Operator confidence set to push rig demand modestly higher in US Gulf, mostly in shallow water

By Stephen Whitfield, Senior Editor

US offshore rig demand is on track for meaningful growth over the next two years, according to Rystad Energy. The expected increase reflects a broader, if measured, improvement in operator confidence toward the US Gulf.

Rystad’s base case calls for US offshore rig demand – measured by the number of floaters and jackups actively fixed under a contract – to grow by 11% from 2026 to 2027, followed by an additional 4% increase in 2028. This growth will be concentrated in the jackup segment, said Matt Hale, Senior Vice President of Drilling and Wells Research at Rystad. He expects floater demand to remain roughly flat.

That divergence reflects a broader shift toward shallow-water activity in the US Gulf, while the deepwater space remains active but somewhat stagnant.

This is a distinction that Mr Hale said was central to understanding the region’s current trajectory: Rig demand is rising not because any new frontiers are opening up but because operators are extending and building out programs on acreage where confidence has been steadily improving. Much of that acreage is in shallow water.

Production numbers paint a more complicated picture, however. Despite the improving rig demand outlook, Mr Hale said Rystad expects US offshore oil production to decline marginally in both 2027 and 2028, a result of both project timing and a growing share of exploration activity relative to development drilling.

“Exploration activity is picking up, and that’s going to lead to additional production down the road, but this does not fully offset the natural declines we’re going to see in the Gulf over the next two years,” he said.

Mr Hale framed the broader production trajectory as one of incremental gains built on sustained investment, rather than a return to rapid growth: “Our view is that we’re incrementally growing production, but not dramatically so. That says something, because you have to invest to grow, otherwise it would just naturally decline.”

The rig demand growth and near-term production dip are, in Mr Hale’s view, two sides of the same coin. They’re signs of a mature basin where renewed investment is happening steadily, but no dramatic swings like those seen in newer frontier plays are expected.

Renewed commitment

Mr Hale pointed to results from the most recent lease sale, Big Beautiful Gulf 3 (BBG3), as signs of a subtle inflection point. The sale, held on 12 August 2026, generated $82.7 million in apparent high bids for 59 blocks spanning over 300,000 acres. That represented a significant jump from the BBG2 lease sale in March, which generated $46.9 million for 25 blocks.

“The fact that we’ve started leasing at this level again means there’s a lot more confidence from more operators that they can invest in the US,” Mr Hale said, noting efforts by the US government to incentivize E&Ps to take on frontier acreage. The federal deepwater royalty rates were lowered from 16.67% to 12.5% following the passage of the One Big Beautiful Bill Act in 2025, for example.

Incentivizing frontier development can help to create longer-term upside, if not immediate production. For instance, BP is spearheading a major expansion into the ultra-deepwater Paleogene frontier, anchoring its strategy with two greenfield megaprojects, Kaskida and Tiber-Guadalupe. The fact that operators are willing to pay for frontier acreage in the US Gulf indicates they see long-term promise in unproven areas.

This shift in operator outlook for the US Gulf has been under way following a period of post-COVID portfolio rationalization. In the immediate aftermath of the pandemic, many operators had deprioritized US Gulf assets in favor of what were perceived to be better opportunities elsewhere. But that has been changing.

BP is a representative case study of the reversal under way, he noted. The company said it plans to produce over 400,000 boed from the US Gulf by 2030, maximizing high-margin developments. Kaskida and Tiber-Guadalupe, with respective expected FIDs in 2029 and 2030, are projected to add a combined 140,000 boed to BP’s 2030 production goal.

Kaskida is an ultra-deepwater project located in the Keathley Canyon area, approximately 250 miles southwest of New Orleans. The Tiber-Guadalupe project involves two deepwater fields, Tiber and Guadalupe, also located in the Keathley Canyon area. The project will involve six wells in the Tiber field and a two-well tieback from Guadalupe. These are the first two projects for which BP will deploy 20,000-psi ultra-high-pressure technology and BOP systems.

Mr Hale said he sees other E&Ps with an established Gulf footprint sharing a similar attitude as BP: They’re maintaining their confidence in underlying project economics in the US Gulf, even when broader capital budgets are being scrutinized more closely than in past cycles. It doesn’t make the Gulf a growth market on par with Guyana or West Africa, but “it’s more about extending the life of the assets that are already there,” he said.

