Lagos — The Norwegian energy intelligence firm Rystad Energy has revealed that one quarter of the global floater rig fleet could be scrapped as the Covid-19 pandemic accelerates restructuring in the offshore drilling market.
The new downturn that the Covid-19 pandemic has brought upon the oil and gas industry has put many sectors in financial distress.
Restructuring in the already-stretched offshore drilling market will accelerate, a Rystad Energy analysis shows, and the global floater fleet, whose utilization has been suffering since the previous downturn, can expect a new round of scrapping as a result.
An evaluation of active rigs in the global floater fleet reveals that up to 59 of the 213 units are potential candidates for retirement. This equates to one-quarter of the floater segment, or 22 drillships and 37 semi-subs.
According to Rystad, the global demand for floaters had just started to recover before the pandemic and is now expected to remain under pressure until 2022.
Demand is expected to fall from 129 rig years in 2019 to 110 rig years in 2020 and 103 rig years in 2021, before slowly inching back up to 117 rig years in 2022 and 122 rig years in 2023.
Meanwhile, 25 newbuild floaters are planned for delivery towards 2023. Naturally, weak demand is going to keep utilization at low levels unless we see a meaningful increase in the price of oil.
Rystad Energy has created three scenarios, annualizing supply and demand in rig years, which show the range of the expected utilization levels based on rig attrition and newbuild deliveries.
Utilization began plummeting in 2016 and has hovered between 45% and 55% since, with 2020 levels expected to stand at 50%.
Utilization could reach 77% in 2023 if all 59 floaters identified by Rystad Energy are retired and no newbuild delivered – a rather optimistic scenario. Utilization will decline with each newbuild floater delivery, down to 69% if all these units make it out of the shipyard.
In Rystad’s last scenario, which assumes delivery of the newbuild units but not full retirement of the identified rigs, utilization could fall to as low as 52% depending on how many floaters are scrapped.