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Alliances or bankruptcy for drilling companies

This article was first published in Finansavisen, a Norwegian business newspaper.

Aleksander Fidje, PA transformation and strategy expert, spoke to Finansavisen about how drilling companies can quickly lose their value but explained how alliances with other oil services companies will help them prosper.

Drilling companies compete too much for price and rig specifications. They rely too much on external market forces that they cannot control. Unless they address these issues, Fidje thinks we’ll see a very dark picture in a couple of years. He still believes it will take time before there is a noticeable rise in the rig market but he urges rig owners to take strategic action and change their business models.

They must focus on what the operators need rather than what one has historically focused on selling, says Fidje.

Take strategic action

In order to stand out and win contracts, Fidje believes that the rig companies must join forces with the operators (the oil companies) to develop ways of working that benefit both parties. Furthermore, he believes the rig companies must enter into partnerships with other companies down the supply chain in order to be able to offer complete solutions according to the operators' wishes. This requires full organisational and financial integration. Own project teams or joint ventures and joint accounts must be established, and both the operational and financial risks must be shared across the alliance, he says. This will provide a more efficient operation overall. You don't just want to deliver an asset, like a rig, but a total solution with more value.

Collaborate on assets

Fidje also believes that rig companies should cooperate with competing companies or other companies that hold assets to offer management and project execution as a service. Then a company can take on a job for project execution and delivery and use the rig that is best suited for the job, says Fidje. For example, you can hire far cheaper rigs from China. A shift towards such models means that it’s no longer the rig, it’s the company's ability to project manage implementation, which is at the centre. Such a change can, according to Fidje, mean that several wells can be drilled because it doesn’t require a large organisation to do so. The consultant believes it also makes it possible to sell their services to far smaller companies that don’t have access to the organisational resilience needed to manage this type of project. This change presents opportunities for rig companies to take control, instead of relying on external providers, says Fidje.

Driving cost savings

At PA, we estimate that such alliances could significantly reduce drilling costs for the rig companies by up to 50 percent. Much of this comes from better logistics related to drilling.

Today, for example, you can see that offshore supply boats on contract only deliver 50 percent of their total capacity. Will the rig companies listen to you? We believe and hope that the focus on new business models will come and that the players will take hold of them, says Fidje. And it won’t be difficult to enter into alliances if companies share the risk and there is ensured incentive structures to encourage participation.

Contact the business transformation team

Monica Ødegaard

Monica Ødegaard

Business transformation and consumer products & retail

Aleksander Fidje

Aleksander Fidje

Business transformation expert


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