ppt

7

Pacific drilling: the preferred offshore driller

Yuanqing Wang

Westcliff University

BUS 525 Strategic Management in a Globalized Economy

Professor Nahavandi

January 31,2021

Pacific Drilling Company

Pacific Drilling is an oil and gas drilling company that was founded in 2006. The company has its head office in Texas, United States but operates in different parts of the world. Pacific drilling is an offshore drilling company. The company is owned by an Israel tycoon called Idan Ofer. The company's first employee was Christian Beckett, who was also the first Chief executive officer of the company at its formation. The Pacific drilling company works with different clients, "Producers" worldwide, including Chevron, Total, and Petrobras. The first-ever client to enter into a contract with Pacific drilling was Chevron. Chevron helped the Pacific drilling company create a reputation that helped it gain recognition by other oil producers such as Petrobras and Total companies. The producer companies get the rights to extract the oil, but they always outsource the driller's services to do drilling for them. Most of the time, the oil producers lease the services from the drillers. Since the oil market experiences a lot of fluctuation, there are times when the producers terminate the contracts with the driller companies so that they can wait for prices to pick up. The fluctuation in the market prices of oil results from the oversupply of the oil in the market. This fluctuation in the market prices of the oil products has a significant effect on drilling companies' share prices. The Pacific drilling company stock price dropped from $11 per share to less than $4 per share in 2014 as the market prices of oil fell from $115 per barrel to $49 per barrel. More companies are interested in offshore drilling when the market prices for oil are high but less interested when oil prices are down.

Pacific drilling company success is built around its culture as the firm and the organization structure that guides the firm. As the start-up company, highly experienced experts were recruited into the firm, which helped boost the firm's credibility and legitimacy. This professional helped the company in getting the solution to different problems. The structure of the company allowed shorter communication paths hence enabled fast and efficient communication. However, the company faced many challenges, such as growth challenges, customer base challenges, technological challenges, and market challenges, the strategic choices that they made as the company helped them overcome this challenge. The company recorded an increase in the net incomes and revenues for three consecutive years; 2012,2013 and 2014. During the same period, the company had positive and increasing operating cashflows, an indication that the company was doing well. There is an increase in the company's operations, which were generating cash; hence, the company is a sustainable organization.

Offshore drilling has more benefits than onshore drilling. Offshore drilling was considered to be more productive than onshore drilling. More producers preferred the offshore sites since it helped them to achieve higher production rates. Pacific drilling preferred offshore drilling since that is where they could easily get their clients from. The second reason for offshore drilling is because the number of companies that owned the offshore rigs was small. This means that these companies had to outsource the offshore drilling services in leasing from the other companies. Pacific drilling investing in offshore drilling was a calculated move to get some clients since they had the technology that clients will need. Most offshore drillers were not willing to change their technology of production. Pacific drilling saw this as a niche to explore and implement dual-gradient drilling. Since the other drillers did not impress this technology, it helped the Pacific drilling gain acceptance by the oil producers. It helped to mine those oil and gas fields that were not accessible by rigs, hence increasing productivity. Pacific drilling had the Drill ships that could operate deep sea. This made it easy for the company to venture into offshore drilling as it enhanced operational efficiency.

The competition in offshore drilling was less than onshore because the offshore drilling players were lesser. To set up an offshore driller required a lot of capital. This made many of the drilling companies just invest in onshore drilling and not offshore drilling. Since Pacific drilling could acquire the advanced equipment and the expertise to carry out the offshore drilling, they easily avoided the competition by going for offshore drilling. The other factor that could have helped the pacific drilling to go for offshore drilling is that at that time, many drillers had removed their drillers in trying to minimize their operating costs. Having Chevron, the producer around with no driller around, gave the Pacific drilling the perfect opportunity to enter the contract.

