Strategies of a market leaders with cold-stacked tonnage could signal the recovery of the deepwater drilling sector, says MSI

The floating rig market has long since crossed an inflection point incentivising the reactivation of cold-stacked tonnage, yet operators remain disciplined in their approach, according to new research by Maritime Strategies International.

In its Q2 MODU Report, MSI notes an improvement in energy market conditions has driven up rig demand against a backdrop of inelastic supply, supporting utilisation, earnings and newbuilding prices for mobile offshore drilling units.

This healthier outlook, together with concerns about the capacity of the active fleet to meet forecast demand, have shone the spotlight on the cold-stacked fleet. The oil market plunge between 2014 and 2016 saw the proportion of the cold-stacked floater fleet go from 8% to 25% in just two years. Day rates remained dismal through the second half of the decade and total floater supply has since contracted to rebalance the market with further scrapping.

Now with demand improving, the decisions of a handful of operators will largely determine the segment’s near-to-medium term supply and demand balance. There are notionally 41 cold-stacked floaters as of May 2023 – 22 of which are 6th or 7th generation assets and would be deemed most competitive.

As a side note, at an estimated $600m, a newbuild UDW drillship would come at a considerable cost; and the rig owners with balance sheets that could make such an outlay all have pools of cold-stacked units, for which reactivation would make more economic sense.

“Rig owners differ materially in their approach and attitudes towards their stacked fleets. Transocean has the largest fleet of cold-stacked units and hence lays claim to the most operational leverage within its peer group,” says Pradip Adhikari, Data and Markets Analyst, MSI. “For Valaris, reactivation will only be considered where a meaningful return can be made on reactivation costs under a firm contract. This strategy is evident in its most recent reactivation, the Valaris DS-8, which secured a three-year contract with Petrobras at a $430,000/day rate.”

For the likes of Diamond Offshore and SOCAR, MSI expects little appetite for reactivation of first to fourth generation units but there is growing interest in assets that can command higher rates. Diamond recently reactivated the Ocean GreatWhite and has given no indication of any such plans for the three remaining units.

“Noble Corp and Seadrill have four cold-stacked high-spec drillships between them which have been actively marketed in recent tenders – we think these are likely to join the active fleet soon given the current demand-side momentum,” adds Adhikari.