Drillers urged to rethink ‘primitive’ day-rate model

●Sector warned against repeating restructuring actions of 2014

Offshore drilling firms should rethink the “primitive” dayrate business model in order to survive the current industry crisis, according to new analysis from Boston Consulting Group (BCG).

Changing the historic system, which “has never really evolved,” is among the measures suggested by the international research firm, along with significant fleet rationalisation and dramatic crew efficiency improvements.

Drillers’ “dreadful performance” since the last downturn and the “missed opportunity” for strong change post-2014, has them “ill-prepared” to handle the current crisis, sparked by the Covid-19 pandemic, BCG said.

Their plight is reflected by several firms entering Chapter 11 bankruptcy in the United States and with the Cromarty Firth in Scotland filling up with idle rigs in recent months due to a lack of work.

The day-rate model of charging for hiring out rigs was an “extremely

lucrative” scheme in the boom days, rewarding drillers purely for asset ownership.

However, BCG’s “threepronged plan of attack” for these firms includes accepting this model “no longer fits today’s reality”.

“Drillers need to accept this, rethink their value proposition and adopt a new model,” it said.

As it stands, drillers bear limited risk for the success of their activities and BCG suggests considering offering“risk-based

integrated drilling services and additional well-drilling and completion services” to amend this.

Additional services might include decommissioning and well intervention services, not as one-offs but a “core” part

of their offering to exploit new revenue sources, which are increasingly sought after by operators.

This would “add genuine value through the assumption of well or performance risk”, along with alliances with other firms and a multi-skilled rig crew.

Repeating the restructuring actions of 2014 will leave the sector “far short of what’s needed to avoid sliding toward sunset industry status”, BCG’s report warned.

Photograph by Sandy McCook DOWNTURN: The Cromarty Firth has become what some have called an oil rig graveyard due to a lack of work.