(Macro) Offshore Drilling Market Update

By: Jon Costello

Offshore drilling stocks have been volatile in recent months, but their macro bull thesis remains intact. In short, the thesis holds that the global upstream production system cannot meet medium-term supply needs on short-cycle barrels alone. Significant long-cycle development will be focused offshore, but the fleet of available offshore rigs will decline over time. Eventually, drilling economics will move to incentivize the construction of new offshore rigs, but the high dayrates and long lead times necessary to bring new rigs to market will result in a cash flow windfall for the incumbent drillers.

Despite the bullish long-term backdrop, the timing of the offshore drilling market’s improvement is up for debate. Commentary from offshore drilling executives on third-quarter earnings calls points to the continuation of the ongoing mid-cycle lull, featuring a slow pace of contracting and a stall in the pace of dayrates increases.

Nevertheless, the $370,000 to $410,000 dayrates awarded for big projects and $450,000 to $480,000 dayrate option pricing for harsh-environment rigs are consistent with a stable market. And while the early 2026 contract pipeline is limited, drillers aren’t seeing project or procurement deferrals.

The situation appears more bullish looking into late-2026 and 2027. At that point, competition for rigs is poised to heat up. Executives in several companies pointed to a mid-2026 inflection point that bodes well for higher dayrates and rising offshore driller stock prices if it occurs.