OTC commentary: Improving offshore economics

By Jeremy Thigpen

As the offshore energy industry navigates the most severe downturn in decades, we are encouraged by the collaborative and innovative approaches we have witnessed to improve the economics of deepwater and ultra-deepwater drilling and production.

Beyond the traditional push for lower product and service costs, our customers are actively engaging and challenging us, their service providers, to identify more efficient approaches to reduce overall project costs. And, as evidenced by the dramatic reduction in break-even costs across our customer base, it is clear that we are answering that challenge. The question now is how efficient can we become? And, are these savings sustainable?

At Transocean, we continue to look for opportunities to optimize our business, and reduce our cost structure; but, we are also focused on leveraging some of our unique strengths to drive sustainable performance improvements that will result in the most efficient delivery of our customers’ wells.

We have almost three times the ultra-deepwater experience of our next nearest competitor, along with drilling data from working in basins around the world. Recently, using our experience and data, we developed performance dashboards that clearly and intuitively demonstrate a rig’s performance for our offshore personnel.

Through every stage of the drilling program, our rig leaders can evaluate the relative performance of crews compared to defined benchmarks and the other rigs in the Transocean fleet. While it has only been a few months since we launched the application, we have already observed performance improvements. Ultimately, our mission is to reduce, if not eliminate, the frequency and duration of any flat spots.

To achieve this mission, we know we must have the right assets to drill our customers’ wells. In response, we developed a pragmatic approach to our fleet composition. Using technical specifications, we ranked every offshore rig in the world, including rigs under construction.

Once ranked, we took a position on the number of deepwater and ultra-deepwater rigs the industry likely needs in the coming years and concluded a significant number of rigs in the global fleet, including some of Transocean’s, may not earn future contracts.

As such, instead of investing in preserving and stacking these rigs, we retired and responsibly recycled them. Removing these assets from our fleet supports our mission to improve efficiency and drive consistency of performance for our customers through a high-graded fleet that also includes the addition of new state-of-the-art, ultra-deepwater drillships.

Last year alone, we welcomed three of the industry’s most technically capable rigs. Each has a long-term contract running into the next decade. And, we have two more rigs, both with 10-year contracts, which will join our fleet late this year and early next.

Another two ultra-deepwater drillships are scheduled for delivery in 2020. In our ranking, these seven rigs are viewed as the industry’s finest. We also recently announced a planned upgrade to one of our ultra-deepwater drillships, transforming it into another of the industry’s most capable assets.

On these new assets, along with the other assets in our fleet, we have identified opportunities to improve equipment reliability and performance through “care agreements” with original equipment manufacturers that are focused around reliability-centered maintenance for the most critical equipment on the rig. In the past, our industry performed maintenance based almost exclusively on the calendar, as opposed to the actual need.

But, the reality a piece of equipment on Rig A is not operated under the same conditions as an identical piece of equipment on Rig B. Therefore, calendar-based maintenance may create unnecessary cost and introduce risk similar to performing vehicle maintenance guided by the calendar as opposed to mileage. By capturing data to monitor the use of rig equipment, we can better determine when and how that equipment should be serviced. Through this approach, and with the support of our equipment manufacturers, we are optimizing the maintenance process, while simultaneously reducing risk.

While there is certainly more to be done, we view these reliability and efficiency gains as sustainable works in progress to improve the economics of offshore development and production, which will be required to support an ever-increasing demand for oil and gas.

Jeremy Thigpen is CEO of Transocean.