Someone asked me about the future of offshore drilling, so I answered them..
Offshore drilling, offshore is split into a couple of different business segments, projects that are or were put into place recently, exploration, development and appraisals, each one of these have their own specific caveat to them, and each deals a specific hand of cards to the contracting market.
Overall for the Operator side of the business, yes they took a huge loss during the downturn, some merged together and some went bankrupt but through deep spending cuts and a tight grip on the pennies they are all back on top now. The leader of the pack has been ExxonMobil through their new developments in Guyana, time well spent for them during the downturn, they kept exploring and now it is paying off for them.
ExxonMobil Leads the Pack of Top Explorers of 2018
But more specifically lets speak about how these different things effect the careers of people that have been in the industry for many years.
You can look at it from the drilling rig types, Jackups, Platforms/Production and Drilling Combination/Workovers, Semi-Sumbersibles and Drillships.
For the Jackups the last two years have been a saving grace that has descended from heaven on the day rates and is slowly ramping the utilization rate back up to some kind of resemblance of what it looked like a few years back. You can now get a descent jackup for 50k–80k per day and some double that if you move into the harsher environment models. This was good for the people with that skill set but we will explain later why its bad for the industry as a whole.
Bassoe: 34 years of backlog added to the jackup market in January
For the production, drilling combination platforms and work overs, busy is as usual with these with exceptions to expansions and the operators making better us of their revenue and extending field life with newer technology with seismic and basically finding the “whole” reservoir rather than just a piece of it.
BP’s Mad Dog gets a companion with Argos, ex-Mad Dog 2
The people that are employed here are a mix of service personnel, contractor personnel and operating personnel.
For the service personnel it is on an as needed basis, call outs from shore for when they need them, this work is picking up as more additions and newer technology has become available.
For the contractors, this operation will use a labor contract that is given to a drilling contractor to fill, while the effects of the downturn drastically reduced the working number of rigs for certain contractors, the personnel working here was relatively untouched as far as job displacement goes. Their pay would have been effected but they would not have become unemployed out of it unless the labor contract come up for renewal and the operator choose someone else to fill it.
For the operating personnel that work directly for the company (operator) that owns the facility, it would have been business as usual unless their company went through one of the mergers or a bankruptcy and was negatively effected by the downturn.
Moving on to the semi-submersibles, recent years we have seen a lot of rig scrapping, this reduces the amount of rigs in that particular market segment making the scales move a bit on what rig is available to do what job. Take for example a rare baseball card, there is not but so many of them in existence and if you have many of them and there are only a few out there you are able to charge top dollar if you are lucky enough to have a the few remaining but sadly this hasn't driven the price up for the floaters in this market segment.
Now this is not just inherent to this rig type as there are many others that headed to the scrap yard as well
Transocean takes 4 ships to the junkyard | OutPut by Rig Lynx
For anything in the northern hemisphere (harsh environment) we have seen that this market is the only thing that basically has life blood in it for semi’s. As these rigs are very few and far between the Operators are grabbing them up for longer term work.
COSL lines up the Innovator for work in Ireland
Odfjell Drilling takes delivery of Deepsea Nordkapp
Moving on to the drillships, although we discussed a bit about the scrapping above, we still have a tremendous oversupply of drillships on the market at the moment, 832 to be exact, these range from 5th generation, 6th generation, 7th generation and some newbuilds that are sitting waiting for new owners or distressed assets looking for a buyer, either one fits for them. Just this oversupply alone creates a paradox that the deepwater market cannot overcome. It’s simple, to get the rates moving there needs to be less rigs available to contract and that takes longer term investment.
Lets also remember a few things that affect this, stacked periods-hot, warm, cold and duration. The reactivation cost versus the contract duration will be the killer for any rig that has been off the market for 6 months or more and what the contractor has invested in them to make them marketable again.
Futures:
Land- We see land work continue to increase for many years to come, as more technology is introduced to drive production and exploration cost down coupled with take away capacity added, this is a fast moving train that needs some attention but it is pointing in the right direction for most companies.
