By Stephen Whitfield, Associate Editor
The global drilling industry is undergoing unprecedented change amidst a backdrop of catalysts, like an accelerated energy transition and a shift in investor focus. There will be challenges, but there will also be a wealth of opportunities for the industry to transform, according to a panel of drilling contractor executives who spoke at the 2021 IADC Annual General Meeting in Dallas, Texas, on 4 November.
“It’s a great time to be in this business,” Chris Menefee, President of Unit Drilling, said, encouraging the industry to embrace a growth mindset. “We can either fight it, or we can have a growth mindset, accept it, learn from it and move on. Change is coming.” Mr Menefee was joined in the Drillers Outlook session by Robert Eifler, President and CEO of Noble Corp, and Sandy Esslemont, President and CEO of Parker Wellbore. All three industry leaders urged organizations to embrace not only the energy transition but also capital discipline.
“It’s not necessarily fun to be capital disciplined,” Mr Menfeee said. “We all love to have more horsepower, more hookload and more rigs running, but our customers are being capital disciplined. Their investors are driving them to do that, and I think long term that makes us a better industry.”
He also emphasized the importance of value creation in this type of market environment, which can be achieved by “trimming the fat,” with new ways of contracting, or through further consolidation. “In everything we do, the goal is to create value. If you can’t create value, it’s probably not worth it. We’ve got to be more efficient.” Mr Menefee noted that Unit Corp, the parent company of Unit Drilling, recently announced plans to divest its E&P assets and boost investment in its drilling business. Unit Drilling has also sold off more than $9 million in legacy assets since the beginning of 2021, prioritizing its super-spec AC-powered BOSS rigs and its high-end SCR rigs.
Mr Eifler, who was speaking on this panel just a few days before Noble’s merger with Maersk Drilling was announced, said he believes the offshore drilling industry will look significantly different coming out of this prolonged downturn. “It’s been a very difficult road over the past few years… but there’s been good that’s come out of that. We’re extremely cashflow-focused today, even though we remain a capital-intensive business. That’s not changing, so figuring out how to make money is very important for the drillers right now,” he said. “Figuring out a sustainable business model where we can return cash is critical.”
While a lot of offshore rigs have been removed from the market in recent years, Mr Eifler alluded to the need for additional rig retirements. “Our cost of capital has gone up 30, 40, 50% over the last few years. It’s too expensive now to have a rig sitting around idle and not generating cash. It’s just a math equation,” he said.
Further, Mr Eifler urged companies to build sustainability into governance structures, stressing the growing importance of ESG in attracting capital. “We have to incentivize people to behave the way we want.”
Mr Esslemont, whose company recently rebranded as Parker Wellbore, stressed that he’s optimistic drilling contractors have skills that will be valuable to the energy transition – but we have to think outside the box in order to adapt with the times. Geothermal could be a key emerging market for drillers, but so could plug and abandonment, wind, as well as carbon capture and storage.
“We’re the ones that will drill the wells, right? We need to potentially get involved in repurposing well infrastructure for clean energy,” he said, noting that contractors’ expertise when it comes to logistics, supply chains, crew management, risk management and remote operations are all transferrable. “We must embrace the energy transition fully… Hankering for the good old days is going to hold us back. We have to move forward.”