DEPARTMENTS • OIL & GAS MARKETS
Westwood forecasts marketed utilization
of offshore rigs will average 95% this year
Offshore rig activity was robust in 2022 and will likely remain
so throughout 2023, according to recent insights shared by
Westwood Global Energy Group’s Head of RigLogix, Terry Childs.
On the jackup side, marketed utilization reached 91% in
December, and 398 of 437 marketed units were under contract
or committed for work. This ramp-up was led by the Middle
East, with a large number of jackups – including existing units
that had been stacked as well as newbuilds – receiving multi-
year contracts. Mr Childs also noted that jackup dayrates have
increased in almost all markets, mostly growing by double digits.
This year, he expects global marketed utilization for jackups to
increase to an average 95%, up from 90% last year.
For floating rigs, marketed utilization ended last year at just
under 90% in December. However, if viewed separately, drillship
demand was much stronger at an average 93% utilization for the
year, while semis saw a much weaker 82% utilization rate.
The US Gulf of Mexico and South America both led the way
in terms of floater demand ; the former even saw 100% marketed
utilization for the nearly entire year, from February through
December. Dayrates also improved throughout 2022, particularly
for drillships. The average fixture rate for drillships rose to just
under $360,000, up from around $230,000 in 2021.
Mr Childs noted his continued expectation for decreased
floater availability in 2023. For drillships, the marketed supply
and demand will remain tight, keeping utilization around 95%.
Demand for semis may be impacted in the North Sea due to the
UK windfall tax, he said, where some operators have said they’re
reconsidering previously planned drilling programs, but globally
the marketed utilization is still expected to average 94%.
10 Global marketed utilization rates for both jackups (top)
and fl oaters (bottom) improved last year, leading to strong
dayrate growth, according to Westwood. Jackup utilization
averaged 90% in 2022, buoyed in particular by demand in the
Middle East. Floater utilization was also robust, although the
favor tilted much more toward drillships than semis .
Longer-term contracts may offer more
stability as Europe grows LNG imports
More than 65% of UK project starts from
2023-2027 expected to be in upstream
The competition for LNG between Europe and Asia is grow-
ing and set to intensify in the next two years, a ccording to
Shell’s LNG Outlook 2023. European countries, including the UK,
imported 121 million tonnes of LNG in 2022, an increase of 60%
compared with 2021 . This enabled the country to withstand a
slump in Russian pipeline gas imports . A 15 million tonne fall
in Chinese imports combined with reduced imports by South
Asian buyers helped European countries to secure enough gas ,
but Europe’s rising appetite for LNG pushed prices to record
highs and generated volatility in markets around the world.
LNG is becoming an increasingly important pillar of European
energy security, supported by the rapid development of new
regasification terminals in northwest Europe .
Steve Hill, Shell’s Executive Vice President for Energy
Marketing, said the war in Ukraine and resulting impacts on
energy security has “underscored the need for a more strategic
approach – through longer-term contracts – to secure reliable
supply to avoid exposure to price spikes.”
Total global trade in LNG reached 397 million tonnes in 2022.
Industry forecasts expect annual LNG demand to reach 650 mil-
lion or even surpass 700 million tonnes by 2040.
The upstream segment dominates upcoming oil and gas
projects in the UK, accounting for more than 65% of the total
project starts anticipated between 2023 and 2027, according to
GlobalData .
Its new report shows that , of the 94 projects expected to start
operations in the UK during that time period, 61 will be upstream
projects . Many of them will be in the North Sea’s shallow waters,
said Himani Pant Pandey, Oil & Gas Analyst at GlobalData . “The
shallow waters of the North Sea still have an important role
to play in promoting the UK energy security, especially in the
context of weaning away from the Russian oil and gas supplies.”
Rose Bank will be a key project, with a total production capac-
ity of 121,000 bbl of oil equivalent per day. To be operated by
Equinor , the project is expected to commence operations in 2026.
“Despite concerns from the climate activists and an increase
in windfall tax by the UK government on the oil and gas sec-
tor, the latest North Sea oil and gas licensing round in 2022
attracted around 115 bids, an increase of 11 when compared to
the previous licensing round in 2019,” Mr Pandey said. “The
latest licensing round reflects efforts of the UK government to
boost oil and gas production in the country.”
