Welcome back, everyone. Before we get started, a quick programming note: next week, during the week of July 4th, I won't be posting. I'll be getting away with my family to the mountains of New Hampshire.
The Gist:
(1) Offshore utilization is coming off a trough, and there is little risk of new builds coming in the next few years. Day rates are improving, but the “older assets” will need to lead from here.
(2) Capital spending has been slashed to all-time lows, and balance sheets have been recapitalized, similar to other post-oil bust eras.
(3) O&G exploration activity is the driver of offshore and the latter remains at multi-decade lows. The key macro variable to watch is well-productivity.
So let's jump into it. Why do I call it "A New Hope"? Well, it's an ode to the first Star Wars movie.
This chart represents the reconstructed fleet of Transocean, Valaris, Diamond Offshore, and Noble.
What you really see is the decline that's been happening over the last 25 years. This includes everything: drill ships, jackups, semi-submersibles, and barges.
The quote from the movie where Obi-Wan says, "Now the Jedi are all but extinct," came to mind when I created this chart. Now the offshore fleet is pretty much all but extinct, which shows the amount of consolidation that's happened.
When you look at utilization rates, this next chart is offshore utilization since 1972 when they began to break it out in the annual reports. Utilization tends to trough around 55%, and peak utilization is right around 95%.
We have been bouncing around those trough levels really since 2018.
The point I try to make with this next chart is there's very little risk that a new supply glut is going to be coming to market anytime soon that would potentially spoil the recovery in utilization rates.
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