[[{“value”:”
- 2024 has been another strong year for the offshore drilling market with high rig, OSV and subsea utilization and day rates.
- Analysts wonder whether oil prices will remain high enough to support the offshore oil boom in 2025.
- One notable trend in the ongoing offshore revolution is a large increase in deepwater and ultra-deepwater drilling.
Offshore drillers endured a tough decade as many outfits filed for bankruptcy between 2014 and 2016 with oil prices collapsing as U.S. shale production boomed. Thankfully, the sector has seen a rebound over the past couple of years. The current year has been another strong year for the offshore drilling market with high rig, OSV and subsea utilization and day rates. Activity remains particularly strong in the Middle East, Brazil and West Africa.
Unfortunately, the overwhelmingly bearish sentiment that has ruled oil markets in 2024 has taken a toll on the offshore sector as traders worry whether oil prices will remain high enough to support offshore drilling. Stocks of deepwater drilling specialists have seen mixed fortunes in the current year, with TechnipFMC Plc. (NYSE:FTI), Oceaneering International Inc. (NYSE:OII) and Norway’s Odfjell Drilling (OTCPK:ODFJF) outperforming the market with year-to-date gains of 43.8%, 16.3% and 39.5%, respectively. However, the sector’s other big names are deeply in the red: Transocean Ltd. (NYSE:RIG) -43.7%, Seadrill Ltd. (NYSE:SDRL) -23.6%, Noble Corporation Plc (NYSE:NE) -38.5% and Valaris Ltd (NYSE:VAL) -40.1%. Meanwhile, offshore shallow-water drilling contractor Borr Drilling Ltd (NYSE:BORR) has tanked -49.3%. For some perspective, the energy sector’s favorite benchmark, the Energy Select Sector SPDR Fund (XLE), is up 0.9% in the year-to-date, trailing the 26.5% return by the broad market S&P 500.
Contrarian investors might, however, consider buying these beaten-down stocks, with outlook for the sector expected to improve in the coming year. Here are 3 key trends to watch in the sector in 2025.
#1. Growing Market And Backlog
The current year has witnessed a growing backlog by offshore drillers, suggesting that boom time is not far off. According to Offshore Energy, Transocean, Noble Corporation, Valaris, Borr Drilling and Odfjell Drilling ended Q3 2024 with a combined total backlog of $23.22 billion, up from $22.7 billion in Q3 2023. All five companies issued bullish outlooks.
According to Precedence Research, the offshore drilling market will hit $80.64 billion by 2033 from $36.60 billion in 2023, good for a healthy CAGR of 8.22%. The Asia Pacific offshore drilling market size is estimated to be worth around $35.08 billion by 2033 from $15.74 billion in 2023, thanks in large part to spending boost by the region’s oil giant, China and India.
Source: Offshore Energy
One notable trend in the ongoing offshore revolution is a large increase in deepwater and ultra-deepwater drilling. Deepwater oil and gas production is set to increase by 60% by 2030, to contribute 8% of overall upstream production, according to a new report from Wood Mackenzie, as cited by Rig Zone. Ultra-deepwater production is set to continue growing at breakneck speed to account for half of all deepwater production by 2030. Deepwater production remains the fastest-growing upstream oil and gas segment with production expected to hit 10.4 million boe/d in 2022 from just 300,000 barrels of oil equivalent per day (boe/d) in 1990. Wood Mackenzie has predicted that by the end of the decade, that figure will pass 17 million boe/d.
In the oil and gas exploration and production (E&P) industry, deepwater is defined as water depth greater than 1,000 feet while ultra-deepwater is defined as depths greater than 5,000 feet.
#2. Flat Spending
However, capital spending in the offshore sector is expected to remain flat or drop slightly in 2025 thanks to growing concerns of a softening oil market. Offshore Engineer estimates that companies will spend north of $50 billion on new greenfield projects in 2025, similar to the current year’s spend, potentially unlocking over 8 billion barrels of oil equivalent (boe).
OE has predicted that high-profile developments likely to be sanctioned is TotalEnergies’ (NYSE:TTE) Venus project in Namibia, as well as a wave of multi-tcf gas developments will move forward – in the Eastern Mediterranean. Meanwhile, Chevron Corp. (NYSE:CVX) could sanction Leviathan Phase 2 (Israel) and Aphrodite (Cyprus), while Eni S.p. A (NYSE:E) may take the Final Investment Decision (FID) at Cronos (Cyprus). The analysts also expect new gas projects to be unveiled in Southeast Asia, such as Eni’s Geng North and INPEX’s Abadi LNG (both Indonesia).
#3. Record Offshore Production In China
China’s offshore oil output is projected to reach 68 million tonnes (1.36 million barrels per day) in 2025, up 3.8% from 2024, while natural gas production is expected to exceed 29 billion cubic meters, good for 10.7% Y/Y increase. The Bohai Sea and South China Sea are expected to be the epicenter of offshore activity in China.
Last year, the China National Petroleum Corporation (CNPC), the government-owned parent company of PetroChina, and Cnooc (OTCPK: CEOHF), kicked off ultra-deepwater exploratory drilling for oil and gas as the country looks to wean itself off foreign oil. According to Chinese news agency Xinhua Global Service, CNPC will drill a test borehole of up to 11,000 meters (36,089 feet), the country’s deepest ever, which will help it better understand the Earth’s internal structure better, as well as to test underground drilling techniques. CNPC’s borehole depth is not far from Qatar’s world record of 12,289 meters (40,318 feet) for a petroleum well depth that was drilled in the Al Shaheen Oil Field in 2008 or Russia’s Kola Superdeep well that reached a depth of 12,262 meters (40,230 feet).
But China is not the only country willing to drill to ridiculous depths in the pursuit of energy security. India had its first foray into deepwater exploration in the Bay of Bengal earlier this year in the Krishna-Godavari Basin, courtesy of India’s state-run Oil and Natural Gas Corporation (ONGC). ONGC said it was planning to spend over $10 billion developing multiple deepwater projects in its KG-DWN-98/2 block in that basin. Meanwhile, state-owned upstream company Oil India Ltd is looking to start exploration activities in Nagaland
“We have a total of 30 blocks under the OALP. We have already drilled all wells under the awarded OALP blocks, except in Nagaland. We are pursuing the ministry and they have set up a high power committee involving OIL, ONGC, government officials, to discuss the issue with the Government of Nagaland and resume exploration,” the official said.
By Alex Kimani for Oilprice.com
The post 3 Key Trends To Watch In Offshore Oil & Gas Sector In 2025 appeared first on Energy News Beat.
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