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Brady: Offshore contractors need higher dayrates to sustain businesses but also must work to optimize own costs

By Linda Hsieh, Managing Editor

Caption: Offshore drilling contractors like Ensco are continuing to highgrade their rig fleets, which will reduce the overall marketed supply of rigs and potentially help to bring about higher dayrates, said Steve Brady, 2018 IADC Chairman.
Offshore drilling contractors like Ensco are continuing to highgrade their rig fleets, which will reduce the overall marketed supply of rigs and potentially help to bring about higher dayrates, said Steve Brady, 2018 IADC Chairman.

Offshore drilling contractors can’t sustain their businesses at current dayrates and must soon move back into a position of profitability, Steve Brady, 2018 IADC Chairman, said at the 2018 IADC World Drilling Conference on 20 June in Copenhagen, Denmark. In 2015 and 2016, the average leading edge dayrate was still somewhat above drilling contractors’ daily cash costs. “But as they have come down, quite frankly we have reached a level that is less than what it costs to operate a drilling rig,” noted Mr Brady, who also serves as Senior VP – Eastern Hemisphere for Ensco.

Looking at the cost distribution for a greenfield development as an example, Mr Brady pointed out that rig rates have borne the brunt of cost reductions achieved so far. “There’s really not much left that can be done there. In the last 36 months, nine major offshore drilling contractors have filed for some form of Chapter 11. They didn’t do that because rig rates are sustainable.”

However, the solution is not just higher dayrates, which will come about simply by market forces. Drilling contractors also must optimize their own costs – an area where there are multiple innovative efforts under way, Mr Brady said. One such effort is fleet highgrading, which will continue to trim down the marketed supply of rigs. At Ensco, for example, any jackup that was built before 2000 is no longer considered part of the company’s core assets, “which is a bit of a shame because there are still some good rigs in that category,” Mr Brady said.

Drilling contractors are also deploying advanced digitalization and automation technologies to optimize performance, although more work remains to be done. Mechanization, for example, has actually decreased the speed of some operations – not being able to match the speed of a competent crew tripping pipe manually, Mr Brady noted. “In this day and age of robotics and automation, machine learning and AI, I think it’s time we can change that and improve the speed with which our machines work without sacrificing safety.”

Another area in which drilling contractors are pursuing optimization is between-well maintenance on subsea BOPs. Four or five years ago, that process could take 30 days or even more. “We’ve managed to bring that down quite a bit but perform a more reliable service by approaching this as a project management piece of work. In other words, get all the stakeholders together well before the between-well maintenance program – that includes operators, offshore subsea engineers, onshore subsea experts – and map out what needs to be done, lock down that schedule and don’t allow it to drift.” Using this approach, between-well maintenance times have been reduced to 50% to 60% of what it used to be, and sometimes it’s even being taken off the critical path, he added.

Finally, there’s also significant potential for cost savings in adopting reliability-centered maintenance. Drilling contractors are now increasingly collecting data – such as vibration, temperature, pressure and cycle counts – on major pieces of equipment and using analytics tools to predict failure. “Thrusters is a really good example,” Mr Brady said. “Typically, the manufacturer will say it needs to be overhauled every five years. In our case, we discovered that by monitoring the condition of those, we can stretch that to seven years, with the approval of the manufacturer. There are many more opportunities out there like that.”

Mr Brady further called for regulators to consider whether original equipment manufacturers (OEMs) must recertify every piece of equipment and to do so on a calendar-based schedule. “When the contractor can present a reasoned risk assessment of why this could change and the contractor can demonstrate true quality control – through, say, an API Q2 program – then I would ask that regulators be open minded to the idea,” he said. “This is a huge cost.”

About the author

Linda Hsieh is a graduate of the journalism program at the University of Texas at Austin, where she also completed the Business Foundations program at the U.T. McCombs School of Business and minored in Asian Studies. She has been writing for Drilling Contractor since 2005.

    
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