Transocean, Valaris, Noble, Seadrill, and Diamond Offshore rigs’ drilling game lifts total backlog to $21.8 billion

Five rig-owning titans  – Transocean, Valaris, Noble, Seadrill, and Diamond Offshore -which are seen as the crème de la crème of the offshore drilling contractors, have managed to increase their combined total backlog to a whopping $21.8 billion. These top five floating rig players set new standards in the offshore drilling industry while raising the market’s sustainability and profitability bar to new levels.

Key highlights:

• Five offshore drilling contractors’ new assignments push total contract backlog to $21.8 billion
• Transocean boosts its backlog to $8.8 billion
• Valaris raises its backlog to $4.3 billion
• Noble’s backlog reaches $4.2 billion
• Seadrill gets hold of $2.5 billion in total backlog
• Diamond Offshore’s backlog surpasses $2 billion
• Noble-Diamond Offshore merger bringing over $6 billion backlog into play, securing second spot for Noble among largest floating rig contractors
• More consolidation moves and potentially higher rig day rates on the cards

With ownership and partial interests in a fleet of 36 mobile offshore drilling units (MODUs), consisting of 28 ultra-deepwater floaters and 8 harsh environment floaters, the biggest of these five giants is Transocean, which got hold of eight assignments in the second quarter of 2024 in the U.S. Gulf of Mexico, Norway, Australia, and Brazil for seven floaters, including four drillships and three semi-submersible rigs.

With the aggregate incremental backlog associated with these fixtures being approximately $656 million, the firm’s total backlog reached roughly $8.8 billion as of July 24, 2024. The rig owner reported a net loss attributable to controlling interest of $123 million for the three months ended June 30, 2024, signifying a difference of 221 million compared to a profit of $98 million in the first quarter of 2024. The amount in Q2 2024 is $42 million lower than the loss of $165 million achieved in 2Q 2023.

The company’s contract drilling revenues for the three months ended June 30, 2024, increased annually by $132 million and sequentially by $98 million to $861 million, primarily due to increased rig utilization and higher revenue efficiency across the fleet, which was partially offset by lower reimbursable revenue and lower revenues resulting from the sale of Paul B. Loyd, Jr.

The firm’s operating and maintenance expense was $534 million, compared with $523 million in the prior quarter and $484 million last year.  The sequential increase is said to be the result of rigs returning to work after undergoing contract preparation in the first quarter and increased costs associated with the early retirement of certain personnel, which was partially offset by lower reimbursed expenses and operating costs resulting from the sale of Paul B. Loyd, Jr.

Jeremy Thigpen, Chief Executive Officer, commented: “The entire Transocean team executed well in the second quarter, delivering strong uptime performance for our customers, which drove revenue efficiency to 97% and produced 33% adjusted EBITDA margins. In addition, the team recently secured a number of meaningful contracts, which are illustrative of current industry dynamics and reinforce our view that we are in an increasingly tightening market.

“Of these contracts, we are especially excited to continue 20K operations with Beacon in the U.S. Gulf of Mexico. As we continue to secure work for our fleet, our focus remains on optimizing our portfolio of assets to maximize EBITDA and generate free cash flows, which we can use to de-lever the balance sheet.”

With the largest fleet of owned and managed offshore oil rigs totaling 53 units, out of which 18 are floating rigs (5 semi-submersibles and 13 drillships) and 35 are jack-ups, Valaris is currently the second largest floating rig contractor. Following new deals and extensions, with an associated contract backlog of approximately $715 million, excluding lump sum payments such as mobilization fees and capital reimbursements, the firm’s total contract backlog rose to around $4.3 billion from about $4 billion as of April 30, 2024.

Regarding the latest floater contract award, the rig owner secured a multi-year contract with Equinor for the Valaris DS-17 drillship in Brazil, worth approximately $498 million. With an estimated total duration of 852 days, this deal is expected to begin in the third quarter of 2025 in direct continuation of the rig’s current program.

