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Interview

with Cees van Diemen VP Operations Pacific Drilling

01.04.2010 / Energyboardroom

Pacific Drilling is in the process of confirming its first contract for one of its wholly owned vessels with Chevron for use in the Gulf of Mexico. This has been a rather complex deal with many specifications for the client. What does it say about Pacific Drilling?

We target the ultra-deepwater market using some of the best talent in the industry which makes us very adaptable to the utilization of new technologies. This project involves the use of a new technology, Dual Gradient Drilling (DGD) that has been under development for a number of years so if you want to apply it you need to be flexible and willing to try something different. When the opportunity arose to employ this technology we targeted it because it made sense towards our commitment to be innovative. Doing this helped convince our client that we are indeed the right company to speak to and work with.

As a company we’re open to change and it’s good for the energy business because it will allow certain regions where we cannot currently drill to be accessed in the future and to do so at a lower price since it’s a more efficient method. Both of these factors are good for the client, and if it’s good for the client it’s good for us.

Of course this flexibility is not without considerations; as it’s a new technique all Pacific Drilling personnel will have to be trained to adjust to this difference and the rig itself is constructed and outfitted to allow for dual or single gradient drilling.

Is this flexibility what differentiates you from more established competitors in the industry?

I’m sure they were interested as well but they either weren’t as flexible to the client’s needs or busy with other projects to divert the attention. To give you an idea of our activities to secure this contract, the second our reply to their request was presented to them we went to visit them right away to examine the unknown aspects of the bid and figure out how we can adapt our rig to fit their needs. We’re in the lucky situation where we still have rigs in the shipyard under construction so we can make necessary changes for our clients.

Pacific Drilling is a new company. We are very flexible, disciplined, focused and client oriented. When we promise something we deliver which means we have to understand their objectives and the challenges that lay before them.

Pacific Drilling actually has operations underway on two rigs done in partnership with Transocean. What can you take from this ongoing experience and apply to future operations?

First, I would point that we’re building six rigs in a row and the team doing it is for the majority, the same one that built the first two rigs under joint venture with Transocean and who originate from our sister company Tanker Pacific. So their experience on the first two vessels – KG1 and KG2 – is something that we are applying to the current four vessels under construction. From this we can see a difference in each ship that comes off the line.

Secondly, we can closely follow the operations of these two vessels and examine the issues that occur in order to address them upfront for our new ships. Drilling contractors are good at steel and equipment installation, we’ve done it for years. Yet today instead of switches we have computer controls so we need to account for this. In this line, for our current ships under construction we have gone to Athens Group, an IT/Electrical specialist company. Rather than waiting until things don’t work properly we’ve hired them upfront to be there from the design through the delivery of our vessels to make sure our systems are done right. Additionally, they will train our people to use these systems effectively and then annually audit our operations to ensure we are at the highest standards.

So yes, we’re applying what we’ve learned from our first two vessels and we will continue to evaluate as time goes on. Our intent is not to be the biggest player in the market, we will remain in our niche, but we’re certainly not going to remain with only six vessels.

For a niche player in ultra-deepwater, the Brazilian market is a pretty obvious choice. Petrobras alone is looking to invest up to $10 billion annually in this field. Nevertheless, other previous entrants to the market have noted that in order to play here, you have to be ready to spend the time and the money. Is Pacific Drilling prepared for this?

Yes. As a company, our first step was to put the VP of Operations – myself – in Brazil which is a sizable move. I’m always on top of any opportunities that are out in the market.

Pacific Drilling has also adjusted the specifications of our rigs to meet Petrobras’ own technical requirements which are fairly unique. This means as a supplier we have the least amount of non-conformities.

Of course, customers always ask for more, and it’s my expectation that when Petrobras’ hears about our contract in the Gulf of Mexico using DGD they will want to talk about its potential. We need to be careful as its specific intellectual property is held by Chevron which means we cannot share it but it will definitely attract some attention and a company like Petrobras is always looking to learn. There’s also the potential that Chevron is interested to work with Petrobras on this technology and since this technology improves drilling efficiency and adds potential of new regions it’s something that could definitely benefit Brazil.

