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Transocean Ltd. (NYSE: RIG), which has its U.S. headquarters in Houston, anticipates four or five new awards in the Gulf of Mexico will surpass day rates of $500,000 per day in the next few months.
So far, the Switzerland-based drilling contractor has announced two long-term contracts in the Gulf of Mexico breaching the $500,000 “glass ceiling” as the market for high-specification rigs becomes tighter.
The first contract was valued at $195 million for a 365-day extension for the Deepwater Asgard rig. The contract, with a day rate of $505,000, will begin in June for an independent operator.
The second contract, this time for the Deepwater Atlas, will last between 240 and 360 days with a day rate of $505,000.
“With the tightness of supply, the active negotiations and the $500,000-per-day glass ceiling now broken in multiple jurisdictions, we are confident that we will continue to grow our backlog throughout the year,” CEO Jeremy Thigpen said during the company’s first-quarter 2024 earnings call.
As of its latest fleet status report in April, Transocean had a backlog of $8.9 billion.
The company named the Gulf of Mexico as a region with especially tight rig supply, with high-specification units becoming more scarce. This has brought prices up from their averages in the last year, which have been around $350,000 to $450,000.
“In the U.S. Gulf of Mexico, the rig supply/demand balance is such that in our analysis, the region could be short one rig in 2025,” Transocean President and COO Keelan Adamson added. "Customer behavior indicates that they understand they need to secure rigs quickly to avoid missing their project timelines.”
Changes to the Deepwater Atlas
The Deepwater Atlas rig, which is currently working on Houston-based Beacon Offshore Energy LLC’s Shenandoah field, is slated to be converted to a rig that can service pressures of 20,000 pounds per square inch, allowing it to operate in deeper waters.
However, the expanded deal with Beacon Offshore will still only be able to service pressures of 15,000 psi.
When the contract with Beacon Offshore was initially announced in August 2021, Transocean said the first phase of Deepwater Atlas’s work would use the 15,000-psi rig, but the rig would be converted to the 20,000-psi capabilities before the second phase. The second phase, lasting 275 days, would end sometime in 2024.
Now, the company said the Deepwater Atlas will go into the extended contract at 15,000-psi capabilities and will likely be converted for the next contract.
“So basically, we finish out the [contract] that we're currently on in the Shenandoah development, and then we go into this additional kind of 240-to-360-day program," Chief Commercial Officer Roddie Mackenzie said. "And I think after that, we're transitioning into the much more attractive work, so that's good. And that's basically the second rig in the Gulf that's got above a $500,000 day rate.
“So with the Asgard and the Atlas now contracted above $500,000, we actually hear that many of our competitors are at the same level or even higher, and we expect within the next few months that there will be four to five additional awards in the Gulf of Mexico above $500,000 a day.”
For the first quarter of 2024, Transocean reported $763 million in contract drilling revenue, up 17.6% year over year, and net income of $98 million, up significantly from a loss of $465 million a year earlier.
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