Aside from the floater assignment, Valaris picked up new jack-up awards, including a 26-well plug and abandonment contract in the UK North Sea for the Valaris 92 rig, which is expected to kick off this estimated two-year contract in the first quarter of 2025 in direct continuation of the jack-up’s current program with another operator. The estimated total contract value is about $75 million.

The rig owner won an eight-well contract with Shell offshore Trinidad for the Valaris 249 rig, with an estimated duration of 365 days and a start-up date in the first half of 2026. The estimated total contract value is approximately $66 million. The next recent deal is a two-well contract with Eni in the UK North Sea for the Valaris Norway jack-up, which is slated to begin its 292-day program in the first quarter of 2025, bringing around $39 million to the rig owner.

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With a value of approximately $26 million, a one-year priced option was exercised by North Oil Company offshore Qatar for the Valaris 110 jack-up, which will commence this work in October 2024 in direct continuation of its current program. A one-well contract with Anasuria Hibiscus UK in the North Sea will enable the Valaris 248 rig to embark on a 93-day drilling gig in the second quarter of 2025, following the completion of the rig’s current program with another operator and a shipyard visit for planned maintenance. The estimated total contract value is $14.2 million.

In addition, a one-well contract was secured for the Valaris 144 rig offshore Angola, which is expected to take around 45 days, starting in the first quarter of 2025, in advance of a previously disclosed 13-well contract for the rig with the same operator. The estimated total contract value is approximately $8.5 million.

A one-well option was also exercised by TAQA, on behalf of the Porthos CCS project in the Netherlands, for the Valaris 123 rig, which expands the jack-up’s assignment for a minimum duration of 15 days, beginning in the third quarter of 2025, in direct continuation of the rig’s current program. The operating day rate for work in 2025 is $152,500.

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ARO Drilling, a 50/50 joint venture between Valaris and Aramco, received in April 2024 a suspension for one of its 19 contracted rigs working for the Saudi energy heavyweight. This has been expanded further with the suspension notices for two more drilling contracts in July 2024 for the Valaris 147 and Valaris 148 jack-ups, which Valaris leased to ARO.

Currently, discussions are ongoing with Saudi Aramco to see whether other Valaris-leased or ARO-owned rigs could be subject to the suspensions instead of these and when the suspensions will be effective. As of July 29, 2024, these two rigs accounted for $35 million of Valaris’ contract backlog.

Anton Dibowitz, President and Chief Executive Officer, remarked: “In the second quarter, we built on our excellent start to 2024 with another quarter of strong safety and operating performance, delivering revenue efficiency of 99% without a lost time incident. In addition, we achieved a meaningful improvement in our financial results during the second quarter, driven in part by a successful contract startup for Valaris DS-7 – our sixth drillship reactivation completed since 2022.”

The rig owner’s net income jumped to $151 million from $26 million in the first quarter of 2024, as adjusted EBITDA increased to $139 million from $54 million in the first quarter primarily due to higher utilization and average daily revenue for both the floater and jack-up fleets along with lower contract drilling expense. In line with this, adjusted EBITDAR rose to $150 million from $84 million in the first quarter.

The company’s revenues climbed to $610 million from $525 million in the first quarter of 2024. However, revenues increased to $573 million from $491 million in the first quarter, excluding reimbursable items, primarily due to higher utilization and average daily revenue for both the floater and jack-up fleets, as several rigs started new contracts during the first and second quarters, including the Valaris DS-7 drillship, which began operations in late May following its reactivation.

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Valaris’ contract drilling expense decreased to $439 million from $445 million in the first quarter of 2024. Once reimbursable items are excluded, contract drilling expenses fell to $407 million from $414 million in the first quarter primarily due to lower reactivation expenses related to the Valaris  DS-7 rig and lower repair and personnel costs for the jack-up fleet, partially offset by increased operating costs for the floater fleet due to higher utilization and incurred costs related to the stacking of the Valaris DS-13 and DS-14 drillships.

