Opsorman/Shutterstock Save for later Print Download Share LinkedIn Twitter Sharp increases in dayrates for ultra-deepwater rigs and drillships are pushing up the price tags for offshore projects, but it remains unclear when higher costs may begin to significantly dent demand, analysts tell Energy Intelligence. Cinnamon Edralin, the head of rig market research at Oslo-based consultancy Esgian, said that she expects offshore dayrates to continue rising toward the $500,000 mark. “I see this as more of a question of when, rather than if, dayrates will hit $500,000,” said Edralin. “I expect the first dayrate we’ll see above $500,000 this cycle will be for a short-term campaign that requires a rig with certain high-spec capabilities. ... The high-end floating rig market is experiencing tight availability — demand is high and supply is rather limited, with few opportunities to bring in new capacity in the near term." Leslie Cook, principal analyst for the upstream supply chain at Wood Mackenzie, was less certain that offshore dayrates would maintain their current trajectory. “Our five-year forecast for day rates tops out at around $450,000 per day by 2026 for the ultra-deepwater sector,” Cook told Energy Intelligence. “Is $500,000 a possibility? Yes, but as of right now we are not modeling anything that high." She pointed out that E&Ps have so far accepted rising rates and mobilization fees, but that might not last if costs continue to escalate. Cook also noted that the market remained extremely tight, and that appeared unlikely to change in the near future. “Based on our recent forecast, we see demand outstripping supply for ultra-deepwater, high-spec rigs in the next 18 months,” she said. That supply shortage could be alleviated some by rig reactivations and stranded newbuilds being brought into service, she added. Undeterred DemandIf dayrates were to breach $500,000, some smaller players and riskier projects could be impacted, but break-even prices are still low enough for most existing programs to remain in the black, according to Edralin. "During the prolonged downturn, break-even prices for offshore projects came down quite a bit, and some projects are still benefiting from this," said Edralin. "Oil prices remain sufficiently high to make most projects still profitable despite rate increases from not only rigs, but throughout the supply chain." Edralin said that she thinks significant demand destruction for offshore services remains unlikely, at least as long as oil prices remain elevated. “We have already heard about a few drilling campaigns being delayed citing high rig rates, but there is still plenty of demand as E&Ps seek to boost production while oil prices are still high and while also being responsive to energy security concerns,” she said. Both Edralin and Cook said that projects that tap into existing infrastructure were the most likely to move forward due to their lower costs, while exploration projects and other developments in less mature regions like Africa could see their momentum slow as dayrate rise.Smaller independents are also more likely to pare back, which could lead to them taking some creative and more collaborative measures. “If a smaller operator isn’t able to piece together a drilling program attractive enough to secure a rig, it may need to form a 'rig share' club with other operators, or pay a higher rate to secure an in-demand rig for a short-term charter,” said Edralin.