Growth ahead for oil and gas businesses
Growth ahead for oil and gas businesses
Oil and gas companies could cash in on the current oil prices that are forecast to remain high in 2023, which is also an important factor promoting increased investment in the sector.
A fortnight ago, PetroVietnam Drilling and Well Service Corporation (PV Drilling) under PetroVietnam Oil signed a contract to supply jack-up rigs for its 2023 drilling programme, which is expected to start in March and includes two exploratory wells off the coast of Vietnam.
According to the plan, PV Drilling will supply the latest generation jack-up rigs, capable of constructing wells with a depth of up to 9,000m at a maximum water depth of 121m.
In 2022, PV Drilling carried out drilling projects for customers like Italian Eni, Vietsovpetro, and Povo, with an operating efficiency of up to 99.6 per cent. Contracts were also signed with domestic partners and oil-producing countries in Southeast Asia. Notably, some rigs have signed long-term contracts, such as PVD III in Malaysia and PVD II in Indonesia.
PV Drilling is expected to make almost $4 million in net profits in the fourth quarter of this year thanks to the improved rig rental prices. The company also expects 2023 to represent a breakthrough on the back of adjusted prices, which are deemed to rise by 23 per cent in new contracts. This is expected to increase revenues by as much as 30 per cent.
According to IHS Markit, the rental price of jack-up rigs has increased to $90,000 per day, higher than the $75,000 average over the previous three years. This is motivating PV Drilling to implement plans to expand to overseas markets, targeting Indonesia and the Middle East.
PV Drilling general director Nguyen Xuan Cuong said, “It is difficult to develop services abroad due to strong protectionist policies in other countries and the influence of the Ukraine conflict, which causes input costs to increase and raises inflationary risk and interest expenses.”
Oil prices this year have seen Brent crude increasing sharply from $75 to $120 per barrel. However, the latency of contracts and exchange rate fluctuations caused PVD to lose well over $3.3 million, partly from depreciation of new drilling equipment.
More and more forecasts lead to a stable global oil drilling market in 2023. According to statistics from IHS Markit, the demand for jack-up rigs in this region is expected to increase from 125 rigs this year to an average of 169 rigs in 2023 and 183 rigs in 2024, mainly due to the need to increase the number by Saudi Aramco and Abu Dhabi National Oil – two companies holding 70 per cent of the Middle East’s drilling market share.
In Southeast Asia, the capacity of such rigs reached 90 per cent between July and August, IHS Markit noted. The last time the rig utilisation rate in the region exceeded 90 per cent was in 2014, when the oil price remained above the threshold of $100 per barrel. In addition, new contracts in the area also recorded more positive signals with longer lease terms of over one year.
KB Securities Vietnam Company in its oil and gas report released more than a month ago noted the recovery of the global drilling market came from two main factors.
Firstly, the Russia-Ukraine conflict has led to the disruption of the global energy supply chain and prompted European countries to quickly seek alternative oil and gas sources to avoid dependence on Russian oil.
Secondly, the supply of new rigs is limited while the proportion of old rigs is increasing. Since the peak of the previous cycle of the oil drilling market in 2014, the number of drilling rigs in the Asia-Pacific region, as well as globally, has declined sharply and only started to recover from the end of 2020 onwards, according to Baker Hughes statistics.
According to KB Securities, the supply of jack-up rigs will barely increase in the short term due to large capital costs and the impact of cuts during the period of the oil price cycle and the coronavirus pandemic.
In addition, the proportion of outdated rigs around the world is also considerable, accounting for about a third of the total number of rigs. Newly built rigs are brought to the market much less than the number of contracts ordered. This could, however, offer more job opportunities for Vietnamese drilling service providers.