Our commitment is to Brazil and we’ve debated as an organization the potential of establishing the main office here, which would make us as flexible as flexible can be.

Do you expect to take experiences with international operators into Brazil and perhaps later on use them as a base by which to expand operations elsewhere? Is this country a launch pad for deepwater experience?

Definitely; when you look at the amount of wells being drilled here and the challenge presented in drilling each one it creates a good learning curve for a company.

It’s also important to emphasize that there are many talented, well educated people here in Brazil. When I look at organizations I’ve worked for in the past, there was a limit as to how far people were promoted. I arrived to Brazil in 2005 and within one and one-half years the majority of our employees were local with university qualifications, many of which have now moved into more high profile positions while some others have gone on to different companies.

This is the way it works when you hire top talent; you need to move them along through promotion and continued challenges that utilize their expertise.

When it comes to the question everyone is asking, how do you get the right people? It’s obvious you’re going to have to select the people with potential and train them. You need to bring in experienced people, like myself, who have seen many operations gone right and several operations less successful in order to mentor new talent.

The most experienced players in the industry, some of which have been here for over a decade still run into this problem with talent. As a new company how do you plan on attracting the best Brazil has to offer?

You certainly don’t want to attract them from the others because if someone comes to work for you from the competitor it’s most likely because he likes the money not the company.

What you need to find is someone who is looking to stay with a company so you have to find young people direct from school and give them challenges. If you take people with the right mentality and carefully train them than within four to five years they can be very efficient for the company you and the operation while also making a good living so that they can take care of their family. The good thing about Brazil is that there are many people looking for a good job and I believe if you take those with nautical training and university degrees they can do a lot for you in just a few years.

Perhaps most importantly, they know how people work down here which can be a big advantage. For example, when I moved down here in 2005 my secretary made an appointment for Tuesday morning at 10 am. Of course, Tuesday morning came around and nobody was there; I asked my secretary where they might be and she mentioned the possibility of traffic or other delays so I went on with my day and nobody showed up. On Thursday however, at 2 pm in the afternoon I got a call from my secretary telling me my visitors had arrived. I told here I didn’t have any meeting in my agenda and she informed me this was the meeting from Tuesday and if I didn’t welcome them it would be rude! Clearly, I had to adapt to the way of life here in Brazil and the way business is done which is quite different than Europe.

Should the need arise through a contract with Petrobras, we have enough contacts here in Brazil to establish our company here in a years time so Pacific Drilling is prepared for the possibilities. We’re willing to train the young graduates, some of which we will take outside of the country to gain experience elsewhere. For instance, say we want to go to Angola which shares a number of similarities.

In regard to some of the complications in the marketplace, we’ve spoken to a number of suppliers who have noted the issues that come from introducing rigs and equipment to the Brazilian market. Some rigs having sat in the harbor for weeks, even months at a time. As a new company who has yet to introduce a rig here, how are you prepared to take on this challenge?

There are really two challenges to face. First, you have to bring the rig into the country and there’s only one way to do this and that’s 100% by the rules of the country: don’t think that you can bend the rules. This requires the appropriate preparations by engaging companies in Brazil to help in tasks such as making the inventory of the rig and filing the paperwork for importation.

You can say hiring a third-party to do these jobs is going to cost you money but if they do the job right there won’t be any problem with customs. While flying these people out to Korea is expensive it’s nothing compared to the revenue lost each day a rig isn’t operating. There is also the consideration that if you don’t do the customs paperwork correctly, you can get in but never out and the end is always something you have to keep in mind. Throughout the life of the rig there’s a paper trail to keep up which takes a lot of people to do but the repercussions for not doing it are much greater: just look at some of the fines that have been issued over the past years.

A good example of how conscious we are of local specifications is the rig heli-deck; there is a separate authority for this in Brazil and Petrobras won’t come on board your rig until this is approved. Even though our rigs have decks that are bigger than what Petrobras typically requires we will fly the right person out to Korea just to make sure the paint on the deck fits what they want. We’ll even check it a second time around just to be sure.

