Pacific Drilling (pd) Drilling Company

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COMPANY OVERVIEW

Pacific Drilling (PD) is an offshore drilling company that provides drilling services through the use the newest and most technologically advanced high-specification drill ships operating fleets in the ultra-deep-water drilling environments. PD’s strategy is to use its consistent fleet of Ultra-Deepwater drillship, managed by a highly experienced team to provide differentiated drilling services for its customer. So far the strategy has been successful as can be seen with the acquisition of new contracts, low LTI (lost Time Incidence) and also the growth in key financial ratios(Exhibit 1).  With the impending effect of the fall in oil prices, how does PD weather the storm?

CHALLENGES

The company is facing a number of challenging issues such as:

• The need to secure ongoing contracts for their drillship.
• Drop in day rate for floating rigs.
• Developing new relationships with potential new producer partners.
• The volatility of the price of common shares.
• The drop in the market price of oil from $115 per barrel to $49 per barrel
• Increasing the average utilization rates of their drill ships

RECOMMENDATIONS

In other to ensure ongoing success of the company, pacific drilling must:

•  Generate more revenues: This is mainly dependent on the ability of management to enter into and negotiate favourable terms for future client contracts or extensions.  Even though Beckett’s willingness to think beyond the established convention has helped put Pacific Drilling   in a unique position in the offshore industry, will this be enough to negotiate contract in such a stiff environment (PEST).  PD needs to invest in marketing, this will enable them to develop their branding, reputation and customer relationships. There is also a need to build a sales force who can translate the company’s vision and mission effectively to customers in other to get there buy ins. PD’s competitive advantage in

• Continue to increase operating margin: Pacific’s operation margin is below the industry’s average, this indicates that the company isn’t generating enough income from its operations. it’s important that Pacific achieve the safest, most stable and efficient operating model for all rigs. The drilling activities and depreciation accounts for 90% of all operations cost and expenses, if pacific is able to cut its expenses by 30%, operating margin will increase to over 50%. In other to make the necessary adjustments to reduce cost, pacific must leverage its strength (fig 2) in areas such as talent management, technological innovation and leadership to achieve operational excellence.
• To Implement a best in class, comprehensive operational excellence management system; the firm can adopt

• Use of Advanced analytics: as the so-called big data rises, many industries are becoming reliant on the use of advanced analytics to identify early indicators of potential issues that could affect project performance. For instance, by leveraging vast sets of in-field employee performance data, companies can make more informed workforce planning decisions. Similarly, by integrating external data (i.e. weather patterns, political unrest, multi-tier supply chain issues), they can model scenarios in which projects typically go off the rails and put mitigation strategies into place in advance.
• Lean Project Management: this involves the dynamic adjustment of project delivery needs to contemporaneous project mandates, enabling organisation to adjust workflow and resource allocation in real time, in response to shifting requirements.
• Talent Managements: during industry downturns, companies tend to lay off professionals and reduce their hiring of entry-level workers. To avoid shortage of skilled workers into the future, pacific needs to set up training programs that fosters a higher level of cost consciousness among its existing workforce.
• Leadership: Pacific needs to ensure there is more focus is on operational excellence within the organisation culture, in other to achieve this, there is a need to reshuffle its organisation chart. The director of operational excellence needs to have direct communication with Chris Beckett.

• Pacific also needs to generate cash to better manage its debt. Cash availability has dropped by over 70% while debt to equity ratio has increase from 1.15 to 1.36 which is relatively high when compared to the industry average. To add to this, Pacific’s quick ratio fell to 0.95, this demonstrates a reduction in the ability of the firm to cover short-term liquidity needs. Pacific has to rethink its value distribution (fig 4) in order to better share the risk of debt. The company can also seek new finance source in other to take care of its debt but the risk

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CONCLUSION

Looking at the attractiveness of the offshore industry (Fig 3) and all the current issues facing the industry, it will be quite difficult to generate revenue so it’s much better if Pacific Drilling look at ways to cut cost in other to ensure its ongoing success.  

• looking at the company’s operational margin (Fig 1) in pacific should be able to generate more income from its fleet of drillship as it represents one of the youngest and most technological advanced fleets in the world.
• instead of having a one manual fit all for all their rigs,
• Incompatibility of standards can account for a significant portion of costs in drilling. Operators and contractors should align on safe, effective, efficient and compatible standards to create a step change in performance.
• Reduce customer costs via long term agreements.
• Slash SG&A and stacking cost.

• There is a need to make to improve efficiency to stay ahead of the game, this will enable them to make their cost more competitive in the market.  Due to the price crash, many producers will probably withdraw from costly Deepwater projects to focus less deep exploration.
• Eliminate non-productive times – save 15 – 25% cost (ideally)
• Optimise current operations, eliminating invisible lost time – save 10% of cost.
• Apply new technologies – save 30 – 60%.
• Retire older rigs earlier

• Maximize revenue: Due to increasing competition in the industry (Ex 1a), it is of

Increasing utilization rate

• Cutting cost: based on the company’s finances (Ext ), the operating cost and cash flow shows that. There is an immediate need to lower cost, There are several ways to do this, from reducing human capital to increasing efficiency to technological innovation.

IMPLEMENTATION

A key approach is to adopt a “lean manufacturing” mindset that involves identifying certain operations that can be systematized and working with suppliers to identify efficiencies.

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