WoodMac: Floating rig utilization rebounds to pre-COVID levels

According to a recent Wood Mackenzie report, floating rig utilization has rebounded to levels last seen before the COVID-19 pandemic, with rates experiencing a 40% surge over the past year. The report predicts a further increase in rig demand of 20% between 2024 and 2025.

The study titled "Are we at the tipping point of the deepwater rig market?" indicates that active floater utilization has recovered from a 2018 low of 65% to more than 85% in 2023. The number of contracted ultra-deepwater (UDW) rigs has also returned to pre-COVID levels. Day rates for best-in-class floaters have doubled in the past 2 years.

“Higher oil prices, the focus on energy security, and deep water’s emissions advantages have supported deepwater development and, to some extent, boosted exploration,” said Leslie Cook, principal analyst for Wood Mackenzie. “Active supply is now more in line with demand and rig cash flows are positive. We expect demand to continue to rise.”

Much of this expected growth will come from the “Golden Triangle” of Latin America, North America and Africa, as well as parts of the Mediterranean. Wood Mackenzie projects that these areas will account for 75% of global floating rig demand through 2027.

Rates on the rise

In the past year, floater day rates have surged 40%. Wood Mackenzie expects an additional increase of 18% in floater day rates by XXX. Before the end of 2023, rates of $500,000/day or above may return for advantaged ultra-deepwater rigs. Benign ultra-deepwater rigs have averaged $420,000/day in first-half 2023, with utilization at 90%.

“With increasing demand and rates, we are approaching the tipping point for new builds and reactivations,” said Cook. “We haven’t reached it yet, but for new builds, it’s not a question of if, but when. The need for decarbonization, technological advancement, more efficiency and, ultimately, fleet replacement will drive a new cycle. If rig economics remain robust and rig companies see contractual risks abate, this could be sooner rather than later.”