Ray Watkins, Vice President, Seadrill, Singapore
Ray Watkins, Vice President of Seadrill APAC, Singapore, discusses the unique traits of the upstream drilling environment of APAC, outlining how the company’s unique business model is positioned to compete against rising local competition.
After 30 years working in the O&G industry, you joined Seadrill in 2011. What were the characteristics of Seadrill that attracted you to the company?
Firstly, since 2005, the dynamics and growth of this organization have been remarkable. Every day the company is pushing and building—things are never stagnant at Seadrill, which makes it an exciting place to be. Secondly I wanted to be part of the company’s growth story and help facilitate its continued expansion. Given the relative young age of Seadrill, and the array of mergers and acquisitions that have occurred, we needed to establish a solid structure and I could help do that.
Arriving in Singapore as Vice President in early 2013, what was the original business strategy you drew up to expand Seadrill’s footprint in South East Asia?
Through Smedvig, Seadrill had been here for many years. The structure was very well established, well grounded and as such, the operators and clients knew who we were. Having spun off the tender division, there was a question mark as to the future direction of our presence here. It was a case of separating the organization from Sapurakencana. Those people that stayed with us needed the security and assurances that we were here to stay, as did our clients, so it was paramount that we gave those long-term guarantees.
What challenges have you faced in implementing your strategy?
The rigs we have operating here have tremendous up-time. This year, we have had more than 99 percent of technical utilizations for each and every one of our jack-up rigs, which is a trait that sells itself. Nevertheless, the challenge ahead stems from the local competition, which is entering the market and offering the clients lower day rates. As such, it is our responsibility to convince the clients that what you pay for is what you get—align with Seadrill and you will have to pay a higher day rate, but you are guaranteed unrivalled, top quality service.
Can you tell us about the core services Seadrill provides in this region and highlight some of the core projects you are operating?
We currently have nine jack-ups working across the region: Malaysia, Vietnam, Thailand and our client base is diverse, encompassing a mix of NOC’s such as Petronas and PTT, and the IOC’s. We have eight jack-ups currently being built in China and we have a further four deepwater drill ships being built over the next couple of years. The extension of Seadrill’s fleet is very much part of the company’s future strategy.
An article in Bloomberg raised concern that Seadrill’s client list was extremely concentrated, stating that 70 percent of your future contracted revenues are through a concentrated list of five companies. Is that not a considerable risk?
We do have international oil companies that we are tightly connected to. However, as an organization, we need to understand the NOC players better, which are becoming increasingly prominent in the market. Ultimately, we are striving to forge stronger bonds with these entities.
In Asia Pacific specifically, one needs to work tirelessly to get into the national oil companies so that they are in mutual understanding and respect. We are perceived by the NOC’s as a fairly bullish organization that needs to have the highest day rates in the market and that is a misconception. For all our clients, we endeavor to offer the best possible deal for both parties and establish long-term, sustainable partnerships.
Is it not a risk to be expanding rapidly in a market that is susceptible to volatility and rapid change?
Going forwards, it is crucial we actively look to get these rigs locked in and contracted. Naturally, our greatest underlying risk lies in the fundamentals of commodity prices—most importantly, we need strong and stable crude oil prices. Moreover, what we have not seen happen to the extent we anticipated is the drilling fall-out from Macondo. We envisaged the drilling companies over there retrenching, leaving a window of opportunity for us. Nevertheless, this is going to happen.
In 2014 I believe we will see a fairly balanced supply and demand market. Looking ahead into 2015, 2016 and beyond, providing the oil price remains as it is, then you will see an imbalance in supply and demand. Companies that have put projects on ice will want to go ahead with projects in 2015 and beyond. This will stimulate a domino effect where we will see rigs that are over 35 years of age leaving the industry, and we are hoping we can backfill that void. Indeed, Seadrill has the youngest fleet in the market and we will continue to add new, modern rigs.
There is plenty of optimism in South East Asia regarding the potential of deepwater reserves. How do you assess this potential, and how is Seadrill positioned to capitalize on this forecasted opportunity?
The regional market is seeing a shift towards deepwater plays; however, when you compare it to the regions of West Africa or the Gulf of Mexico, the day rates are just not there. Furthermore, the long-term guarantees are not there. These are regional issues we do have to contend with.
Due to growing levels of upstream activity in the APAC region, the drilling market is evolving rapidly. How would you describe the drilling environment of the region?
Seadrill is establishing a close relationship with PEMEX and we recently sent five rigs to Mexico, contracted over a six-year period, and naturally this locked in revenue stability generates investor confidence. However, three of those rigs will come from Asia Pacific, which, because of the lack of supply, only serves to strengthen our competitor’s position. As such it is vital we backfill our rigs.
How big a challenge is finding the right offshore talent to facilitate your regional operations?
It is a considerable challenge. We are having to look at alternative resource pools to attract the right talent. Ultimately, the offshore environment is not for everyone. Indeed, we are looking to the military and leveraging the transferable skill-set of individuals from that background, to service our offshore activities. People with a military background are accustomed to working away from home and operating in a disciplined manner—two of the primary traits needed for offshore staff.
In this region, adopting a local human resources mindset is critical. Not only is this often drawn up in the contract (that a certain percentage of staff must originate from the national country), but we ourselves need to build up this aspect of the business for sustainability purposes. It also helps supplement a positive relationship with the country we are operating in. Moreover the competency level of the human talent here is very high, they speak English, work hard and despite the perception, there is plenty of talent available. To me, there is no need for many expats to be in this region.
Looking ahead, as the company develops and matures, we will need to implement company-wide sustainable and well-coordinated recruitment structures.
Due to significant barriers to entry and rising costs, the offshore drilling market has moved towards consolidation. Bigger players means greater competition. What is Seadrill’s competitive edge in the region?
As an organization, we are likely to grow organically rather than pursue further acquisitions. Clients choose to partner with us because of the quality of product that we deliver. In addition, we pride ourselves on delivering a safe product and providing good technical uptime, which offers good value for money.
Norwegian companies are synonymous with high standards of health and safety procedures. How important is it to Seadrill to maintain a high level of Health and Safety?
Our vision is to set the international benchmark in drilling. Seadrill sets one standard that applies across the globe and this allows us to move people seamlessly from one part of the world to another, without it having an adverse impact on safety standards. We do not accept any reduction in the standard of safety on any of our units.
What is the strategic value of Asia Pacific for Seadrill’s global operations and future revenue stream?
The Asia Pacific will be a steady milking cow for companies for a number of years because there remains a lot of potential and opportunity here. We have positioned ourselves here for the long term.
Where will you have taken Seadrill in South East Asia in the next three years?
By 2017, our regional presence would have augmented and we would definitely have established a foothold in the Australian market. Our business model has slightly evolved in the sense that we have taken personnel out of Singapore and placed our operations directors into the field, one of whom is located in Vietnam and another in Malaysia. This approach allows us to both cut costs, as holding expats in Singapore is increasingly expensive, and support our clients on the front line. We are on a path of sustainable growth and we want to maintain that trajectory.