Maersk Drilling eyes African prizes
An uptick in west African activity holds promise for hard-pressed drillers
West Africa is one of the world's few hotspots for offshore drillers and could yet be poised to throw up more opportunities, as oil companies firm up their E&P plans in the region's new and expanding oil provinces.
That is welcome news for Angela Durkin, chief operating officer at Maersk Drilling, whose business is still shaking off the effects of the collapse in activity during the post-2014 industry downturn-while preparing to be spun off from its parent A P Moller Maersk in 2019.
"Our main focus in Africa right now is Ghana, where we have three of our drillships positioned. It's a very active market for us right now," Durkin told Petroleum Economist at November's Africa Oil Week conference in Cape Town.
Maersk Drilling's most recent Ghana contract, announced in September, was with Aker Energy to deploy the ultra-deepwater drillship Maersk Viking to drill the Pecan-4A appraisal well on a field that Aker hopes will be producing around 125,000bl/d in the early 2020s.
Drillers, as well as operators, are playing a role in ensuring a high level of local content in their African operations. "In Ghana, for example, 55pc of our employees are Ghanaians. We have over 260 Ghanaians working for us and we are also procuring local products," says Durkin, adding that around 95 suppliers were introduced to the company at a suppliers' day in Accra earlier in 2018.
The company hopes that the uptick in drilling activity elsewhere in the region will bring it further business. "We certainly see Senegal and Mauritania, as well as Ivory Coast, Equatorial Guinea and Namibia, becoming hotspots going forward too," Durkin says.
She believes the region's challenging deepwater acreage plays to Maersk's strengths. The company has streamlined its fleet over recent years, selling off older vessels and focusing on newer, more adaptable drillships and rigs suited to operating in tricky sea conditions and deep water.
"West Africa requires a high technical level and fits very well with our young fleet of drillships," Durkin says.
Improved technology such as dynamic positioning means vessels can now operate in areas where strong ocean movements were previously a hindrance. South Africa is one possible beneficiary, given some of its prospective acreage is in areas where currents meet, making station-keeping a challenge. Maersk Drilling has trialled dynamic positioning systems off the southern coast near Cape Town to better understand conditions drillers could face in the future. Durkin describes South Africa as a very interesting market.
Times remain challenging
With African demand, the surprisingly resilient North Sea market and opportunities opening up in Egypt and Brazil, supported by the improved oil price, Maersk Drilling has more to be cheerful about than for some years, even if the effects are yet to be felt on the firm's bottom line.
"The downturn had a drastic effect on us. In the first two years, the effects were not that apparent, because we were still working through our long-term contracts. But, in 2016 and 2017, many of those contracts came to an end and we had to lay off a significant number of rigs. We have a fleet of 24 rigs and in the worst times we had up to 11 of them idle," says Durkin.
In November, the firm announced it was selling one of its fleet, the jack-up rig Maersk Giant, delivered to the company in 1986, to an unnamed Australasian independent operator.
Maersk Drilling's revamped business strategy is designed to make the company fit for purpose in an industry where flexibility and the ability to operate in a low-cost environment are essential. That will be ever more important when the firm becomes independent of Danish parent A P Moller-Maersk. It confirmed in November that the demerger would go ahead in 2019, with Maersk Drilling due to be listed in the Copenhagen stock exchange.
The overhaul still has some way to go. Maersk said in its Q3 2018 results statement that, despite an improved market outlook, the drilling company was "in a continued difficult market" with profits still "negatively impacted by lower day rates because of expiring legacy contracts". The firm saw Ebitda of $156mn in the quarter, compared to $202mn a year earlier, while revenues fell to $351mn from $380mn.
The need to adjust to a switch away from long-term contracts to short-term leases in an era where activity is still muted underpins Maersk's strategy. The oil price may have rebounded from 2015-16 levels, but risk-averse operators still do not want to be stuck with long-term drillship or rig contracts while the offshore E&P market outlook remains uncertain.
Struggling to hire out all its drilling facilities in recent years, Maersk Drilling opted not to mothball most of its idle rigs-known as cold-stacking-but to keep them ticking over with a crew on board when stored, or warm-stacking, so they can be brought into service quicker as demand arises.
Durkin says that while warm-stacking is more expensive, the speed with which rigs can be made ready for service-and the much-reduced cost of reactivation-made it worthwhile.
"Warm-stacking gives you the opportunity to respond to contracts faster. If the rig is cold-stacked you are literally out of the market," she says. The Maersk Viking, now drilling for Aker Energy in Ghana, was warm-stacked in the Gulf of Mexico before being deployed.
Maersk does not provide costing for reactivation, noting that it varies from rig to rig and place to place. In a September webcast, Transocean officials gave indicative figures suggesting that some of the US firm's cold-stacked rigs could cost around $25mn to reactivate, while warm-stacked rigs could cost around $60,000/d to keep ticking over, but only $5mn to reactivate.
Durkin endorses the oil industry's efforts to reduce the project complexity to increase speed and cut costs. The company agreed in late 2017 to form an alliance with producer Aker BP and US services giant Halliburton in Norway, designed to reduce waste and lower production costs through collaboration between the companies on Norwegian projects. The model involves contracts that set out shared goals and incentives, integrate project organisations and align safety procedures.
One of the unit's four new contracts in Q3 2018 was the first deal with Aker BP as part of that alliance, for the Maersk Integrator jack-up rig. And Durkin thinks such pacts simplify industry processes and provide some certainty over future activity. "You basically create an environment where you have three parties sitting in line behind the same goals and behind the same incentives, so we share the project's ups and downs together," she says.
Such collaborations also help to bring some much-needed certainty to future work programmes in the new, more short-term contract-orientated market. "The contractual environment that we have now is very inefficient," says Durkin. "The day-rate model is certainly not going away for a long time, but short-term contracts don't incentivise performance and that needs to change. The whole procurement process needs to change to cater much more for value rather than price."
According to Durkin, the company's independent listing will not alter the way the company does business. "We are well prepared for the next step. It won't change anything in our day-to-day operations," she says. But what it should do is give the company a cash injection and potential to further modernise its fleet, so that it is well positioned to take advantage of the potential expansion of E&P activity in Africa and elsewhere.