Despite short-term difficulties, we can’t forget long-term goals or slack off on environment

Posted on 17 January 2009

From the Chairman

2008 is behind us and what a diverse year that became for the oil & gas related industries. Oil prices during the year climbed to historical, surprising and extraordinarily high levels. Some would even say these were unhealthy levels when viewing the economic impact and – not least – the lack of sustainability of an adequate oil price in a macro-economic and global perspective.

Just as shocking was the very fast decline of the oil price back to levels of early 2005 – in virtually no time. This decline was of course coupled with the global financial crisis and credit crunch, which all in all have led to what could be a deep and prolonged recession.

We must acknowledge the global factors that in 2009 will impact the economies of countries, of big corporations and of oil companies alike. The impact will certainly also hit the drilling industry and the drilling contractors. When that is said, then let’s after all remember that less than 5 years ago the industry expressed optimism – and hope – at the prospects of the oil price sustainably going beyond the USD40 per barrel mark. The current price is still in this range! If there is reason for despair, it is because our cost picture in general has escalated.

Nevertheless, oil companies are naturally and understandably carefully reviewing their E&P spending budgets for 2009 and beyond. We will in the short term be facing lower utilization of our drilling assets, and we will face pressure on dayrates. Our cost picture in the industry at large has increased dramatically as well during the past 2 years. Every cost driver ranging from new-building yards, equipment suppliers, labour, logistics, etc, has taken a price hike, and all will now likely readjust to levels matching the revenue streams in each part of the value chain.

Despite the expected short-term reduction in E&P activities, I wish to express my personal confidence and expectation that the medium to long term fundamentals of the oil and gas related industries remain solid and very strong.

Various studies firmly point towards the rapid decline of production from current oil fields. Average global decline rates range from 4%-6% per annum, including continued investment in field maintenance. Should the oil companies’ reduced cash flow lead to further cutbacks in drilling and workovers, etc, the decline rate will accelerate further. Expectations now are also that the demand for hydrocarbons will return to the upward trending path as the global economy – slowly – recovers.

We furthermore need to combine the global supply and demand balance with the reality of the global drilling rig fleet being relatively old – more than 20% of the global rig fleet have now passed 30 years of age – and the growing demand for higher standards of the rigs on all counts including drilling efficiency, workers safety, energy consumption, environmental performance and overall healthy working conditions. New drilling will be in demand in order to meet the requirements of tomorrow of the E&P industry.

Against this backdrop, I would venture to say that we as the drilling contractor industry have a lot going for us and that the medium to long term prospects look fairly healthy to us.

2009 chairmanship

I wish to add a few words on my tenure as IADC Chairman 2009. As pointed out in the latest issue of Drilling Contractor, my intentions were – and still are – to:

• Focus on raising the international profile of IADC in order to ensure our stakeholders at large understand and appreciate our industry; and

• Seek to raise IADC’s environmental performance efforts and to seek enhanced and powerful benchmarking amongst our members and with our clients in order to facilitate improved environmental awareness and performance of our members

In the current business environment, there is certainly a need for the former of the two. I do appreciate that with the various pressures and uncertainties that have hit all of us, the latter, i.e., the environmental issues, may fall back in terms of priority.

I strongly advocate that this does not happen. My personal view is that there will be an increase in our clients’ and the world’s demand for enhanced environmental performance and not least documentation of both our performance and our improvement efforts. Furthermore, I believe regulatory bodies and governmental requirements will not lose momentum – on the contrary, the requirements will increase in both detail and firmness.

As responsible drilling contractors or as any other actor in the industry for that matter, for reasons of preserving the global environment, of serving our clients at the optimal value add, and of taking good care of our companies, owners and staff, we need to continuously enhance our efforts in the area of environmental performance. I shall seek through IADC and in particular through the IADC Environmental Policy Advisory Panel and work groups to motivate and facilitate a positive development in this direction.

To be absolutely clear, I also wish to emphasise that naturally safety remains a top priority of IADC, as it does for all of us. The efforts of IADC in this respect will continue relentlessly.

I am excited about my 2009 Chairmanship tenure. It will for sure not be one of the easiest years – but who ever promised us that! Our industry is well known for taking on large challenges with vigour and resolve. So let’s do just that and ensure that we, as an industry, move on.

Last, but not least, thank you for 2008 – a bumper year – and thank you for your support and for your confidence in electing me 2009 Chairman of IADC.

I wish you a Happy New Year and I feel safe to promise you that 2009 will be an interesting year.

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