M A R C H/A P R I L 2023 • D R I L L I N G C O N T R AC T O R
OIL & GAS MARKETS • DEPARTMENTS
2022 discoveries drive
value creation of exploration
projects to record levels
Cashflow analysis of 25 North
Nor th American independent E&Ps
E&P s . F. Forecasted
orecasted cashflow assuming current trends in production,
produc tion, operating expenditur
exp enditur
enditure,e,e, capita
capitall expenditure,e,e, dept repayments,
expenditur repayments , share purchases,
purchases , dividends,
dividends , and other cash expenses f for or 25 companies analyzed.
Operating cash fl ows in the upstream market are expected to remain high in the
foreseeable future, even if oil prices drop to $65-70/bbl, according to McKinsey.
High cash flows among North American E&Ps likely to
drive new consolidation wave, McKinsey report shows
McKinsey and Company says it
expects a fresh wave of M&A in the
North American upstream market in the
coming years, fueled by high operat-
ing free cash flows. In a new report,
the firm analyzes historical cash flows
and projected operational and financial
performance for the leading 25 North
American E&P companies. Operating
cash flows are projected to remain high,
with levels between $70-$90 billion in
2023 and between $50-$70 billion to 2027
– even if oil prices drop to $65 to $70/bbl.
The E&Ps analyzed are expected to
generate a total of $140-$200 billion in
operating cash flow in 2023. Operators
are taking advantage of these high cash
flows by pulling all the traditional levers
of capital management. For example,
industry debt load decreased by $25 bil-
lion from 2021 to 2022 and is forecast
to fall by a n additional $15-$20 billion
by 2027. With debt burden reduced,
returning shareholder value will be pri-
ority, and McKinsey expects dividends
to climb to between $30-$40 billion over
the next year. But with a high volume of
cash, these traditional levers will hit a
natural cap. McKinsey’s analysis shows
that only inorganic growth is unbounded
going forward, suggesting that cash will
be deployed through M&A.
Tom Grace, Partner at McKinsey &
Company, said, “Even after these uses of
cash have been exhausted, the industry
is likely to remain cash-flow positive in
2023 and beyond, with a ‘war chest’ of
$100-$230 billion. The primary tool left
in the corporate finance toolkit is deploy-
ment of cash through M&A. A common
refrain from industry veterans discuss-
ing M&A is, ‘You are either at the table,
or you’re on it.’ This is a harsh reality, but
companies with strong M&A capabilities
and bold strategies often exit the cycle
fully fed and healthy.”
Industry trends suggest that multiple
M&A strategies are driving this next
wave of consolidation. Basin consolida-
tors will likely look to add scale and lever-
age operational advantages to achieve
outsized returns. Integrators may seek
to add assets in adjacent portions of
the value chain to expand margins and
increase resilience. The bold will prob-
ably use a portion of their cash to seed
businesses to reshape their portfolios
and position for the energy transition.
“The oil and gas industry is entering
a period of unprecedented uncertainty
characterized by the energy transition,
evolving investor sentiment, and mount-
ing energy security concerns,” said
Jeremy Brown, McKinsey Consultant .
“Now is not the time to bask in the glow
of recent success. As in the past, success-
ful industry players will work tirelessly
to define and deliver a strategy rooted
in sound M&A investments to accelerate
their future growth and performance.”
The global oil and gas exploration sector
had its strongest year in 2022 in more than
a decade. In its work to improve portfolios
by adding lower-carbon, lower-cost advan-
taged hydrocarbons, the sector created
at least $33 billion of value and achieved
full-cycle returns of 22% at $60/bbl Brent
prices, according to a recent report from
Wood Mackenzie .
It states that exploration well numbers
were less than half the numbers during
pre-pandemic years, yet the total volume
of 20 billion bbl of oil equivalent matched
the average annual volumes of 2013-2019.
“Explorers were able to drive very high
value through strategic selection and
focusing on the best and largest pros-
pects,” said Julie Wilson, Director of Global
Exploration Research at Wood Mackenzie.
The highest value came from a new
deepwater play in Namibia, as well as
resource additions in Algeria and other
deepwater discoveries in Guyana and
Brazil . “The average discovery last year
was over 150 million barrels of oil equiva-
lent, more than double the average of the
previous decade,” she said.
National oil companies and majors con-
tinued to lead in exploration , accounting
for almost three quarters of new resources
discovered . These include companies like
TotalEnergies, QatarEnergy and Petrobras.
Newly discovered resources in 2022
created at least $33 billion in value even
though the number of exploration wells
were less than half of pre-COVID years.
D R I L L I N G C O N T R AC T O R • M A R C H/A P R I L 2023
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