A surge in deepwater drilling in the Gulf of Mexico (GoM) is expected to push the working rig count up by more than 30% by year-end as the number of floaters under contract rises, signaling a favorable outlook for the region, according to a recently released forecast by Barclays.

The firm’s research revealed that the working rig count could reach 48 rigs this year, up from 37 in April. The industry could witness an 11% increase in the number of floaters under contract, predicted to reach 50 rigs by year-end 2014.

The GoM’s good fortune is in contrast to the global offshore market, which has hit choppy waters from a temporary oversupply of rigs, including uncontracted newbuilds, during a period of softer capital spending. International oil companies are temporarily pulling in their sails until earnings and free cash flow improve.

“Much of the debate around the 2014 exit rate for the GoM floater count has centered on the number of currently active units that could leave the region this year as current contracts roll off or expire. We continue to believe this fleet attrition will be modest,” Barclays said in the analysis. In 2013, the firm suggested as many as five active floaters could leave the region. So far, three units have left. “Looking forward, we think a conservative estimate for attrition is an additional two floaters—though we would not be surprised if all of the active units were awarded extensions through the end of the year.”

If all goes as planned, the GoM will welcome nine newbuilds this year, with six more set to arrive the following year. The scheduled floater deliveries “should provide long-term legs to the demand cycle following the anticipated near-term inflection in the working county under way,” according to Barclays.

Maersk Drilling is set to usher in two drillships to the GoM this year—Maersk Viking, which will be operated by ExxonMobil, and Maersk Valiant, which will be operated by Marathon Oil Corp. on a three-year contract. Noble Corp. is scheduled to deliver the Noble Bob Douglas, Noble Sam Croft and Noble Tom Madden floaters into the market for operators Anadarko and Freeport-McMoRan Oil & Gas, which will operate two of the drillships.

Also set for arrival before the year ends are Deepwater Invictus, Transocean (contractor), Anadarko (operator); Ocean BlackHornet, Diamond Offshore/Anadarko; Pacific Sharav, Pacific Drilling/Chevron; West Neptune, Seadrill/LLOG; and Rowan Resolute, Rowan/Anadarko. Barclays said it assumes a one-month lag between a rig’s arrival and the start of drilling to account for acceptance testing, which it said was partly to blame for the more recent “anaemic growth” in the working rig count.

“Dating back to 4Q 2013, a number of new rigs have come under contract in the Gulf of Mexico; despite some high-profile rig delays, the number of contracted rigs in the GoM has increased from 38 in mid 4Q 2013 to 44 today. Unlike most periods outside hurricane season, the working rig count has not [followed] the contracted count higher, and as of April the spread between the two metrics was 18%—the largest spread since Hurricane Isaac caused widespread activity disruptions in 2012,” Barclays said. “The anaemic growth in the working rig count has been driven by several factors, the most important of which is that the recent additions to the contracted fleet have, for the most part, been newbuild units which require a period of mobilization and acceptance testing before going to work.”

Such testing ranges from several days to several months. However, the spread is narrowing, and Barclays anticipates it will tighten further as recent additions—including the Ocean Blackhawk, Sevan Louisiana, West Vela and Development Driller III— to the GoM fleet wrap up testing and begin drilling operations in May.

The future is also looking up for the offshore supply vessel (OSV) market, which is expected to quickly shift from over-supplied to under-supplied. Barclays believes the current fleet of 140 vessels will grow by another 30 before the year ends. Despite the increase, more OSVs might be needed to meet the demands of drilling operations. Further complicating the matter is that some vessels are being rotated out of U.S. GoM waters and into other international markets.

However, the outlook still looks promising for the GoM, especially considering that the number of floating rig permits issued by the Bureau of Ocean Energy Management rose from 26 in February to 47 in March to 53 in April.

“This is the highest monthly total since we began tracking Gulf of Mexico permits in early 2011 and suggests an activity surge is imminent,” the report said.

Contact the author, Velda Addison, at vaddison@hartenergy.com. The homepage photo of Maersk Viking is courtesy of Maersk Drilling.

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