Oilfield services companies are feeling rainbows and sunshine when they look at prospects for international activity, even as the U.S. seems cloudy. The consensus among OFS firms with international exposure is that years of offshore underinvestment are coming to an end, while countries in the Middle East are advancing on planned expansions.
“Following a decade of underinvestment, which saw North American shale crowd out spending in offshore and international land drilling, we are pleased to see growing momentum in several offshore basins around the world in addition to international land,” said NOV CEO Clay Williams during his company’s Oct. 27 earnings call. “Underpinned by LNG and constructive commodity prices, global offshore FIDs look to be in the range of $140 billion in 2023, up 60% from the average of the preceding eight years, and 2024 looks to be even stronger.”
For example, SLB saw its international revenue rise 5% sequentially in Q3 but its North American revenue fall 6%. Halliburton recorded a 3% sequential increase in international revenue, which offset a 3% decrease in North America.
Nabors CEO sees room for more drilling rigs in Middle East and Latin America.
Nabors Industries said it averaged 77.0 active rigs internationally in Q3, up from 74.6 in 3Q22. But much more growth could come in 2024, Nabors CEO Tony Petrello said in an earnings call.
“In the international market, we still have visibility to 11 additional rigs through 2024. This growth should provide substantial uplift potential,” Petrello said Oct. 26. “Given the commodity price backdrop, we believe there is room for additional unit additions in the Middle East and Latin America.”
After years of focusing on the Permian and the shale revolution, some U.S. companies are redistributing resources to international markets. Helmerich & Payne, the most active U.S. land drilling contractor, cut its supplemental dividend for fiscal 2024, which began Oct. 1, by 27%. This was in part so it could devote more capex to international expansion and in part because of reduced cash flow expectations in the U.S. Roughly one-third of H&P’s FY24 capex of $450-500 million will go to its International Solutions segment, compared with a quarter of FY23’s $425-475 million budget. With the money, International Solutions will upgrade three land rigs to super-spec and make walking conversions and other modifications to rigs earmarked for export from the U.S. fleet.
Day rates of over $500,000 and longer advance times inspire offshore drillers.
Offshore drilling contractors are enthusiastic about the return of $500,000 day rates for a few contracts in August. The Transocean Equinox received a 16-well contract off Australia at $485,000/day starting in 2025 followed by 21 single-well options, with 20 of them priced between $505,000/day and $540,000/day. In addition, Odfjell Drilling Ltd. announced Equinor had hired the Hercules for one firm well plus an option for another off Canada with a day rate in the $500,000-$520,000 range.
The Transocean Equinox and the Hercules are semisubmersibles, but drillships and jackups are in short supply as well. Offshore drillers noted increasing lead times, with Seadrill chief commercial officer Samir Ali saying the average period between fixing and commencement for secured drillships has risen 60% since 2020 to 319 days.
“This is just the beginning,” Ali said during a Nov. 28 earnings call. “Demand is expected to increase over the coming years, particularly in the Golden Triangle [of the Gulf of Mexico (GOM), West Africa and Brazil] and in our view, there are major barriers to additions of new supply. The lead times and cost of delivery are meaningful and should not be underestimated.”
While acknowledging that “we are a long way from offshore rig newbuilds,” Williams said NOV has received inquiries from three Eastern Hemisphere NOCs considering newbuild jackups and a floater. “Importantly, we are hearing of operators looking to lock up rigs for longer terms, which we hope will give our customers greater confidence to pull the trigger on capital projects that will drive future NOV orders,” Williams said.
While the offshore outlook is generally positive, the GOM will not feel it just yet. In its latest GOM Play Fundamentals report, Enverus Intelligence® | Research expects GOM capex in 2024 and 2025 of around $12 billion, slightly lower than 2023’s $12.7 billion, followed by a surge to more than $14 billion in 2026 and 2027. E&P companies sanctioned few GOM projects in 2022 and 2023, leading to the soft capex forecast for 2024 and 2025. However, EIR believes FIDs will ramp up in the next couple of years, resulting in higher capex in 2026 and 2027.
U.S.-focused OFS companies aren’t ready to throw in the towel. Chris Wright, CEO of fracker Liberty Energy, in an Oct. 19 earnings call pointed to several factors such as a wave of LNG export projects on the Gulf Coast that will start coming online at the end of 2024, opening long-term demand for “stable North American energy.” Wright added that improving commodity prices should spur private operators to increase activity.
While public E&Ps remain focused on capital discipline, “we just saw an industry titan double down on North America’s future,” Wright said just after the October announcement of ExxonMobil’s $64.5 billion acquisition of Midland Basin-focused Pioneer Natural Resources.
Since then, Wright would be able to point toward several more deals. Chevron’s $60 billion agreement in October to acquire Bakken producer Hess Corp. has a critical international element—Hess holds a 30% stake in the ExxonMobil-operated Stabroek block off Guyana. However, Occidental Petroleum’s $12 billion cash-and-stock deal for Midland Basin driller CrownRock LP in December is unquestionably a domestic bet.
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