Critical issues in drilling & completions with Dan Rabun, chairman, president and CEO, Ensco
By Linda Hsieh, managing editor
What are some of the most critical issues facing drilling contractors in terms of technology?
In terms of technology, customer requirements are becoming more and more complex and at a faster pace than we had seen previously. Deeper waters, deeper drilling depths and high-pressure, high-temperature environments are putting more demands on the rigs. The result is bigger BOPs, greater hoisting capacity, more pumps and heavier deckload capacity.
How are drilling contractors responding to these increasing demands?
We’ve seen over the last four years quite a bit of drilling equipment purchased by the contract drilling community. Four years ago, people thought this was just another newbuild wave and we were going to build ourselves into a bust cycle. What we’re actually seeing now is a technology shift because of these more demanding drilling requirements. That’s why more rigs continue to be ordered. I think the drilling community is stepping up to the challenge by investing billions of dollars.
Is technology in pumps, hoisting capacity, BOPs not keeping up with operators’ drilling requirements?
You are starting to see some pretty challenging requirements with some customers. We have seen requests where the equipment exists and the rig design exists, but not together. It will require additional rigs to be built with the specified equipment to meet those requirements. For example, technologies developed for the deepwater business are now being required by customers for jackups.
What are some new technologies or equipment Ensco is looking at implementing on its rigs to improve efficiency?
On the deepwater side, all of our ENSCO 8500 Series rigs are brand-new so we’re not looking to upgrade. On the jackups, we’ve spent more than $1 billion since the beginning of 2005 to increase their capabilities, and we continue to look at different enhancements. These may include predictive maintenance systems, upgraded drilling equipment, offline pipe-handling equipment and material-handling equipment. Personnel capacity has also become a big issue on older rigs because a lot more people are needed to manage today’s more complicated drilling requirements.
On the market side, how do you think Macondo and the ensuing regulations will impact the amount of capital we’ll see in the Gulf of Mexico in 2011?
It’s hard to say for 2011. If they start issuing permits, the customers will forge ahead. If permits were being issued now, there would be plenty of work. The Gulf of Mexico is one of the best deepwater basins in the world. It is close to a country that has an extraordinarily high energy demand, and it has great infrastructure. The deepwater Gulf of Mexico is, and will continue to be, a great market for a long time.
Our customers are very anxious to get back to work; they’ve been sitting on the sidelines for basically a year. With energy prices where they are, our customers have the capital to invest, and they’d like to invest it in the Gulf of Mexico, where they’ve already invested a lot of money in leases and seismics. As soon as they can get permits, they’ll start drilling.
How have Ensco’s deepwater rigs been affected?
We have eight deepwater units, three of which are under construction in Singapore and one is in Singapore getting ready to go out on a potential international drilling assignment. Four others are contracted in the US Gulf of Mexico; one of which is being sublet to Tullow in French Guiana. Our other customers in the Gulf of Mexico have used the rigs for allowable work such as completions where possible, and they also have explored opportunities to move the rigs.
Financially, it’s obviously had an adverse effect on revenues and earnings as we’ve had to go to standby/negotiated special rates with our customers.
Has there been a negative impact on your personnel?
No. We believe in this business, and we haven’t let any of our personnel in deepwater go. We’ve kept everything intact.
Looking at the longer term, what kind of effect can the Gulf of Mexico expect from Macondo?
This will become a more highly regulated business, and that’s already occurring. I don’t say that negatively because we operate in many places around the world that are very highly regulated. That doesn’t make them a bad place to work.
The industry has and will continue to address incidents to make offshore drilling safer. Just like Piper Alpha in the North Sea, the industry will improve as a result of this.
Has Ensco been impacted by Macondo in its operations in other parts of the world?
We’ve seen very little regulatory effect outside the US, although many of the other regulatory bodies are paying attention to Macondo. But what we have seen is that our customers are international, just like we are, and they’re not going to conduct activities one way in the Gulf of Mexico and a different way somewhere else. As customers change operating standards and terms and conditions, they will be changing them globally. We see that already with a couple of our customers’ new requirements outside the US. There are increasing specifications for BOPs and things of that nature.
Do you think the industry’s ability to attract and recruit young people will be affected by the publicity the industry has received due to Macondo?
No, I don’t. The offshore drilling business offers high-paying jobs, and it requires highly skilled people to perform these jobs, especially on the newer rigs. The publicity may have elevated the visibility of the industry as a technologically complex business, and engineers and other high-tech employees are naturally attracted to industries like ours.
It’s hard to glean positives from Macondo, but I think this is one. People are fascinated by the business and the technologies they saw on TV. Before Macondo, people probably didn’t understand we were drilling in such deep water depths. If you’re interested in technology, I can’t think of a better industry to be in. The fact that you can drill in 10,000 feet of water and drill to a total depth of 35,000 feet and hit your target is pretty amazing technology.
