CRITICAL ISSUES IN DRILLING & COMPLETIONS
Investments in digital systems,
sustainability will help drillers
carve niche in new landscape
Drilling contractors may also need further collaboration
with operators to integrate wellsite data, review how risk
is allocated in today’s rig contracts
Simon Johnson, President/CEO, Seadrill
BY STEPHEN WHITFIELD, ASSOCIATE EDITOR
Simon Johnson is President and CEO of
Seadrill. How would you assess the state of the
global offshore drilling market right
now? I don’t think it’s that different from pre-
vious cycles. We’re facing the same issues
that we have in past upticks. We’re deal-
ing with cost inflation. It’s getting hard
to find personnel. We’re struggling – and
our vendors are struggling – with essen-
tial equipment deliveries and lead times.

Projects are overrunning in cost and time,
and our customers are becoming anxious
about the impact of that on their work
programs. So, it’s familiar muscle memory
being reactivated.

The difference is that this is coming
after the most protracted downturn in
our business. A lot of people have left the
industry. A lot of organizational knowl-
edge and memory is gone. We’re having to
re-learn some old ways while dealing with
new challenges.

How is inflation impacting your busi-
ness? It makes it difficult to forecast for your
business because you don’t know how that
inflation is going to impact projects that
you’re planning two or three years out. The
vendors themselves are typically just one
layer in a very complicated service deliv-
ery value chain. It’s layer upon layer upon
layer, so the days of dealing with a vendor
that has complete control of its business
10 is gone. One piece of equipment might
be assembled with different components
from all over the world.

Can you give an example?
An example would be with the dispute
in Ukraine. One of the things that many
people aren’t aware of is that Russia and
Ukraine both produce crucial materials for
the manufacture of semiconductor chips,
such as inert gases . They are a vital com-
ponent in everything from TVs to PCs to
the equipment we use on our rigs. This
kind of interdependence makes it much
more complicated to have a complete
understanding of your supply chain and
how everything comes together.

Staying on the topic of Ukraine, the
theme of energy security has become
huge, and Europe is in the midst of a
burgeoning energy crisis. Given how
long it takes to get a conventional oil
and gas project going, is there any-
thing that can be done in the short
term to help alleviate the supply
shortfall? I think the industry is absolutely fun-
damental to energy security, and there’s
no new technology I’m aware of that can
substitute for drilling contractors’ critical
role of penetrating the reservoir and deliv-
ering hydrocarbons to surface. Until there
is, we’re fundamental to the production of
oil and gas.

The countries that have better man-
aged their resources and that have good
frameworks for consistent investment
through time – a good example is Norway
– have an opportunity to profit from their
approach in the short term.

However, as you point out, it takes
around six years to take a drop of oil
from discovery to production, depending
on infrastructure and other issues. It’s a
long development cycle. Now, all of a sud-
den, a lot of people are worried that they’re
not going to have gas to heat their homes
this winter.

The problems that have caused that
situation have their root in a failure to give
the oil and gas industry a stable invest-
ment environment over the past eight
years. In my opinion, drilling contractors,
oil and gas companies, and service com-
panies have all been decried and actively
persecuted. The policymakers and politi-
cians didn’t understand that we need a
multiplicity of energy sources.

It’s not like substituting one for the
other. While renewable sources are an
important part of future energy needs, they
don’t provide that baseload response. They
don’t provide the same utility in terms of
dispatchable energy.

Now we have a problem, but it can’t
be turned around through a single policy
change. It will take years. I think the short-
termism of political processes in countries
all over the world – the three- to four-year
cycles – doesn’t encourage policy setters to
think longer term.

We can’t engage with the future with-
out understanding that there’s no bridge
between that future and how the world
works today.

JAN UARY/FEB RUARY 2023 • D R I LLI N G CO N T R ACTO R




CRITICAL ISSUES IN DRILLING & COMPLETIONS
The last downturn brought about an
increased focus on capital discipline.

As the market recovers, do you think
we’ll see a shift back to more of a
focus on investing in rig newbuilds or
upgrades? No, I think capital discipline still is the
No. 1 concern of management teams. The
Chapter 11 process, which most drillers
have been through, is still a very recent
memory, and there’s a lot of scar tissue
around that. The directors of the newly
constituted boards, the stakeholders and
the investing public – all of them are con-
cerned that drilling contractors can’t be
trusted when the terms of trade change
in their favor. They think we’ll lose sight
of that cost discipline and start throwing
money at new investments.

I don’t think that’s going to happen this
time, though, because this downturn has
been so protracted and there have been so
many painful lessons learned.

Also, there’s an understanding that
management doesn’t necessarily control
these companies in the same way as they
did in the past. I think one of the big-
gest problems in the industry had been a
principal/agent problem between manage-
ment and the shareholders. Even though
being a drilling contractor is an incredibly
capital-intensive business, the manage-
ment teams had been left for many years
to preside over their businesses with very
little direct input from the shareholder
base. That’s now changed. There is far
more scrutiny on management, and I think
that will continue to put capital discipline
at the forefront.

If we’re not going to see investment
being directed to newbuilds, then
where will capital go and how do you
make sure that your rigs stand out
among the competition?
Even in an environment of discipline,
our business still requires a lot of capital.

You’re starting to see some technologies
and equipment that were previously the
domain of the service companies becom-
ing part of the rig equipment set, and that
requires a lot of capital. MPD, for example,
is becoming far more common, particu-
larly in areas like the deepwater Gulf of
Seadrill sees the application of data analytics for equipment maintenance and
lifecycle management as a key strategy for the company to reduce its total cost
of service delivery. These investments into digital systems are likely how drilling
contractors will set themselves apart from competitors in the coming years.

Mexico and South America. The average
MPD setup will run to about $30 million –
and that’s excluding the OPEX component.

We’re also doing things around digital
to gain a competitive advantage. Even
through the downturn we’ve been work-
ing continuously to develop ways to make
better use of our data – for example, to
optimize service intervals and mainte-
nance activities. Your readers may have
seen some of the thought leaders from
our Technical Services team sharing our
ideas around asset lifecycle management
at IADC conferences. We’ve been investing
in that because we think it’s going to have
an enduring value in terms of our total cost
of service delivery.

Of course, we’ve also been investing
in sustainability, although that’s not so
much of a competitive response than it is
a stakeholder response. We’re doing that
with the understanding that we need to be
a good corporate citizen, and we need to
respond to the community’s expectations
about us minimizing our carbon footprint.

There’s also a prospect that this can be
a business that generates large dividends
to its investors – and if not dividends,
then we can consider share buybacks.

Basically, anything that returns capital
to shareholders that is not utilized by the
enterprise. When you talk about investments in
sustainability, are you talking about
things like selective catalytic reduc-
tion (SCR) systems and battery energy
storage systems?
Yes. We’ve done a lot of work around
battery technologies and deployed one of
the first battery systems on the West Mira
semisubmersible in the Norwegian North
Sea. And on the West Saturn, which just
commenced work with Equinor in Brazil,
we’ve installed a range of new technolo-
gies designed to reduce the rig’s carbon
footprint, like closing the bus ties on the
power distribution and trialing some novel
fuel additives.

It seems like reducing power usage on
the rig is where a drilling contractor is
going to see the biggest bang for the
buck in terms of emissions reduction.

Everything on our rig is powered by the
diesel we combust. So, fuel consumption is
D R I LLI N G CO N T R ACTO R • JAN UARY/FEB RUARY 2023
11