Offshore drilling at a crossroad, must take action for change now
By Linda Hsieh, Managing Editor
The industry is at a crossroad, and the decisions that companies are making now will impact the profitability and competitiveness of the oil and gas industry for years to come, said Morten Kelstrup, Chief Commercial and Innovation Officer for Maersk Drilling, in a keynote address at the 2018 IADC World Drilling Conference on 19 June in Copenhagen, Denmark. As activity levels rise – and with rig dayrates also expected to rise moderately in the near future – it’s critical for operators and drilling contractors to better align their goals and incentives, he urged. “As one of my favorite leadership gurus would say, it’s squeaky bum time, which basically means the time is right for change, and the time is right to act. If we don’t do it now, we fear we will just start another of these boom and bust cycles.”
Misalignment between operators and drilling contractors can be seen in many areas, nonproductive time (NPT) being a prime example. “There is no doubt we have seen dramatic improvements across the board in the industry over the last many years on improving our operational efficiencies,” Mr Kelstrup said. “For example, at Maersk Drilling, it is not unusual now to see uptimes around 100%, quite often and for quite long periods of time.”
However, 2-3% of NPT for one contractor can often add up to an overall 20-25% of NPT for an entire well. “When I see it as an operator, I can have all of my contractors being in the green, fulfilling their contracts, but my well is in the red – it’s late and it’s over budget,” Mr Kelstrup said. The dayrate model perpetuates such problems for the operator, he asserted, where the rig may not be drilling ahead, yet the operator has to pay full rate for the rig. “Something has to change.”
For drilling contractors, there may be more reluctance to initiate change at this time because “we kind of believe the market will pick up again and rates will go up. So why not stay with the dayrate model and get back to better rates and enjoy the benefits of that? At Maersk Drilling, we don’t think that is long-term sustainable. We think that will just kick off another cycle of boom and bust, and we don’t think that is the way forward.”
There are also external factors supporting change, as the global energy market continues to evolve. “Everything is being electrified, and renewables are getting more competitive. There are alternatives to investing in oil and gas – we need to keep that in mind,” Mr Kelstrup said. Further, investors have indicated that they want to see oil and gas companies learn to manage costs. “There’s huge pressure on our customers to make sure that capital discipline is maintained and the cost-per-barrel stays down.”
He cited Maersk Drilling’s partnership with Aker BP as one model of improved alignment of goals and incentives. The alliance agreement is based on an integrated well delivery model with aligned incentives. It focuses on increasing collaboration efficiency and enabling standardization and simplification of processes, ultimately shortening the lead time from discovery to first oil. The framework agreement is five years firm with the option to extend for another five years.
“This is really about trying to align the goals and the risks and rewards, but also setting ourselves up with a contract at a length that actually allows time to seek and explore the benefits of working more closely together,” Mr Kelstrup said. “You can’t find that on one well.”