Dibowitz noted: “Valaris is well-positioned and we continue to execute our strategy, securing attractive new contracts and building our contract backlog. We maintain our conviction in the strength and duration of this upcycle and see strong customer demand for projects that are expected to commence in 2025 and 2026. We expect to deliver significant earnings and cash flow growth over the next few years, and we intend to return all future free cash flow to shareholders unless there is a better or more value accretive use for it.”

The third place on the list of top five floating rig contractors is reserved for Noble Corporation, however, the U.S. player will change places with Valaris to become second only to Transocean in terms of floater fleet size if its merger with Diamond Offshore goes through. The business combination will enlarge the firm’s fleet to 41 rigs, encompassing 28 floaters and 13 jack-ups, leading to a combined backlog previously estimated at $6.5 billion.

During Q2 2024, Noble’s fleet secured deals with a total contract value of approximately $275 million, including mobilization payments, pushing the company’s total backlog to $4.2 billion as of July 31, 2024. The latest batch of assignments entails a contract extension for the Noble Stanley Lafosse drillship obtained from Murphy for five option wells in the Gulf of Mexico, representing an additional scope of $177 million based on an estimated one-year duration extending into February 2026.

While the Noble Innovator jack-up rig received an extension from BP in the UK North Sea with an estimated duration of approximately eight months at a daily rate of $155,000, the Noble Resilient jack-up was given a one-well intervention contract by Harbour Energy with a 30-70 day duration, commencing in July 2024. In addition, the Noble Regina Allen jack-up won an extension with TotalEnergies, which exercised two priced option wells at $150,000 per day in Argentina with an estimated duration of 60 days.

The Noble Resolve jack-up rig secured a contract with Central European Petroleum for one well, estimated to take 45 days offshore Poland at a day rate of $140,000 plus mobilization and demobilization, which is expected to kick off in September 2024. The rig got booked for a 13-well P&A scope in Spain with an undisclosed operator. The deal is valued at approximately $40 million with mobilization and demobilization included. This assignment will start in Q2 2025.

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Robert W. Eifler, President and Chief Executive Officer of Noble Corporation, explained: “Our second quarter results reflect a strong earnings improvement driven by key contract startups, resulting in a 48% sequential improvement in adjusted EBITDA. To that end, the 25% increase to our quarterly dividend to $0.50 per share in Q3 further demonstrates Noble’s return of capital commitment.

“We are extremely excited to be progressing toward closing the highly accretive acquisition of Diamond, which represents a critical milestone in our First Choice journey through the formation of an industry leading deepwater fleet and a strong free cash generation and return of capital platform.”

The firm’s contract drilling services revenue for the second quarter of 2024 totaled $661 million compared to $612 million in the first quarter of 2024, with the sequential increase driven by increased utilization.

The company’s marketed fleet utilization was 78% in the three months ended June 30, 2024, compared to 72% in the previous quarter, while the contract drilling services costs for the second quarter of 2024 were $336 million, down from $390 million in the first quarter of 2024, with lower contract preparation and mobilization expenses.

Furthermore, Noble’s net income increased to $195 million in the second quarter of 2024, up from $95 million in the first quarter of 2024, with adjusted EBITDA rising to $271 million in the second quarter of 2024, up from $183 million in the first quarter of 2024.

The rig owner’s net cash provided by operating activities in the second quarter of 2024 was $107 million, net capital expenditures were $133 million, and free cash flow (non-GAAP) was a loss of $26 million driven by a significant working capital build.

Noble’s marketed fleet of sixteen floaters was 78% contracted through the second quarter, compared with 76% in the prior quarter, with what are deemed to be industry-leading edge day rates for tier-1 drillships firmly in the high $400,000s to low $500,000s per day range, excluding discounted rates for longer-term duration fixtures.

However, the contract fixtures for lower specification sixth-generation floaters have been limited, thus, Noble claims that this resulted in continued white space for these units and bifurcated day rate expectations for tier-1 rigs and lower specification rigs in 2024 and 2025.

