Noble Corp

A lot of oil rigs were constructed from the 70's till the 80's.

The sharp drop in oil prices in 2015-2017 has led to day rates plummeting for offshore oil rigs. In addition, offshore oil rigs have been unable to find work and have been cold and warm stacked across the industry.

Capex rates have fallen as oil prices have fallen.

While it is not so noticeable on the graph above, Offshore projects approvals have started to improve. Although customer Capital Expenditures have not changed, the cost to execute an offshore project has been falling due to falling dayrates in the offshore space.

Capex investment by the oil majors are still not moving, this is likely to change. Projects are profitable at 30 to 50 usd per barrel, substantially below current prices of 75-80 usd per barrel.


Historically utilization of oil rigs have ramped up over a period of 1 and a half years. This ramping up can already be seen from late 2016 until early 2018 until today, however the ramp has been gradual, and has not yet reflected the big rise in oil prices starting from July 2017 until 2018.

Oil Prices

upon ramping up of utilization, day rates will start to rise as utilization approaches 85% of marketed supply.

Mckenzie Report

Structural change in oil suply, current offshore oil proportion in comparison to 70's is much higher. shortage of offshore oil rigs seen during 2012 till 2014. Removal of older rigs will lead to shortages in oil rigs when oil recovers to its previous highs.

Underpinned by structural declining in oil production in terms of supply and underinvestment for maintenance capex from 2015 to 2018.

The longer the downturn the higher the attrition of supply. In the event of an upturn, which can be seen occurring at the moment, there is probably going to be a shortage of offshore oil rigs.

The structure of the oil fields
Conventional oil fields only require a pipe to be stuck into the ground and oil starts pouring out.
Get a oil spitting picture here. These are the Ghawar fields and the majority of the discoveries that were discovered in the past.

2 unique factors to oil fields
Declining production
Oil fields production look like a bell curve, the oil initially ramps up and after it reaches a peak, it starts to decline.

1) There are several factors that contribute to this decline,
The first is the size of the oil field, the larger the oil field, the slower the decline.
The larger oil fields like the Ghawar fields with 60billion barrels of oil reserves, will have a hypothetical decline rate of 4~6%, whilst a smaller 500million barrel oil field might have a decline rate of 8~10%, post the peak of the oil field. Almost all new discoveries are in the range of 500million barrels, with larger oil fields coming in at maybe 3billion barrels of reserves. The large elephants seen in the past have been discovered and been producing for 50 years. many of them have reached past their peak field age and are in decline.

The second is the type of oil field, in the conventional straw in the ground oil fields, the declining rate is the slowest, at around 6~8%. The unconventional oil (IE: The offshore/shallow oil fields) the decline might be slightly higher at 10~14%, while the ultra deep water oil fields might have decline rates of 20% once it reaches its peak production. Shale oil has the highest oil decline rates.

The largest oil fields were discovered in the 60's and many have reached past their peak oil and are in decline, the newer discoveries are nowhere near the size of the oil fields of the past. In addition, almost all the new oil discoveries are in the shale oil and offshore oil space. Whereby 70% of commercial oil discoveries are in the deepwater space. These new discoveries and the increasing demand in oil of the world means that over time, the declining rate of oil production increase in terms of percentage. As the older oil fields consist of a smaller part of global oil production and the newer oil, IE: Shale oil and ultra deepwater and offshore and deepwater oil become a larger portion of the global oil mix.

The ability of global oil capacity to meet these demand will have to increase over time as declining rates increase, while global oil demand continues to accelerate at a higher absolute amount every year as the larger economies of china and india enter into developed status.

The 'treadmill' of oil production will continue to speed up and accelerate whilst more and more oil production moves from the declining rate of the giant oil fields in the past to the newer discoveries of smaller oil fields and from conventional oil fields with lower declining rates post field peak to unconventional oil fields with higher declining rates post field peak.


Depleting reserves

The larger the oil field