<p><strong><em>The magnitude of how damaged the energy industry is came into full view on April 20 when the benchmark price of U.S. oil futures CLc1, which had never dropped below $10 a barrel in its nearly 40-year history, plunged to a previously unthinkable minus $38 a barrel.</em></strong> <strong><em>In just a few months, the coronavirus pandemic has destroyed so much fuel demand as billions of people curtail travel that it has done what financial crashes, recessions and wars had failed to ever do</em></strong>. <strong><em>This development formed the kernel of discussion at the May 13 HIS Markit at the IADC South East Asia Chapter Virtual meeting earlier published in Drilling Contractor, the official magazine of the International Association of Drilling Contractors, IADC</em></strong></p>



<p>While offshore drilling contractors entered 2020 hoping this would be the turnaround year, it’s becoming clear that they will continue to be plagued by dayrate and utilization challenges in the short term, according to a presentation by ;IHS Markit ;at the IADC South East Asia Chapter virtual meeting, held on 13 May. “It’s a perfect storm,” ;Teo Yun Yun, Principal Analyst for IHS Markit, said. “It’s really the worst situation imaginable. We have a rig market that is squeezed at both ends of demand and supply by factors that are very much outside its control. And unlike in 2014, there is no huge backlog of multi-year charters secured at very high dayrates to shelter under. In short, we are entering this downturn from a bad spot.”</p>



<p>According to IHS Markit’s short-term demand forecast in April, both jackups and floaters are set to see lower demand than originally anticipated in March.</p>



<p>Until countries around the world get a better handle on COVID-19, perhaps once a vaccine became available, offshore operations will remain stymied while safety and preventive measures like quarantines stay in place, Ms Teo said. For example, many specialized roles on offshore rigs used to be filled by flying in experts from overseas. But quarantine measures are now turning what used to be “a two-week stint into a three-month nightmare.” This is forcing contractors to find new ways of working, including identifying which offshore roles can be moved to onshore-based offices.</p>



<p>Port restrictions are also wreaking havoc on contractors’ plans. Ms Teo pointed to the Ocean Monarch semisubmersible not being able to start its contract with ;Posco Daewoo ;this year because the rig just couldn’t enter Myanmar’s waters. There are currently no rigs offshore that country, she said, down from three in February.</p>



<p>In Malaysia, while upstream activities have been deemed to be an essential service, the country’s conditional movement control order still affected operations. A number of units in Southeast Asia have also been put on standby or drilling programs being delayed “because operators have a wait-and-see attitude to see how things settle,” she said.</p>



<p>In Australia and New Zealand, while lockdown measures have just started to ease within the past week, government leaders have said that they don’t expect to open their borders for the next few months. The ;COSL ;Prospector, for example, saw its last well cut by ;OMV, and the rig is now headed back to China.</p>



<p>Marketed utilization has improved from a low of 68% in late 2016, but looks set to fall again as demand collapses.</p>



<p>Thirty-two units around the world have had their contract terminated so far, mostly in Europe and West Africa, according to IHS’ count. This means that marketed utilization for offshore rigs will most certainly fall over the coming months – just when it was starting to climb out of the lows seen in late 2016.</p>



<p>“Even for units that have continued to work, you see operators like ;ExxonMobil, ;Saudi Aramco ;and ;ADNOC ;coming forward to ask vendors, ‘could you shorten the term?’ or ‘could you reduce the rates?’” Ms Teo reported.</p>



<p>Looking to the longer term, IHS projects that demand for floaters could fall to approximately 102 to 106 units over the next two years, particularly if oil prices stay in the same low range seen in the last few weeks. They also believe that utilization could be below 50% for an extended period. For jackups, IHS’ low-case scenario posits that global demand will dip well below 300 units by 2024, with utilization staying in the 60-70% range.</p>

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