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On the other hand, the rig owner’s utilization of thirteen marketed jack-ups improved to 77% in the second quarter, up from 67% utilization during the prior quarter, with total backlog boosted by prices the company described as leading-edge harsh environment jack-up day rates in the mid $200,000s per day in Norway and $130,000 to $150,000 per day in the other North Sea regions.

The Northern Europe jack-up market is said to be characterized by moderately improving demand visibility in Norway for 2025, contrasted with a more cautious near-term outlook in the southern North Sea arising from policy and permitting uncertainty in the UK.

Eifler highlighted: “Deepwater fundamentals remain firm, and key indicators continue to support meaningful additional growth over the course of this cycle. Although demand has been flat over the past twelve months and appears likely to remain approximately flat into mid 2025, we expect several sizeable development programs will drive another leg of growth from late 2025 and 2026.

“Notwithstanding this expected moderated EBITDA trajectory throughout this transition period with continuing white space impacts, Noble has now reached a free cash flow inflection point, and we intend to continue to drive shareholder value by directing essentially all free cash flow to dividends and share repurchases.”

With 14 drillships and semi-submersibles alongside two managed units for Angola’s state oil company Sonangol, the fourth spot in the top five floater contractors is taken by Seadrill, which has a backlog of approximately $2.5 billion as of August 5, 2024. The firm delivered an operating profit of $288 million and an adjusted EBITDA of $133 million on $375 million of total operating revenues for an adjusted EBITDA margin of 35.5%.

The firm’s second-quarter 2024 operating revenues represent a sequential increase of $8 million while contract revenues show a decrease of $8 million, primarily due to fewer operating days on the West Auriga and the West Polaris drillships and lower utilization, partially offset by increased days on the Sevan Louisiana rig. The drilling player’s management contract revenues were $65 million, a $7 million sequential improvement reflecting an increased management fee received on the three drillships it operates through Sonadrill, its 50:50 joint venture with Sonangol, applied retroactively to January 1.

The leasing revenues were $26 million, compared to $11 million in the prior quarter, with the increase attributable to a new bareboat charter rate, applied retroactively to January 1, for the West Gemini drillship which Seadrill charters to Sonadrill, as the joint venture partners began receiving additional income proportional to their rig contributions. During the quarter, the Sevan Louisiana rig secured a one-well contract with an independent operator in the U.S. Gulf of Mexico, which began in direct continuation of its previous contract and secured work for the rig into August.

Simon Johnson, Seadrill’s President & Chief Executive Officer, stated: “Strong supply-side fundamentals underpin our faith in a long and enduring upcycle. However, we continue to see volatility that can affect financial outcomes. Now, as ever, through-cycle resiliency matters. As a company, we continue to benefit from a highly standardized fleet strategically positioned in advantaged geographies, a strong balance sheet, a disciplined management team, and a pursuit of operational excellence that allows us to deliver on our promise of safe, efficient operations for the benefit of all our stakeholders.

“Though a combination of supply chain, weather, and scope have shifted West Auriga and West Polaris start dates, both rigs will soon set sail for Brazil and should begin their contracts by year-end, contributing meaningfully to Seadrill earnings and cash flow in 2025. Any additional work the Sevan Louisiana secures this year would represent upside opportunities to the mid-point of our guidance.”

The firm has completed the sale of three jack-up rigs and associated interest in the Gulfdrill joint venture, supporting fleet refinement and capital return program.

Last but not least, the fifth place on the list of top five floating rig heavyweights is held by Diamond Offshore, which is expected to be integrated into Noble once their business combination is over. With $350 million in contract awards in Q2 and $89 million post-Q2 2024, combined with previously announced awards in the first quarter of 2024, a total of nearly $1.2 billion of contract value has been secured so far in 2024, thus, the company’s total backlog at July 1, 2024 was more than $2 billion. 

