Pacific Drilling entered the market with the mission of providing drilling services focused exclusively on oil companies’ move into exploring for oil beneath ultradeep waters. Its four drillships, each capable of operating in 10,000 feet of water and drilling 40,000-foot wells, now are working in offshore Brazil, Nigeria and the Gulf of Mexico. CEO and founder Chris Beckett spoke with FuelFix about the company he founded in 2008 and operates out of Houston. Edited excerpts:
FuelFix: How did you decide to focus on deep-water drilling and what advantages do you believe you have in this sector?
Beckett: One of the reasons we felt there was an opportunity in the first place was this move in the industry toward ever-deeper water.
By 2005, we could see where the industry was going, in terms of the water depths we would need to be able to operate in. All the drilling contractors that were operating offshore went through this evolution, and they now have fleets that have to cover a full spectrum, from shallow water to deep water.
We are the only pure play ultradeep-water drilling company. As a corporate entity there is not anyone who looks like us. Our various competitors have deep-water fleets, but they have to spend quite a lot of money to upgrade those assets to meet new regulations. We saw an opportunity to build a unique business that had much more focus and could avoid some of the compromises of a mixed fleet.
The older rigs are getting marginalized and new rigs are taking over that work. One of the underlying premises of forming Pacific Drilling was to build a company that not only would have the newest generation of assets that met the new regulatory criteria but also would have state-of-the-art operating capabilities. These new rigs are fundamentally more efficient drilling tools.
FuelFix: What are some of the special characteristics of your fleet?
Beckett: We have a fleet that is unique in its consistency. Samsung is the builder. They are all capable of handling 40,000-foot wells. We have dual gradient drilling, a drilling process that allows us to match much more closely the pressure of the formation as it is encountered by the drill bit, so we don’t have to stop as often. We can reduce the number of times we need to stop and add additional strings of casing (pipe to reinforce the well) and as a result we save 20 to 40 days. It is a big saving in pure cost, but the bigger benefit is that we can drill deeper.
FuelFix: What was the most critical factor in getting your company up and running?
Beckett: Getting the right people — we are a service business. We use expensive assets to deliver that service, but we deliver a service. Getting the right people on board was key, both the people capable of building an operation and with enough of a reputation for being capable to win work. Chevron was one of our first contracts, but it was contracting with people it already knew in the industry, not a name on a building. It took the best part of six months to convince them that we had the right skills under development. That is what kick-started it — getting the right people and the right clients.
FuelFix: What have been the biggest surprises for you since starting the company?
Beckett: When we started in 2008, the world looked very different. If you were building an asset, you could borrow money from the debt markets against the strength of that asset alone. Today you simply can’t do that.
It has become much harder to borrow money as a relatively unknown entity. The financing community will not lend against just the hard asset anymore. They have to see that you have an ability to generate cash flow with it. What we were able to do five years ago, I’m not sure that you could repeat today, because you wouldn’t have the operating history to prove you can run it. It’s not a problem for us now, because we have an established operation. We have contracts with Chevron, Total, Petrobras and other majors, who are a seal of approval in themselves.
FuelFix: How did the 2010 Gulf oil spill change your business?
Beckett: A lot of the regulations that have come since are not fundamental changes in the way we have to do business. They are just regulations now rather than industry practice. For us, the vessels we were building and the operating systems we put together already met all the requirements we are seeing in the regulations, but now everybody has to perform to the same standards and there is much more oversight to make sure that we do.
The kind of fleet we needed to be able to operate in very deep water and to start drilling very deep wells — which is the Gulf of Mexico market — are also the things that give you greater safety margins in shallow water and shallow wells. The new rigs bring an incremental safety margin that the old rigs simply don’t have.