Good morning everyone.
I am very pleased to be able to provide the perspective of the drilling contractor on this topic. For Maersk Drilling, this is about making offshore competitive—again.
After descending into the deepest and most persistent downturn in decades, it seems as though we have reached an inflection point.
It has taken a great deal of hard work by the industry on cost and other factors to improve the economics of offshore projects.
We are now seeing lower breakevens, shorter time to payback and a higher rate of return—which demonstrates the resilience of offshore oil and gas as a supply source.
This is translating into a recovery in offshore sanctioning, with Norway leading the way. The number of offshore FIDs (Final Investment Decision) have increased, along with Capex commitments. And there’s consensus on a positive outlook for global Capex and drilling spending.
As activity picks up, the question we must ask ourselves is: Will we see a return to the boom-bust cycle, or will it be different this time?
At Maersk Drilling, we believe it has to be different this time because of the more competitive energy environment and the significant inefficiencies that exist within the offshore value chain. Let me give you some examples:
• It takes up to 60 suppliers and 6,000 invoices to drill a typical offshore well.
• While we as the drilling contractor are able to deliver 97% uptime, E&P operators today see around 20-25% NPT (non-productive time) across all services delivered on a well.
• And more fundamentally, it is the E&P operator—not the drilling contractor or the oilfield services company—which continues to bear most of the cost of non-productive time, reflecting a fundamental misalignment of incentives in the day rate model.
This misalignment of incentives is not new.
There’s been a lot of talk about fixing it in the past, but the demarcation of risk, roles and responsibilities that has existed between operators, service suppliers and drillers for two decades has defied all attempts to change it.
At Maersk Drilling, we believe that there is significant further potential to improve efficiency.
But this won’t be achieved through the current approach to cost cutting, where only marginal improvements remain to be tapped. We can’t keep squeezing juice from the same lemon.
A different approach is required and there has never been a better opportunity than now to change the business model of offshore drilling through innovation.
All too often in this industry we have had a view that innovation is all about technology.
Yet the disruption we need will require more than that to unlock value. It means continuing to deliver operational excellence while pairing innovative technologies with new business models to create value for our customers.
So, what are we doing about it?
At Maersk Drilling we are pursuing two types of innovation in tandem: We’re pursuing technology and commercial innovation.
Let’s look at some examples of how Maersk Drilling is innovating.
We are applying technology as an enabler to reduce operating costs for crew and maintenance, improve safety and advance the way we work offshore and onshore. For example, we have introduced a new ERP solution and a tablet-based mobility system which are significant enablers for our Smart Crewing approach. Smart Crewing makes work on our rigs more efficient, reduces admin, and allows more decisions to be taken at the frontline—where the real action takes place. This allows us to optimise our manning and means our customers see fewer people on board at a lower cost.
We’re also investing in digital solutions such as the Drilling Productivity and Predictive Maintenance tools that we have built through our partnership with GE. Using data from over 2000 sensors on each rig, these tools can reduce maintenance downtime and costs by up to 20%. The tools went live in December 2017 on the Maersk Integrator and are being rolled out across our fleet.
We’re working in an agile, ‘fail fast’ sprint approach to build, launch and deliver products with early involvement from our partners and customers. This way we avoid lengthy processes and move ideas forward or drop them if they don’t fly. In March, we moved this feedback process up a level when we ran a ‘Dragons Den’ style event in which three of our teams pitched new business models to a panel of judges. The catch here is that the judging panel consisted of executives from a number of Maersk Drilling’s customers. I am pleased to tell you that the judges more than lived up to the fiery reputation of dragons. They were brutally honest with our ideas—and that’s a good thing. But what surprised us is that they challenged us to be even bolder than we were. That confirmed to us that there is a healthy appetite for innovation that can improve the competitiveness of offshore oil and gas.
The final example I want to talk to is our unique five-year alliance agreement with Aker BP and Halliburton. This alliance was announced in November 2017 and provides a glimpse of what is possible through collaboration and risk sharing. It aims to lower the cost per barrel through closer collaboration, standardization and simplification.
All of this work on innovation has been grounded in our day-to-day focus on delivering safe and efficient operations.
By introducing new business models that reduce inefficiency and align the incentives between the different parties offshore, we believe that we will be able to create new value and avoid another cycle of cost inflation. We can’t keep squeezing juice from the same lemon. The industry needs broad-based structural change across the offshore value chain to achieve further competitive gains.
This time it has to be different.
About Maersk Drilling
Maersk Drilling supports global oil and gas production by providing high-efficiency drilling services to oil companies around the world. Maersk Drilling’s modern fleet counts 24 drilling rigs including drill ships, deepwater semi-submersibles and high-end jack-up rigs. Maersk Drilling employs an international staff of 3,000 people. For further information, see www.maerskdrilling.com.