The rigs that were used for offshore drilling were of three types. The first type of the rigs was the jack-ups. Jack-ups rigs are used for drilling in shallow water closer to the coastlines. Where the depth of water was about 0.12km deep, the jack-ups could be used. They had the legs that supported their operating decks by standing on the ocean floor. The second type of the rigs is the Semi-submersibles (Semis). The Semis operated to a depth up to 3kms. Semis drilled while floating on the submerged pontoons and their deck above the water surface. The third type of rig is the Drillships. Drillships operate to a depth of up to 3.6km in waters. They allow more movement and deck space than the Semis. This made them be more preferred to other types of rigs in remote locations. Because they were also large, they were able to better efficiency in terms of operation by enhancing dual derricks and adding another drilling equipment.

The pacific drilling company's stock fall in 2014. This was because the oil demand had gone down. For the past decade, there had been an increase in the number of offshore drillers who made increased oil production. Since production was higher, the oil market went down, making the producers not renew their contracts with the drillers. The market was experiencing an oversupply of oil and gas. The fall of the company’s stock was due to the movement of global oil prices. This is because the Pacific drilling stock prices depended directly on the number of contracts they made with producers. Since global oil prices were going down due to oversupply, the producers were not entering into contracts with drillers; hence, the company's stock prices go down.

The collaboration between Pacific drilling and Chevron was not only a wise move but an important move by the Pacific drilling. Through the collaboration with Chevron, the Pacific drilling was able to access dual-gradient drilling technology. This technology helped the Pacific drill overcome the narrow pore pressure fracture gradient margins by using fewer casing strings to drill larger and deeper holes. The collaboration with Chevron helped the Pacific drilling to build up its reputation. The good reputation built up by Pacific drilling with Chevron helped it get new customers such as Total and Petrobras. The collaboration also helped the Pacific drilling to have in place an improved and refined operations and management system. Through working with Chevron, Pacific drilling realized the importance of innovation and technological leadership. The DGD technology that they learned through collaboration with Chevron helped the pacific improve its drilling speed, improve its storage, and more processing capability while reducing the safety risks associated with drilling. The collaboration between the Pacific drilling and Chevron enabled Pacific drilling to implement its company management system from the start from the beginning.

Pacific Drilling faced some challenges. One of the challenges faced was the market challenges. The rapid growth in the production of shale oil and the decrease in global energy demand, affected Pacific drilling negatively. The company lost its contracts with the producers as the producers decided to terminate the contracts because of a decrease in their oil products and low prices for the same oil. The Pacific drilling also experienced technological challenges as more developed drillers had a plan to beat the Pacific drilling by 2017. The other challenge that was faced by the Pacific was the global oil prices. As the global oil prices went down, some of the peer companies in the drilling industry were willing to bid prices lower than the market prices. This was done by them so that they may win the contracts with producers.

References

Dowell, J. D. (2010, January). Deploying the world's first commercial dual gradient drilling system. In SPE Deepwater Drilling and Completions Conference. Society of Petroleum Engineers.

Haj, A. M. (2012). Dual gradient drilling and use of the AUSMV scheme for investigating the system's dynamics (Master's thesis, University of Stavanger, Norway).

Kozicz, J. R. (2006, January). Integrating emerging drilling methods from floating drilling rigs-enabling drilling solutions for the future. In IADC/SPE Drilling Conference. Society of Petroleum Engineers.

Stave, R. (2014, May). Implementation of dual gradient drilling. In Offshore Technology Conference. Offshore Technology Conference.

Stave, R., Fossli, B., Endresen, C., Rezk, R. H., Tingvoll, G. I., & Thorkildsen, M. (2014, February). Exploration drilling with riserless dual gradient technology in arctic waters. In OTC Arctic Technology Conference. Offshore Technology Conference.

Ziegler, R., Sabri, M. S., Idris, M. R., Malt, R., & Stave, R. (2013, September). First Successful Commercial Application of Dual Gradient Drilling in Ultra-Deepwater GOM. In SPE Annual Technical Conference and Exhibition. OnePetro.