Contractors must deliver on performance

Critical D&C issues with Kjell Jacobsen, Seadrill

By Jeremy Cresswell, contributing editor

One of the drilling sector’s biggest headline grabbers is Seadrill, with its merger and acquisition activities and its $5.6 billion order book for new tonnage, with 11 rigs scheduled for delivery this year alone. Kjell Jacobsen is the CEO of Seadrill.

DC: In a nutshell, what are the key issues that confront Seadrill, indeed the drilling sector today?

Jacobsen: Clearly, our sector is growing very rapidly at the moment, and Seadrill is probably the player that’s growing fastest. In terms of key strategic issues for us, they are of course to build the organization and our competence so that we can actually deliver top performance to customers and to our shareholders during this growth period.

The whole sector is of course running very much at full capacity at the moment, and assuring performance is a significant issue to all of us. To be able to deliver on that promise is clearly vitally important.

Further, for the sector, we went through a period in the late ’90s and early this century where there was consolidation in our sector, and I, for one, believe that was for the good.

As the current cycle unfolds, we’re seeing quite a few new players coming onto the stage … start-up companies and so-on. However, I think we’re now in the early stages of consolidation again, and I think this will bring potential benefits to owners and investors alike.

When it comes to Seadrill, we’ve said that we’re interested in being party to a process where this industry can be better structured.

DC: With all this investment in new drilling tonnage by Norwegian companies such as Seadrill, besides the corporate strategic angle, is this also about Norway making sure of its position in the global drilling game … also leading the way for Europe, though there’s also Italy’s capability?

Jacobsen: Clearly the centre of the world for drilling is Houston; that’s where the majority of the large global drilling contractors are headquartered. But I’ve always said that there are enough drilling contractors in Houston. They don’t need any more.

Of course, we at Seadrill are building the largest European player; we’re already well represented around the globe but will be more so. The fact that we’ve decided to manage the company out of Norway is because there is available competence and capacity that allows us to run it from here.

However, in terms of incorporation and the way we structure this company, we are thinking very much in parallel with our international and American peers.

DC: You talk about competence, but you have seven semis scheduled for delivery in 2008 alone and, overall, 14 drilling units on order. That suggests the need to bring a large number of additional people in to the company. Are you sure that you can get the right type of people on board in time as this new capacity is delivered?

Jacobsen: Recruiting into and building our workforce is part of our global strategy. Of the new people coming on board, not many are Norwegians. They are mostly international, and we will recruit as much as we can in the countries where we will be operating. That has been the classic strategy for this industry for decades; it has worked well, and this is what we will continue to do.
When it comes to the new fleet that we have in-build, we are now extremely well positioned in recruiting terms.

In any case, we had a very good starting point in that we had more than 5,000 people around the world working for the company when went into this growth phase. So, of course, we are tapping quite a lot into our own resources by training and promoting people and then recruiting others to fill from below.

DC: With so much tonnage in build, how acutely is Seadrill feeling the pain of cost inflation, if at all?

Jacobsen: Seadrill was fortunate in that we were among the first to invest in new tonnage. So in terms of building the rigs and what those rigs will cost, I think we’re very well off.

We were the first in the door of leading yards around the world, the same with equipment manufacturers. On average, the price we’re paying for the new fleet is very advantageous. But that has more to do with timing than anything else.

DC: Is this because you were able to dictate contract terms?

Jacobsen: Yes, and on that front, we’ve seen insignificant cost growth. Where the challenge now lies is when these rigs are put into operation. That is where the whole industry is feeling the pressure.

DC: With the new fleet, you’re mostly focused deepwater, as are your main competitors. Does this mean there is the risk of an over-build of high-end drilling tonnage that might impact rig rates?

Jacobsen: At the moment, this market is looking very strong, and I think there’s a very good chance that will continue. The market is driven by the very strong underlying fundamentals that we believe in, including that high energy prices are likely to stay. Whether $60 oil or $100 or more, at such levels, the outlook is very promising.

The fact that there is a serious reserves decline issue around the world means there is really only one cure for it — oil companies must get out there and do more exploration, and of course that’s where we come in.

The upstream sector is struggling to renew and add reserves, and that’s the point. That’s why more investment needs to be pumped into the effort, first of all mitigating the decline and then adding to the reserves base.

DC: Over the past year, there’s been much talk about going into the Arctic for new reserves, with Russia acting as the catalyst to what might become a rush. But can the drilling sector take on such a challenge yet?

Jacobsen: In terms of going into the Arctic and dealing with ice, there are very few units at all that can do that. None of ours are particularly well suited.

But if you talk about Arctic in terms of Barents Sea-type, harsh environment and cold water, minus 20°C, then a significant part of our fleet is already well equipped. We talk about the Barents as Arctic, which of course it is, but in many ways it’s Arctic for beginners!

But for real ice conditions, a semi is probably not the best concept. There are ship-shaped concepts and other shapes out there. We have some concepts that we think, over time, could be very interesting.

I think the Arctic will come, but it is associated with quite a few challenges, and I think you will see gradual development in that direction.