There’s no uniform way of summarising current activity levels in the international drilling market. Volatile prices and the pandemic-associated restrictions have of course created a backdrop of considerable insecurity for oil and gas operations, and in many parts of the world the watchword is still caution.
But in others – in particular, the Middle East and Asia – the drilling sector is very much back in business. In April, for example, the drilling group ADES International Holding announced renewals for seven rigs under contract in Saudi Arabia and recorded a total estimated backlog of US$950m. And we’ve witnessed a marked rise in demand for our drilling support services in these regions over recent months.
While this activity surge is by no means universal, the overall trend globally is still a positive one. As new contracts begin to materialise and rig reactivation programmes get under way as a consequence.
The rig services sector seems set for growth this year and beyond, spurred not only by the recovery in activity levels – offshore and onshore – but also by the associated need to address the maintenance backlog arising from the implications of COVID-19.
The evolution of the short-term contract
There are signs too that these trends are likely to be matched by another characteristic of the drilling market in recent years: the growth of short-term contracts. They’ve always been part of the industry environment, of course, but there’s certainly a sense that they’re becoming more prevalent.
That presents a variety of challenges for drilling operators, but also opportunities for those who succeed in striking the right balance when it comes to investing in asset availability. For many it will be a careful calculation: do they spend potentially millions of dollars to get a rig up to specification, for perhaps only six months’ work? That’s unlikely to make commercial sense, but at the same time they need to have assets primed if they’re to vie for short-term contracts materialising at short notice. And keeping a rig in a state of readiness in the hope of securing work inevitably means taking a commercial hit if the targeted contract doesn’t come your way. As I say, fine strategic judgments are involved.
So, how to address these challenges? In an already-tough financial environment, drilling operators are routinely looking around for efficiencies across their operations – without undermining safety or quality performance – and that extends to their practices for keeping rigs ready for the market.
One area that’s currently subject to greater scrutiny is the supply chain community around individual drilling companies. There’s evidence of operators moving to more consolidated models – it’s definitely been apparent in our Middle East and South East Asia operations in recent months, where we’ve delivered package-based projects covering crane, drilling and hoisting equipment for clients – as a means of streamlining vendor support.
Choosing the long-term proposition
It certainly makes sense from several perspectives to move towards the concept of an end-to-end solution for support services. It applies greater control to project delivery: with one primary service provider, there’s a simplified communications channel and the elimination of potential delays caused by individual vendors failing to deliver their scopes on time within an inter-dependent project environment. All of which supports the goals of on-time and on-budget delivery.
It also addresses administrative inefficiencies – managing multiple vendors demands significant time and resources – and potentially puts the operator in pole position in the race for contract awards. An established partnership with a single-source provider means it’s perfectly viable to work quickly to shape and execute a fit-for-purpose mobilisation plan.
There will be reservations among some drilling operators about committing to a more streamlined supply chain model; about putting their all eggs in one basket. It’s why service firms with the capabilities to deliver comprehensive service packages are working to build a track record of delivery, as a means of demonstrating how it can add value.
That value, I believe, lies primarily in the long-term proposition. Short-term fixes with local yards might sometimes work as an immediate option and there are more up-front costs in working to a sustained inspection and maintenance regime. However, it’s our belief drillers will get more operational years out of a longer-term partner, that kind of investment will save costs across the full maintenance cycle.
It’s a service model in which we’ve already invested, not least because we have the resources and geographical reach to make it work. A sustainable partnership approach makes it viable for vendors to support individuals rigs as they potentially move from region to region, especially in a short-term contract world. It creates one single point of contact for the client, regardless of where its assets are operating, and provides access to a stock of spare parts held across a network of bases.
A partnership with genuine substance
There is perhaps a further dividend from taking this approach. It lies within the context of the well-acknowledged drain of experience and knowledge from the drilling sector as it’s perceived to move beyond its peak years.  As rig crews are streamlined and ‘veterans’ increasingly take the retirement option, and as young people entering the industry are no longer able to tap into their know-how and insights, it’s recognised that the consequent knowledge gap is growing.  A sustainable relationship with a single-source provider, one based on trust and confidence, can serve to offset that to an extent: drilling companies can tap into the vendor’s pool of experience for complementary support as and when required. A partnership with genuine substance.
Ultimately, drilling companies want that sense of confidence to extend across everything their supply chain is doing for them. They want to know the work will be done reliably and safely, and the rig released on time.
It’s a significant area of focus for companies like ours as we create a multi-disciplined proposition across many of the inspection, maintenance and service functions, specifically in our case in the drilling equipment arena. A new mindset for the industry, perhaps, but one that looks to the future – that shifts the balance towards sustainability.
