18.10.2021 kl 15:52 4977

Offshore Drilling – Upbeat mood at seminar yesterday
It was clear from yesterday’s offshore drilling seminar that the modern drillship market (6th & 7th gen) is tight and will become even tighter next year. According to our offshore brokers there are 64 contracted active units with only one uncontracted unit available in the market. Furthermore, firm outstanding requirements could see demand reach up to 75 units next year, which in turn suggests a supply shortage of 8-10 rigs. In other words, modern drillships would need to be re-activated in order to meet this demand. Dayrates for 7th gen drillships have already exceeded pre-covid levels with recent fixtures in the $240-300k/d range. We believe dayrates will continue to rise on the back of strong demand.

On North Sea floaters, it is expected that new demand on the NCS will surface during 2022 due to the tax incentive scheme. In our view, there are multiple programs that could enter the market, which is expected to create a wall of demand from late 2023 and beyond. While activity for next year is expected to be relatively flat on the NCS, we expect a busy year with many contract awards for 2023/24 drilling campaigns. On the UKCS, demand looks strong for next year, which could result in a revamp in activity and even rigs mobilizing from Norway to UK.

Interestingly, there were several comments from our offshore brokers and speakers (SHLF & BORR), that demand for jackups is increasing. This is driven by multiple tenders in Saudi and Qatar, but demand is also building in the APAC region. We echo this view with several rumours that Saudi Aramco may charter up to 20 jackup rigs for next year, most being incremental units. While dayrates for jackups have been flattish over the last 12 months (around $70k/d), rates on the Saudi contracts have been rumoured around $90k/d and we believe rates will increase over the next 12 months.

What to BUY
VAL is the obvious pick from yesterday’s market commentary. VAL has the marginal supply of modern drillships, but it will also benefit from a recovery in the jackup market where our conviction is increasing. DVD follows next in line, as current outstanding requirements should increase the probability for re-activation and a potential contract or sale. Noble third, as it will benefit from strong UDW demand and higher dayrates. ODL fourth, as we expect positive news flow to come with respect to contract announcements next year. Finally, we believe the SHLF 2025 Sr. unsecured is the best risk-reward play on the jackup market, trading at some 17% YTW, while the equity could also serve as a high LTV pure play. Reach out for our Investment Perspective slidedeck from yesterday’s seminar."

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