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Equipped for Success

By Peter Staas on Feb. 9, 2013

Exploration and production in deepwater and harsh environment–the final frontier for major oil finds–continues apace as producers grapple with the end of easy oil.

In 2011 and 2012, operators announced an annual average of about 30 discoveries in water depths of at least 4,500 feet, compared to 23 in 2008-10, 16 in 2002-04 and four in 1996-98. We expect this trend to accelerate dramatically in coming decades, as producers push into ultra-deepwater and Arctic regions in search of output growth.

The industry has already invested massive sums to identify and exploit major deepwater oil fields. Over the past two years, contract drillers have ordered about 87 drillships and semisubmersible rigs capable of operating in water depths of at least 4,000 feet.

Not only does this trend reflect accelerating exploration and development in these frontier basins, but the contract drilling industry is also in the midst of a youth movement, with established players seeking to revitalize their fleets with high-specification rigs that command higher day-rates–a huge opportunity for equipment suppliers.

Despite these significant capacity additions, utilization rates for these rigs have remained elevated, as high oil prices and declining production from mature fields prompt upstream operators to ramp up offshore exploration and development. Meanwhile, the resurgence of permitting and drilling activity in the Gulf of Mexico–trends that we highlighted in a recent Graph of the Week–has further tightened the market for deepwater-rated rigs.

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