We also need these third-party participants in order to keep the bias out of our own approval process. If you examine your own internal structure you will never be completely impartial and as a result you may be more lenient on what you’re checking.

The other step you have to be conscious of is the Petrobras acceptance test for the delivery of the rig. We know what they’re looking for and we’ve modified our technical specifications for multiple aspects of our newbuilds to reflect this. If you approach it correctly, this test can be concluded in three days but you shouldn’t think for a second that you can get away with not complying with the contract.

It’s possible to pass too, for example in my previous company in 2006 we brought in a moored semi-submersible to Macae and within five days we had the rig approved. What did it take? From the moment we had the contract we had a drilling specialist whose job it was to make sure we passed the Petrobras test; this was his focus for over a year.

The beauty for Pacific Drilling is that we have new rigs so everything should be in working order and we can adapt to the demands of the client.

As a company with new rigs in the pipeline, who is aware of the regulations and poised to be very Brazilian, what is your dream project?

I want to have multiple rigs in the market run by Brazilian people who we can also use to supply other regions of the world which we operate in. I would like to take what we learn from here drilling in the pre-salt and apply to other areas.

How close are you to a deal with Petrobras?

At the moment there is only the newbuild proposal on the market; there is no official inquiry out for additional rigs. One came out in November of last year but that closed in late March which we did participate in but only one rig was contracted in the end even though it was initially announced to be more than one. Petrobras is currently looking to take some of its international fleet and return it to Brazil.

Our expectation is that within the next year something will come to fruition. We really want to do something in Brazil and we’ll be as aggressive as needed to achieve this.

If we come back in five years, what will we see in Brazil? Will you still be here?

I may still be here in Brazil, but the function of running operations in this market will no longer be up to me; I feel it needs to be a Brazilian managing the group here. In a circumstance where we have 1000 people, there may be 50 expatriates but there would be more than 50 Brazilians working outside in our other operations. The way I see it, by bringing Brazilians out to some colder areas, such as West of the Shetlands or Eastern Canada – where our ships can go – in order to see how other parts of the world work, that will bring more to Brazil than just a 100% local operation.

It’s a matter of learning how to communicate with different people and experiencing different geologic and climate factors they don’t experience in Brazil which makes them better-rounded individuals and able to contribute more to the operations. Moving around is good for people because it makes them see how it works in the UK, Nigeria, and Brazil so when it comes to a particular problem they can think outside the box.

This industry needs to have a framework but it also needs to allow the sunlight in for some new perspective. For instance, if something is invented in another industry why shouldn’t we see how to apply it to ours? We should tie in more ideas from IT specialists and bring them onboard at the highest levels. There’s a mentality shift in the industry and we want to be at the front edge of things moving in a positive direction. You have to be proactive instead of reactive.

I hope I’ll be here in five years; I like Brazil, the people and the area.

What was it about this new opportunity at Pacific Drilling to leave your last position in a company you had been with for a number of years?
Firstly, I was attracted by the new equipment and the quality of the drillships which are bigger and better than the older equipment on the market. This factor together with the people here which I’ve gotten to know over the last five years was enticing.

I enjoy the opportunity to work with young, experienced people who communicate with one another all the way up to the top level and where opinions are valued. We make decisions and execute them quickly which I find very different from larger drilling contractors whose head may have lost sight of the feet. The feet are the most important because if they’re not on the ground than you’re falling over. People are you’re most important asset so you need to train and treat them well.

Pacific Drilling is not a public company; we’re still privately owned and operate like a family treating people with respect all the way from the top down. I agree with this principle which is why I joined this company.

What would you like to be your final message to Petrobras, other operators and your peers?

Pacific Drilling wants to work with Petrobras because they’re at the forefront of deepwater drilling and present projects with unique challenges that we can adapt to. I’ve personally met many of the people within their company and I enjoy working with them. They may be tough but they know what they want and they’re good at what they do.

If you want to work with others you might as well work with the best because you want to be on the winning team.

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