Bringing Efficiency to the Offshore Rig Contracting Business

Abstract

The worldwide offshore rig chartering business is a significant business with $7 billion to $10 billion in annual expenditures. A study of bidding and contracting practices reveals major inefficiencies in the processes involved in this business, and in the variability of economic decisions, as evidenced by fixture ranges of up to ± $55,000/day for rigs of similar capabilities. The market lacks transparency. Rig chartering supply and demand have very different characteristics. While supply is essentially inelastic, demand is highly volatile. This creates complementary needs for operators and contractors. Operators need:Knowledge of rig capabilities including recent contracts and activities.Knowledge of rig availability and future commitments.The ability to quickly develop multiple contingency drilling scenarios.Easy collaboration with partners and colleagues. Contractors need:Knowledge of upcoming drilling projects and rig capability requirements.Knowledge of competitors' rig dispositions and capabilities.Ability to manage their fleets. Both need:Detailed current supply and demand and dayrate information in each market segment to facilitate tactical and strategic decision-making.Standardized contracting processes. Several companies are managing their rig contracting businesses online, using a real-time expert system to give them the insight they need. Having the right rig for the right job creates tremendous economic advantages. Operators are able to use their drilling budgets more efficiently. Contractors are better able to match their fleets' capabilities with market conditions. This paper offers several examples of decisions that have benefited greatly from market transparency. For example, market insights were essential in helping to determine whether to invest in a rig upgrade or newbuild, as well as how much to invest. Similarly, the ability to lease rigs competitively on the spot market depends on access to market and competitive information. This paper provides examples of efficiency improvements by both operators and contractors, as well as the methodology and results of price/risk analyses. Introduction The demands on business are increasing year on year; the Oil Business is not immune. Every year businesses are challenged to "do more, with less"; execute more projects with less people, develop new products faster with less investment and evaluate more options in less time. To succeed, companies must continually improve their efficiencies. Efficiency gains have traditionally been found in two key areas: improving the timeliness and quality of business decisions and removing the friction or waste in the business processes. This paper will address the opportunities to improve efficiency in the rig contracting business that result from embracing and adopting digital technologies that deliver information to support decisions, that improve inter- and intra-company collaboration and that streamline rig contracting processes. It's All About Decisions and Processes No doubt, business is all about making decisions. Whether the decision involves building a new corporate headquarters or buying a new copy machine, people have to gather the requisite information, analyze it, consider alternatives and select options, and finally, decide. The oil business is no different, except for the dollar magnitude of the decisions, the high uncertainty of those decisions, and the limited time frame in which to make them.