The upstream offshore sector is in an upcycle, but global volatility and smaller oil and gas discoveries complicate the picture.
With global energy demand growing, the expectation is for more upstream capital expenditure to be allocated in the coming years, alongside increased offshore production, experts said during Westwood Global Energy Services’ Offshore Energy State of the Market 2026 presentation in Houston on 27 October.
Westwood Executive Director David Linden said data from the International Energy Agency indicates a 5% increase in oil demand and 12% growth in gas demand over the next decade. A growing confidence in oil and gas demand lays the foundation for an increase in upstream capital expenditure, he said.
“Ultimately, we’ve got A, more investment happening, and B, the output of that is increased offshore production,” he said.
He said a growing portion of that offshore production over the next decade will be from subsea wells.
Even with growing oil and gas demand, geopolitical volatility, inflation, and other factors can make decision-making difficult, Linden said. “There’s a lot of uncertainty and a lot of volatility in the market. That’s what’s going to make investment decisions particularly hard.”
Offshore Development Focus
Mark Adeosun, Westwood’s director of SubseaLogix and PlatformLogix, said the subsea and floating production markets are entering a period of increased offshore project activity.
This sustained upcycle is backed up by the 63 final investment decisions (FIDs) recorded so far this year, with another 26 expected by year-end, bringing the projected total to 89 FIDs, he said.
In 2025, the industry recorded 57 FIDs, compared with 49 in 2024 and 67 in 2023. He expects FID activity to remain strong in 2027, bolstered by subsea tieback projects, which feature shorter development cycles, faster payback, and lower execution risk.
Adeosun expects that a resurgence in floating production, storage, and offloading (FPSO) and floating LNG (FLNG) projects to drive engineering, procurement, and construction (EPC) contract awards to $75 billion in 2026, up 49% from 2025. In 2027, he expects EPC awards to tally $66 billion.
“Offshore is moving to a much more broad geographic reach, which is why we are seeing a lot of those investments, not just concentrated in the Golden Triangle, but at the same time looking at other countries across the globe, West Africa, East Africa, as well as Southeast Asia,” he said.
Gas demand is driving the increase in FLNG projects, Adeosun said, while requirements for floating production units are increasingly focused on handling higher gas throughput.
He said the significant upcycle extends beyond production units to equipment like subsea trees and other associated equipment and services required to meet growth demand.
Rigs Outlook
Cinnamon Odell, director of RigLogix for Westwood, noted that while overall demand for offshore drilling rigs is down slightly from 2023 and 2024, it remains higher than it has been for the past 2 decades.
“There’s lots of upcycles and lots of downcycles. And where we are right now is in the middle of an upcycle,” she said.
The drillship market is tight, she said, but there is room to maneuver for operators looking to book a rig. 2027 drillship commitments are already at about 90% of the 2026 level, she said, noting about 5,000 days of 2027 campaigns are still unawarded.
“If you look at last year compared to this year, there’s actually less that’s available this year than last year, and that’s because we started seeing the drillship market tighten this year. But if you look to 2027, there are still over 10, a dozen rigs that are still available for contracting for starts next year. And the majority of that is the high-end, seventh-generation drillships. Move to 2028, and that number jumps to over 30,” Odell said.
The semisubmersible rig market is divided into benign- and harsh-environment segments. Utilization of benign-environment semi units has slipped from 71% in 2020 to 70% this year because demand and supply have both decreased by nearly the same amount, she said. On the other hand, demand for harsh-environment jackups has decreased by only 1% since 2020, while supply has dropped by about 20%.
“The supply/demand balance is a lot closer right now. And the result of that is that demand utilization is now at 97%. So it’s a very tight market. And when you’re looking at next year, if you need a harsh-environment semisub, good luck finding one. They’re essentially sold out for next year,” she said.
Geopolitical issues in the Middle East and financial issues in Mexico are two factors beyond demand that are affecting the jackup market regionally, she said.
As the industry is in an upcycle, she noted that day rates for most segments are trending up and that the upcycle outlook calls for high utilization. The outlook does not include the expectation that newbuilds will be ordered, she said, but it does expect the retirement of aging rigs.
Overall, she said, the outlook for 2027 is for 90% jackup utilization, 92% semisubmersible utilization, and 96% drillship utilization.
“Prohibitive costs and low expectations of return on investment will keep another newbuild boom at bay. Supply focus instead is going to be on upgrades and reactivations, and day rates are trending up, but if they move too quickly, operators are going to be likely to delay some of those programs in order to bring back some downward pressure on day rates,” she said.
Thoughts on Exploration
One of the big challenges facing the industry, according to Graeme Bagley, Westwood’s head of global exploration and appraisal, is that exploration has not replaced the barrels being produced globally.
In fact, he said, only Eni has found more oil than the company has produced.
Exploration is needed, he said, but that’s not translating to the drill bit. Rather than drilling, many companies are buying up acreage, often without work requirements, that may eventually be converted into exploration licenses.
Jamie Collard, senior exploration research manager at Westwood, said that, so far in 2026, the industry has recorded only 14 potentially commercial discoveries from high-impact exploration wells, defined as prospects with pre-drill resource estimates of at least 100 million BOE.
Of those discoveries, he said, Geliga in Indonesia, Takhte in Iran, Shams in Iraq, Bubale in Cote d’Ivoire, and Denise W. in Egypt held the largest estimated resources.
While the nature of high-impact exploration means there are usually more failures than successes, he said the industry is doing “just fine” this year, with a commercial success rates of 31%.
“31% is something that should be celebrated,” he said, noting that more than 100 high-impact exploration wells were drilled in 2014, yet the commercial success rate only hit 18%. Clearly, he said, the industry is drilling fewer wells but is choosing higher-quality prospects when it does drill.
Even so, the average size of discoveries from high-impact wells is decreasing, he said. For example, Geliga, an offshore gas discovery in Indonesia, is the largest high-impact discovery of 2026 so far, but it doesn’t reach the scale of discoveries in years past.
Bagley noted that emerging plays are becoming smaller and said it will become harder for companies to “find the next Guyana.”
