ASB Partners

$RIG $VAL $ODL.OL $NE $DO $SDRL Deepwater Weekly Update, Nov 11, 2023. "VAL States Most, if not all, Modern Stacked Rigs Will Find Work" VAL's 3Q23 call did a good job addressing (1) Rig Demand, (2) Rig Supply and (3) Dayrate Term Structure. (4) Odfjell on Tier 1 Semisubs 👀 Rig Demand: (1) “At $70/bbl Brent, more than 85% of undeveloped offshore reserves are estimated to be profitable,” (2) data from Rystad suggests “offshore capex is expected to grow at 8% CAGR through 2026,” and (3) Brazil, the Mediterranean and West Africa could demand more than a dozen incremental rigs through 2025-2026 (Noble noted “double digits” worldwide through 2024). Rig Supply: “Based on our market outlook, most if not all stacked and stranded newbuild drillships in the global fleet will be needed to meet growing future demand.” Valaris was referring to 5 stacked 7G drillships as the priority reactivations (RIG Mylos, Apollo, Athena; Valaris DS-11; Noble Pacific Meltem), coupled with 5 stranded newbuilds (DS-13, DS-14, Libra, Draco and Dorado). This sidelined drillship capacity is appropriately receiving attention, although only represents approximately 7% of floater demand in 2024. Comments from various oilfield services industry 3Q23 calls indicate this modest sidelined capacity will be absorbed by market in 2024, with no meaningful incremental supply to come for years. Dayrate Term Structure: Valaris believes 2-3 year contracts are most likely to achieve leading-edge dayrates, while 5+ year fixtures may accept lower rates to secure 100% utilization backlog. Mobilization fees and customer upfront payments also have value. Namibia and Tier 1 UDW HE Semisubs: After the success of $TTE and $SHEL in Namibia, the Orange Basin in offshore Namibia and South Africa has gained a lot of attention. Galp recently started a drilling program in Namibia, with $CVX and $WDS likely following in 2024. $ODL.OL CEO stated on their 3Q23 call, “For all practical purposes, Tier 1 harsh environment rigs are sold out...I’ve never seen a supply side being in a situation we are today and being really disciplined.” While drillships can operate offshore Namibia (Tungsten Explorer), it is harsh environment offshore market where semisubs are better suited. These HE Semisubs were originally designed for the North Sea and Canada, but Namibia’s ascendency and appetite for these rigs (especially if South Africa grows) appears likely to cause a persistent deficit on this market. Drillships are on a similar path although may take longer as incremental supply is absorbed by the market through 2024.