The Offshore Oil Business Is Gushing Again

The hunt for offshore petroleum is on again, fueled by a surge in global demand for energy, supply disruptions triggered by the war in Ukraine and crude prices that remain above prepandemic levels. Other giant rigs such as Titan that were dormant near the end of the last decade are also now operating in deep waters along the coast of Brazil, while rigs lacking propulsion are mining shallower waters in the Middle East after hitching rides to that part of the world on tugboats.

Of roughly 600 rigs worldwide that were available to lease for offshore projects in December 2022, about 90% were working or under contract to do so, according to research firm Westwood Global Energy Group. That was up from roughly 63% five years earlier.

Some beneficiaries of the new offshore drilling boom are companies such as Transocean Ltd. , Valaris Ltd. and Noble Corp. that own and staff the rigs, the most coveted of which are massive drillships such as Titan that are prized for their ability to work deftly in deep waters. These contractors are now charging the oil companies that lease drillships more than $400,000 a day, up from around $300,000 early last year and less than $200,000 two years ago. Analysts are forecasting rates will exceed $500,000 next year.

“Over the past year and a half, everyone started drilling again offshore, and they want to use the most efficient rigs and all of a sudden, bam!” says Noble Chief Executive Robert Eifler. “After eight years we basically have full utilization of the high-end drillship fleet.”

Many new offshore bets are gravitating to South America and the Mideast. The Atlantic Ocean coastlines of Brazil, Guyana and Suriname are bristling with drillships due to a big production push from Brazil’s national oil company as well as several significant oil finds made in neighboring waters in recent years. Saudi Arabia and the United Arab Emirates are each relying heavily on offshore drilling to increase their oil production capacity by 1 million barrels a day as of 2027, bringing their totals to 13 million and 5.5 million, respectively. As much as 80% of Saudi Arabia’s new capacity will come from offshore sources, according to research firm Evercore.

Rig contractors say they learned their lessons from past boom-and-bust periods, including a 2014 downturn that forced some companies to declare bankruptcy, and won’t overextend themselves this time around.

They still have to grapple with plenty of risks. Offshore projects are typically more expensive than drilling on land, so it takes longer for production to repay those costs. Demand for oil could plummet in the coming years if the worldwide transition from fossil fuels speeds up and more countries take steps to reduce their emissions. And they face opposition from environmental groups that worry about drilling’s impact on the climate as well as the danger of unexpected disasters. The 2010 explosion on the Deepwater Horizon rig in the Gulf of Mexico unleashed the worst offshore oil spill in American history…