In early 2020, prior to the the COVID shutdowns in mid-March, the offshore oil and gas industry in the US GOM was showing strong signs of a sustained recovery. By the end of February 2020, there were 22 deep water rigs actively drilling, the most since 2017. After the pandemic shut the world down, offshore activity dropped dramatically with the rig count falling to as few as 9, for a brief period.
As it became clear that the pandemic did not mean the end of the world, I hypothesized that the recovery in the deepwater US GOM would be delayed by 18 to 24 months. It’s rare that I get any predictions right, however, the US GOM is recovering within my estimations—but the nature of the recovery is not what I expected.
Though there is no doubt a recovery is underway, the floating rig count has not increased the way I imagined. Rather, a majority of the recovery that is creating increased vessel demand is being driven by non-floating rig activity in the US GOM. Surprisingly, demand has increased dramatically yet the floating deep water rig count has been static at 17 rigs for the past several months. The data reported by BSEE (Bureau of Safety and Environmental Enforcement) helps to explain this phenomenon.
On a weekly basis, BSEE reports current deepwater GOM activity. This not only includes active floating rigs but also all other activities in the deepwater such as work-overs, active platform rigs on production facilities, etc. While these other activities do not drive as much vessel demand as a floating deepwater rig, each of them requires support by deepwater capable vessels. Today, while there are 17 active rigs, there are 27 other non-floating rig activities ongoing in the GOM. Back in February of 2020, when there were 22 active deepwater rigs, there were only 18 additional forms of reported activity in the US GOM.
I believe that floating rig counts will rise as the uncertainty surrounding the Russia-Ukraine war subsides at some point in the future. During this current period of uncertainty, we have seen what I believe is hesitancy to deploy capital dollars into new deepwater exploration projects, though the current oil prices justify additional drilling. In the interim, increasing production from existing assets with work-overs and platform rig drilling will continue to drive vessel demand.