The offshore drilling market is set to be one of the worst-hit in the oil price crash and demand collapse, as companies are reassessing drilling programs and canceling or halting offshore contracts, IHS Markit said in its latest Offshore Marine Monthly analysis on Monday.

Demand for offshore supply vessels (OSV) is expected to take a hit in the coming months, as exploration and production (E&P) companies, big and small, rushed to cut capital expenditures (capex) following the double whammy of the oil price crash and the coronavirus pandemic, Richard Sanchez, Senior Marine Analyst at IHS Markit, said on Monday.

“E&P companies operating in the US Gulf have been historically quick to respond to falling oil prices. As offshore drilling rigs are idled and contracts are terminated early, excess capacity in the OSV spot market will grow, which puts downward pressure on day rates,” Sanchez added.

According to IHS Markit, more offshore drilling programs will be deferred, halted, or even outright canceled in the coming months amid the unprecedented global oil glut.

Westwood Global Energy Group also believes that the offshore drilling market faces tough times ahead. A month ago, Terry Childs, Head of Westwood’s RigLogix offshore rig intelligence service, said that “the number of idle rigs will increase substantially in short order.”

“Assuming low oil prices and COVID-19 continue in the coming months, the number of rigs going idle will be a key metric. Contracts where options are not exercised, delays to currently planned programs, and Force Majeure declarations and other contract termination options will all result in idle rigs.”

The price crash could lead to companies deferring as much as $131 billion worth of oil and gas projects slated for approval in 2020, Rystad Energy said in March.

Earlier this month, Rystad Energy said in an impact analysis that offshore drillers would see up to 10 percent of their contract volumes canceled this year and next, representing a combined loss of revenue of about $3 billion. According to the independent energy research firm, even the big offshore drillers could face financial challenges and may need restructuring.

“Now, in the infancy of a new downturn, a market that was only beginning to return to a healthy level of contracting activity, contract volumes and dayrates has seen its hopes crushed,” said Rystad Energy’s Head of Offshore Rig Market Services Oddmund Føre.