Rig upgrades over mobilization

The Gulf’s maturity is not a limitation so much as a defining characteristic of the area’s current phase, and it will shape how the projected rig demand growth is likely to materialize. Mr Hale said the improved investment climate is unlikely to trigger a significant influx of new rigs into the basin, or a significant outflux of existing rigs. Instead, he expects operators to invest in upgrading rigs already working in the Gulf rather than mobilizing additional capacity from elsewhere.

“You have a lot more confidence keeping those units there,” he said. “You may bring in a rig, but you’re not shifting a lot of things in or out. You have the confidence to go do upgrades and make the rigs that are working there more capable for future wells.”

Underpinning that confidence is greater visibility into the capital expenditure and infrastructure plans that support future activity: “When I look at activity in the Gulf, I’d ask how far out can I see the needs for CAPEX, the needs for infrastructure, the other things that would support any growth? I think that now, operators can see a lot further out what their needs are going to be in the Gulf, and that’s providing certainty.”

Along with the lowered royalty rates, Mr Hale pointed to the increase in US Gulf lease sales under the Trump Administration as a key reason behind this shifting view for operators: “The lease sales create better visibility for future investments. Even with a changing administration, it’s more legally difficult to renege on a lease already granted.”

Managed pressure drilling (MPD) technology is one area where Mr Hale sees continued uptake as part of an upgrade cycle for rigs in the US Gulf. However, he characterized MPD adoption as constrained less by demonstrated value than by commercial structuring.

“I think there’s a widespread recognition of the benefit,” he said of MPD. “It’s just caught up in the conversation of who pays for the upgrade.”

He noted that contract terms are evolving in ways that make MPD easier to deploy through drilling contractors rather than through standalone service providers, and that is shifting risk-sharing arrangements. Historically, rig contractors bore outsized downtime liability for equipment they didn’t fully control, a structure that discouraged broader adoption. Now, the operators are accepting a greater share of the risk. Mr Hale said he expects this shift to continue as MPD becomes a more common optional offering from the rig contractors themselves.

“One of the big questions with MPD adoption has always been, is this something that’s coming from a separate rental or service company, or is this something where the equipment’s owned by the rig contractor? That’s where we’ve been seeing the evolution. The terms around it are changing. The contractors used to perceive MPD as something with a bunch of downtime risk, but now that’s moving because the terms in their contracts have evolved. The contractors are now starting to see MPD as more of an incremental revenue stream. It’ll take time for that shift to really become the norm, but in our view, we’re going to see more of this,” Mr Hale said.

Capital discipline remains the norm

Mr Hale emphasized that the US Gulf’s growth trajectory continues to be shaped by an industrywide emphasis on capital discipline, which he expects to persist as the prevailing mode of operation rather than a temporary restraint.

That discipline has also reshaped the competitive landscape. Mr Hale said the region has become increasingly consolidated among larger, better-capitalized players over time. Independent developers with the risk tolerance for higher-cost exploration wells are less common than in previous cycles, largely due to heightened investor scrutiny of capital-intensive dry-hole wells.

A successful well, he noted, changes that conversation, but the asymmetry of outcomes has made public operators more selective about which prospects they’re willing to pursue: “If you’re a public company, you need to go tell a story to your investors. If you write off a $100 million well, there’s no return on that and they’re going to ask you why you did that,” he said.

He cited Beacon Offshore Energy as a notable exception to the consolidation trend, noting that the company is supported by private equity backing that allows for a different risk appetite than what most public operators can sustain.

Mr Hale also pointed to Oxy’s activity in the Gulf as a positive signal for the region. In April, the company announced a high-quality oil find at the Bandit Prospect located in Green Canyon Block 680, drilled by the Valaris DS-16 drillship. That discovery could spearhead an aggressive expansion of Oxy’s E&P activity, he noted, and this could be a potentially meaningful step up in Gulf investment from a major independent producer. This would be evidence showing that renewed confidence in the region extends beyond the largest global players.

“I think it’s positive that Oxy’s lining up campaigns, and they haven’t really done that in a big way yet. They’ve been drilling wells, but we’re seeing signs of a big shift. To see a very big producer – not a supermajor, but a big company nonetheless – showing this kind of interest in putting capital into the Gulf is something that’s defying the norm. The costs are very high, but there is still that interest,” he said. DC