On July 31, 2024, the firm received notice of early termination from its customer related to a previously announced, one-well campaign offshore Ivory Coast for the Ocean BlackRhino drillship, thus, it will retain $8 million in prepaid customer deposits as an early termination fee. Diamond Offshore landed a two-year contract extension for the Ocean Blackhawk drillship, representing $350 million in contract backlog.

In addition, the Ocean BlackRhino rig was awarded a contract for work in the U.S. Gulf of Mexico after quarter-end with a minimum duration of 180 days for a total contract value of approximately $89 million, excluding mobilization and any additional services. The contract also includes two option periods. Upon completing its special periodical survey and managed pressure drilling upgrade project in Las Palmas, the drillship is set to mobilize to the Gulf of Mexico in late December or early January for contract commencement in the first quarter of 2025.

After repairs were done on the Ocean GreatWhite semi-submersible, the rig resumed operations in the North Sea in early July 2024. The firm still anticipates that repairs and equipment replacement costs associated with the equipment incident in the first quarter will be covered under the hull and machinery insurance policy. The rig owner estimates that all incremental costs, less a $10 million deductible, will be reimbursable under the policy. The company has so far received insurance proceeds of $20 million.

Moreover, Diamond Offshore carries loss-of-hire insurance on the Ocean GreatWhite rig, thus, after a 60-day waiting period, the U.S, player’s loss-of-hire insurance provides $150,000 per day, for up to 180 days, for each day of lost revenue as a result of a covered property loss claim. Based on the rig owner’s estimates, it will be entitled to approximately 90 days of loss-of-hire insurance recovery.

With Diamond Offshore’s revenue for the second quarter of 2024 totaling $253 million compared to $275 million in the prior quarter, the decrease in revenue quarter-over-quarter was primarily driven by the absence of revenues for the West Auriga drillship, which was returned to the rig owner in the first quarter upon termination of the charter for the rig, and the Ocean GreatWhite semi-sub being off rate for repairs in the quarter. According to the rig owner, the decrease in revenue was partially offset by the impact of $8.7 million in performance bonuses earned in Senegal during the second quarter.

The firm’s contract drilling expense for the second quarter of 2024 was $164 million, representing a $20 million decrease from the prior quarter, primarily due to lower charter and other operating expenses attributable to the West Auriga rig, the recovery of operating costs as part of the insurance claim for the Ocean GreatWhite’s LMRP equipment incident, as well as the absence of $7.6 million in insurance deductible recorded in contract drilling expense in the first quarter related to the incident, partially offset by higher overall operating costs across the fleet including repair and maintenance cost, equipment rentals and integrated services.

Bernie Wolford, Jr., President and Chief Executive Officer of Diamond Offshore, emphasized: “We are pleased with our second quarter results, achieving adjusted EBITDA of $58 million, which is in line with our guided range. Our results for the quarter also include the recognition of $8.7 million in well-performance bonuses in Senegal, reflecting the exceptional performance of our deepwater drillships and the crews that operate them.”

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As the energy transition gathers pace, plug and abandonment work is expected to play a significant part in future North Sea rig demand with decommissioning within the North Sea said to be worth $20 billion in the long term. Diamond Offshore, just like many of its peers, sees biofuels as low-hanging fruits offering an opportunity for a reduction in greenhouse gas (GHG) emissions since the ones made up of bio-waste can potentially curb lifecycle GHG emissions by 20% or more. 

All five rig owners are taking steps to boost the capabilities of their fleets and up the decarbonization ante to curb the carbon footprint of their operations. To this end, one of Noble’s jack-up rigs had operated with a fuel load containing 20% sustainable diesel (HVO) since its Dutch drilling campaign began in November 2023 to reduce CO2 emissions from drilling operations.

The Noble-Diamond Offshore merger opens room for further consolidation of the deepwater drilling market, which may push day rates for deepwater rigs approaching or going slightly over $500,000 per day, closer to $600,000 apiece in 2025.

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