A year ago, Transocean's CEO Jeremy Thigpen recalled, presentations by executives at an investor conference made it difficult to recognize that their companies were in the drilling business. It seemed like all the talk was focused on the environment.
When another company executive reported back on a recent investor meeting, Thigpen heard that the focus had flipped to energy security.
The change is not surprising given the increasing exports from the US, one of the world’s largest oil and gas producers, and a barrel of oil trading at more than $100—which is around what it now costs in the US to fill up the gasoline tank of a pickup truck.
For Thigpen and Andy Hendriks, president and CEO of Patterson-UTI, who both spoke at the opening of the IADC/SPE International Drilling Conference, the business outlook is promising.
Thigpen, who is also the IADC chairman, sees “some things on the near horizon that are extremely compelling.
“We have had some false starts. But this seems like it is moving in the right direction. We are on the verge of a good market,” Thigpen said in speech at the opening of the conference, where he was joined by others who shared his optimism.
“We are supposed to see a 20% year-on-year growth and that will continue in 2023,” said Hendriks, who said the company hired 3,000 employee last year and expects to equal that total again this year.
They described a world that looks like it will be better for longer for those in the oil business now that oil prices have surged on short supplies that resulted from years of underinvestment in oil production and the recent supply disruption that followed Russia’s invasion of the Ukraine.
They both would have preferred that scenario to be defined only by tight supplies because the extreme volatility since Russia invaded Ukraine—both in terms of the markets and world affairs—comes with significant risks.
“$120/bbl oil is not where we need to be,” said Hendricks, who added that “higher prices could push western countries into recession and that is not where we need to be.”
Thigpen said these price levels are not sustainable, and should drop to the $80s, which is a level supported by the economic fundamentals.
So far, there is no sign that higher prices will set off a flood of added production.
OPEC+ is sticking to a slow-growth plan, in part because many of its members cannot meet their existing quotas, and US producers are restrained as well.
“Capital expenditure growth is secondary to paying back shareholders,” Hendriks said.
Still, the demand for drilling rigs is rising and the supply of rigs ready to work is tight.
“There are not that many rigs working any more. The ones left are the highest specification and they are staying very busy,” Thigpen said.
Reactivation of a stacked rig to return it to working order costs approximately $50–100 million.
Thigpen said drillers do not have that sort of cash on hand. After years of attrition in the number of working rigs, those in need may have to cover the reactivation cost upfront or agree to a long-term contract at a rate that covers the cost. And convincing them to pay upfront may not be that hard in this market. Thigpen said they recently told investors they had leased a rig for $390,000/day, up from a low of $130,000.
While Hendricks has his concerns about the market, it has not shaken his belief that “we are moving into a major upcycle.”
And he offered a word of advice to those considering a move into wind or solar. “Let me tell you, you are going to be busy in the next few years.”
