisting of one or two wells. However, there are two exceptions. Apache has extended its contract with the semi-submersible Ocean Patriot for another year, while CNOOC has hired the jack-up Prospector 5 to drill two wells which will take 12-18 months to complete.


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