2016IADC, Regulation, and LegislationJanuary/February

Critical issues in drilling & completions

Cost management tops the list for most companies, but leaders also stress the need to not lose sight of safety, continue investments in workforce, technology

By Linda Hsieh, Managing Editor

It’s a tough time to be in the drilling business. We always knew this was a cyclical industry, yet the consistently high oil prices over the past decade – save for the 2008-09 economic blip – had shoved any thoughts of a real market collapse far into the back of our minds. Initial optimism that there would be a quick recovery to this cycle has also waned, with many adopting the attitude of “lower for longer.”

For most companies, the focus has shifted considerably toward cost reduction. Operators are cutting back on exploration and zeroing in on core assets, and drilling contractors are faced with significantly lower dayrates and the difficult decisions of warm stacking, cold stacking or even decommissioning their drilling rigs.

“While it’s clear to the whole industry that we need to rationalize the fleet by scrapping old rigs to make room for the new rigs, it’s a sort of classic tragedy of the commons because no individual company wants to be the one that has to shrink,” Chris Beckett, CEO of Pacific Drilling, said. Mr Beckett said he believes dozens more rigs will be retired over the coming year, with natural selection playing a role as operators decide to contract newer rigs.

At the same time, this is a post-Macondo industry, and leaders are recognizing that no matter what actions must be taken in the name of business and economics, safety must remain our top priority. That can’t be achieved without the continued training of our workforce. “I believe that, in this post-Macondo world, there is greater awareness of the importance of training,” David Williams, Chairman of the Board, President and CEO of Noble Corporation, said. “With today’s more sophisticated operating environment and higher-complexity drilling rigs, any short-term benefits of cuts in training would be foolish. Such savings are false economy, in many respects.”

To optimize costs without jeopardizing safety or workforce development, companies are turning to innovations – in technology, in processes, in collaboration. Big data has become an increasing area of focus, as have integrated drilling systems and condition-based maintenance. Companies are also seeing a need for more standardization in the technologies deployed for drilling and completions.

“When dealing with the minor variations of bespoke equipment, those can add schedule delays and higher overall costs,” Gary Jones, Head of Global Wells Organization for BP, said. “We want to get as standardized as possible. We want manufacturers to build standard components.”

When the next upturn comes – and leaders stress that it will come, just as it always does – the global drilling industry is likely to be much leaner. But if we make strategic investments now in the right places, we should also come out of the downturn with higher levels of technology and competency. In particular, Alex Archila, Asset President of Shale for BHP Billiton, advises companies to sustain the progress that has been made on recruiting and training the next generation of workers. One way to do this is to give young professionals tools in their toolkit that are transferrable, he said. “They know that we need to react to oil prices, but as long as we keep nurturing them, they will be happy to stay and take the risk. … They are more likely to stay in our industry than get scared by the slowdown and move.”

Click below to read our exclusive interviews with key industry leaders.

GaryJonesGary Jones, BP:

Safety goes hand in hand with performance, must remain top priority even in difficult market

Chris-BeckettChris Beckett, Pacific Drilling:

Shale won’t replace deepwater, but offshore industry must reengineer value chain to reach economic parity with onshore

TrentLatshawTrent Latshaw, Latshaw Drilling & Exploration Company:

Times are tough in unbalanced market, but industry should recognize, prepare for increasing volatility as the new norm

Alex-Archila-photoAlex Archila, BHP Billiton:

For shale business to survive, employees must think like owners, orient organizational culture to the bottom line

MikeBowieMike Bowie, GE Oil & Gas:

To achieve sustainable cost reductions, industry must break old paradigms, adopt more technology standardization

Williams_David-2013David Williams, Noble Corp:

Costs must be controlled, but savings achieved via cuts in HSE, training are just false economy

ClayWilliamsClay Williams, National Oilwell Varco:

Investments in innovation, people, technology must go on even as market realities set in

NielsEspelandNiels Espeland, Grey Wolf Drilling International:

Drive for efficiency must continue but comes with costs, may require industry to rethink how it drills and does business

Guy-ArringtonGuy Arrington, M-I SWACO:

Opportunities to lower costs will abound if service companies are engaged at design phase, allowed to leverage expertise

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