-
Upstream E&P companies shifting focus to longer contracts with lengthy lead times: Transocean
Oil and gas exploration and production (E&P) companies are increasingly directing their attention towards securing longer-term offshore deepwater contracts, accompanied by extended lead times until the commencement of these contracts, according to top executives at Transocean, a leading deepwater drilling company.
According to S&P Global Commodity Insights, the executives made these remarks on February 20 during Transocean’s fourth-quarter earnings conference call, highlighting a shift in contracting dynamics within the industry.
Despite experiencing a robust year of contracting activities in 2023, Transocean CEO Jeremy Thigpen acknowledged concerns among investors regarding a recent slowdown in the pace of contracting awards.
Thigpen emphasized that the transition towards longer contract durations and lead times reflects the confidence of upstream operators in the longevity of the current upcycle and their commitment to the offshore market. He expressed optimism about the demand for Transocean’s assets and services, citing the encouraging trends in current and future rig demand.
Thigpen said, “The extended duration [of contracts], with longer lead times to contract commencement… tends to result in prolonged contract negotiations. It also demonstrates our customers’ confidence in the longevity of this upcycle and their commitment to the offshore market. We remain extremely encouraged about the current and future demand for Transocean’s assets and services.”
As an illustration of this trend, Thigpen provided insights into the average contract durations for Transocean’s drillships and semisubmersibles. In 2023, the average contract duration for drillships stood at 569 days, compared to 353 days in 2022 and 231 days in 2019.
Similarly, semisubmersibles recorded an average contract duration of 404 days in 2023, up from 326 days in 2022 and 241 days in 2019. “Most of the negotiations taking place right now are for longer-term contracts, and thats where you can really start to… generate a lot of cash,” said Thigpen.
This shift towards longer-term contracts signifies a strategic move by E&P companies to generate sustained cash flows and enhance operational stability. Moreover, the lead times between contract signings and start dates have also extended over the past couple of years, reflecting operators’ optimism about long-term commodity prices and the duration of the current upcycle.
In 2023, drillship contracts were signed an average of 319 days ahead of their start dates, while semisubmersible contracts were signed 284 days in advance, compared to shorter lead times in previous years.
Share This