Technology-
New seismic models and reservoir technology will become more advanced allowing investors to get more of their money back during production periods thus allowing more investment upfront during the appraisal phases. Cost modeling will need to be changed for all of these technologies put into place, this will have to take into account, CAPEX requirements, manpower and reservoir longevity to stabilize the model long enough to make a valued investment. But with the uncertainty of oil prices and the fluctuation, this makes it hard for people to invest substantially in new projects. The smart money is with ExxonMobil and the strategy they put in place, although they were still bringing in CAPEX they did not stop exploring, they took advantage of the time and found new resources in new worlds to fill the holes where some other countries cannot anymore.
Drilling equipment and contractor enhancements with future drilling operations. Contractors are stepping up and adding previously never before owned and operated equipment by the contractor during the contract term to sweeten the deal as of recent. Systems such as dual BOP’s, Managed Pressure Drilling Systems. Early Kick Detection and other pieces of conventional equipment that only used to be contracted during turnkey projects such as Cementing Units and ROV tenders. The entire scope of work has now changed for the contractors to remain competitive, this also includes contractor personnel. They are now beginning to build the next generation of rigs with less personnel to operate them some positions are called rovers, they are multi disciplined employees that can be used in various situations as well as a centralized operations center where it takes less people to operate more equipment.
Offshore-
Rig Types
Production/Workover/Platforms- As discussed earlier, this looks to be intact moving forward. Going into better reservoir models and discoveries made in other places of the world will enable constant infrastructure upgrades and the need for people will increase with it, this will remain sustainable for a long time.
Jackups- Long term the jackup market will either do two things 1) Smaller operators are going to buy up all the old rigs and refurbish them for future projects and keep them basically off the market and 2) The oversupply of newbuilds that are sitting in Asia will come online once the oversupply that is currently on the market begins to draw down thus leaving positions for future rig purchases but these rigs will not be purchased without some kind of back log suggestive with an operator. The days of building rigs without firm backlog is over.
Semis- The warm weather semis will be just like the drillships, once the market begins to move a bit these will go back to work but there will be no semi newbuilds in the future for a long time, with the small exception of harsh environment semis, these will still keep coming if the market stays where it is at now.
Drillships- We see this slowly increasing over the next few years but at the current over supply we need longer term investment in exploration and not so much drama in the geo-political dundrums that currently fluctuate the oil prices like a ride at six flags. The deepwater business segment is still very depressed at the moment and we see this lasting a few more years but the main thing that people have to take into account, although the contractor is losing valuable assets as they sit for longer term without work, the operator is playing a roulette game with rig rates and reactivation, there will be a shifting point in time when they will begin to accept some of the reactivation costs if they plan on hiring them into the future.
Employment- About two years ago we started to see a shift in people being hired back and it into the industry. More and more of the contractors are not direct hiring employees, they have turned to the recruiting agencies to find personnel, this is due to the lower dayrates that the rigs are getting now and the stock holders and board of directors will not allow for decreased return share or will keep it at a minimum so the guys with boots on the ground is the first target unfortunately, this is not the only industry this happens in just FYI. This is happening across all contracting companies big and small, they just don’t want the hassle anymore, some don’t have the experienced recruiters and the personnel to field fit new employees, even if you were an employees with a company for 20 years and hired back through an agency, you still have to meet all the qualifications that a new hire would when returning, makes for a long day thinking about finding a new career.
That new career thinking is damaging future generations from moving into the this industry or reclaiming previous positions. The requirement for cheaper labor due to the change of operating rates, some of the salaries have taken people back 10 years in their career and some people did not accept that and moved out of the industry as a whole creating this big gap of people that will be needed later in the future, skilled labor by the thousands will be needed, where will they come from? That in itself is a whole other article.
Final Note
End of the day the day rates need to return, long term project investments and more exploration successes to bring value back to the investors.
Greg Williams has been in the oil and gas industry for 24 years, currently a Rig Manager, an Author and recently the Founder of Rig Lynx, an oil and gas social network where he works with bridging communication gaps and connecting people of the same craft every day to give them the power of each other and not just relying on themselves going into the future, as a team stronger.
You can contact Greg for any other information about this article or just to have a chat by downloading Rig Lynx on your iOS or Android device and connecting with him today!
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