How is Ensco ensuring it has enough people – and competent people – for each of its newbuild rigs coming out of the shipyard?
We recognized early on that people were going to be our biggest priorities. We took one of our most senior people and gave him one assignment: to recruit and staff our newbuild rigs with people within the Ensco organization and supplement it with skills that we didn’t have from outside. It received very senior level attention so it elevated the importance within the organization. We also used it as an opportunity to promote people and give them additional training to go from jackups to deepwater rigs. We tried to source internally as much as we could.
We also placed a big emphasis on training. Ensco is one of the few companies that has all of its offshore positions accredited by IADC’s Competence Assurance Program. We believe very strongly in that program.
The drilling industry already has a strong focus on safety. What more can we do to further improve our safety performance?
I strongly believe that it has to start with the very senior people in the organization, and that’s the board of directors and the CEO. They must believe that safety is a core value of the company and a zero-incident workplace is achievable. Once people understand that this is a core value, people will work toward that. Without senior management’s commitment to safety, the company will struggle.
Once you have your culture right, everything else is a lot easier: training your people, identifying and mitigating risk and putting systems, processes and procedures in place.
We have established a Core Value Team, which is a dedicated internal team of senior operating people that do nothing but audit our safety programs. They go to our rigs and audit against our stated policies and procedures, then report back to senior management. It sets a tone on the rigs and it lets us know at the most senior level the degree of commitment on the rigs.
You also must have in place an appropriate system to report incidences as they occur. At Ensco, we have a system that gives us real-time feedback of any incident or high-risk situation on a rig. We review that at my level every Monday morning.
Do you think it’s going to be harder for the industry to make further safety improvements because we have such a large influx of new and inexperienced people onboard our rigs now?
Absolutely not. If you get your culture and systems right, you will continue to improve your performance. Over the last three years as our rigs were being built, we knew we would be bringing more people into the organization at a faster pace. Even with this increased hiring, we have made significant improvements in our safety performance. If you believe that adding new people will prevent improvement in safety performance, you won’t have improvement. We just haven’t accepted it. We’ve decided that continuous improvement is the only direction we’re going.
The industry continues a renewal of its offshore fleet, but there is still a large number of aging rigs in operation. Does the industry have a robust process in place to manage and ensure asset integrity?
I can’t speak to the whole industry, but Ensco has continuously reinvested in the business. It’s an evolutionary process where we continue to upgrade rigs and buy new rigs. When we have older rigs that we think are not going to meet the technology requirements of our customers and/or it’s not worth spending additional capital, we take those out of the bottom end of the fleet. We sold four rigs last year that did not fit our criteria going forward.
The market itself might just sort through some of the older assets as well.
I think that’s what has happened. The new jackups have marginalized assets that were on the bottom end of the fleet. A lot of that relates to our customers’ drilling requirements.
Not that all these older rigs will become obsolete overnight, but we are seeing a shift. If you stay still in this business, you’re going to be behind.
How many new rigs has Ensco built over the past five years and what have been some of the challenges you faced in your newbuild projects?
The seven ultra-deepwater semis are a $3 billion-plus commitment. Four have been delivered, and three are under construction. In the last five years we’ve built four jackups and spent $550 million enhancing our existing fleet. With the semis, all seven are the same design and being built with Keppel FELS, probably the best shipyard in the world. Our rigs have been on time and on budget. A lot of the equipment is software-driven, and that was probably the biggest challenge. I think that’s what most people are finding with these new rigs – getting the bugs out of the software is the biggest issue.
Traditionally there have not been many software experts onboard rigs. Is that changing?
It is changing. The traditional growth pattern for an employee where he or she starts as a roustabout and works up to the OIM level is really no longer the traditional path because of the skill sets required. Not that someone who starts as a roustabout can’t develop into these skills, but it’s not natural like it was before. Software skills, for example, require very specialized training.
Overall, how do you think drilling contractors will fare in 2011?
I think 2011 will be a little bumpy in the Gulf of Mexico. The US government is still addressing new regulatory requirements for operators and contractors. However, putting Macondo aside, I think it’s going to be a good year. Our business is driven by commodity prices, and commodity prices have remained at fairly high levels for a sustained period of time.
Outside of the US Gulf of Mexico, there are many deepwater markets that have not been directly impacted. West Africa and Brazil are the most active markets, but there are also very good markets emerging in Asia Pacific. I view Asia Pacific as a market that’s five to 10 years behind the US in ultra-deepwater. I think that market will emerge. Malaysia, Indonesia and Australia are all areas of potential high growth.
– ENSCO 8500 Series is a registered trademark of Ensco.