Sitting at breakfast with some drilling veterans at the IADC Annual Meeting in New Orleans in November, I witnessed a strong willingness, almost an eagerness, to attack the coming downturn head on.
There were a lot of jokes around the table. “If you haven’t been around long enough to experience a downturn you haven’t lived at all.” “I remember the rig count dropping way more than this – you ain’t seen nothing yet.”
The breakfast was sponsored by NOV who also were presenting the annual Census Rig Forecast – casting a pretty gloomy picture of the times ahead. And like those veterans said: you ain’t seen nothing yet.
It is not in my intention to try to forecast the rig market or any other sector of the oil and gas offshore market, but I fear the worst is yet to come. Living in Norway we get reminded of this every day.
So what does this mean to the ones who sell their products and services into the oil and gas market?
- Lower demand? Certainly.
- Lower margins? Definitely.
- More demanding customers? Inevitably.
- More status reports going up the elevator to the executive suites? Can’t rule that one out…
Any more good news?
Well, yes and no.
It is certainly going to be more difficult to get a raise over the coming years, but then again maybe your pay check isn’t the only thing that gets you up in the morning.
Maybe it’s time to have a new and refreshing look at why and how you do what you do. Maybe it is during the downturn you finally can find time to put into action those ideas you have been keeping on the shelf.
What am I talking about?
Well, from my perspective, the downturn is not only about the oil price: it is just as much about how the industry has not been able to create an efficient value chain.
Costs are too high. Technology adoption is too slow. Inefficiencies do not get rooted out the way they would in other industries. $60 per barrel is 50 percent higher than it was during the last downturn.
$60 isn’t too bad. The only problem is that far too few of us make money in that scenario. This is where I would put my energy. How can I contribute to my value chain delivering attractive margins and how can I make my company earn those extra basis points in EBITDA by working smarter, faster and in a more cost efficient way?
I was in a drilling technology conference in Aberdeen a little while back. I was giving a speech on efficiency gains driven by smart use of off-the shelf software in the ERP world. There were a number of other speakers presenting cost saving technologies for the offshore drilling value chain.
At the end of the day I summarized billions of dollars in efficiency gains for the industry as a whole. Of course this is a theoretical exercise, but it really shows there are huge benefits to be captured in this industry by organizing ourselves in a more cost efficient way.
The problem is of course the fact that risk has to be taken, or money has to be invested, in order to harvest the gains introduced by new technology. The return on investment may be sky high, but the appetite for risk and long term investment may not be there.
That is the problem – but here is also the solution.
Think about it.