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
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