Offshore – Vern Westerhout, Chief Executive Officer – Singapore
The CEO of Opus Offshore discusses his company’s commitment to use new-build & fit-for-purpose vessels, especially the Tiger drillship, and its aspiration to be a full-fledged drilling contractor that both owns and operates assets. He elaborates on Opus’ joint venture with Songa Offshore and on Opus’ focus on offering of a quality service for the midwater market, a niche that has been largely ignored thus far in the APAC region and globally.
Established in 2011, Opus Offshore is a pure play offshore drilling company with a focus on the midwater drilling market. As one of the founding members of the management team, what was the vision behind the establishment of the company?
After leaving Frontier Drilling, David Smallwood, now the Vice President of Technical at Opus Offshore, and myself decided that it would best to embark on a new project to fill an existing market gap. We noticed that midwater rigs were all getting older, while most companies were focusing on deep-water, ultra-deep water rigs and jack-ups. We thus decided to enter this market niche, specifically focusing on building midwater drillships with new and updated equipment. The Tiger series rigs was thus born from this wager and a concerted effort to improve the design of drillships for the midwater market. With our Tiger drillships, we made a concerted decision to include only the technologies that are truly required to drill a well, rather than superfluous additions.
In addition, our drillships will have to compete against older rigs when they enter the market, which has made capital costs into a major consideration, especially since the current drilling contractors could decide to bid their older rigs at lower prices. As such, we have to ensure our own financial viability over the next two to three years until operators realize the value of our product and are willing to pay for our new rigs.
Finally, due to the scarcity of rig workers, we have consciously chosen to focus on simple to use technology, thus our ‘simple is best’ motto. Thanks to this decision, we do not have to rely on highly qualified electronic technicians or third party contractors to make all repairs on our drillships. Our own rig mechanics and electricians will not only be able to undertake preventive maintenance but also to complete most repairs since the equipment we have sourced is familiar and easy to use. Overall, having exactly the necessary parts to function, the Tiger drillship is a fit-for-purpose rig with ideal specifications to complete midwater projects.
Starting Opus Offshore in this capital-intensive industry must have been anything but smooth sailing, even with the experience of the founding management in the sector. Can you tell us more about the challenges you have faced?
Each of the three founding members of Opus Offshore adopted a particular challenge. David Smallwood managed the technical aspects, which were in many ways the easiest to solve thanks to our combined experience in the industry. I was made responsible for our corporate structure including finding personnel and contracts, while Colin Liu was charged with finding the necessary funding.
We decided to construct our rigs in the Chinese ship yard that had previously built the Bully 1 & Bully 2 hulls for us previously at Frontier Drilling. As such, we had formed almost a strategic alliance with the shipyard and were hoping to find a Chinese investor. Following a two-month long search, we met Dr. Chanchai Ruayrungruang of the Reignwood Group, who was very supportive of the idea behind Opus Offshore. At the time, he had purchased four jack-ups and did not have the in-house expertise to get them out of the yard, so both fate and timing worked in our favor in March 2011 when the Reignwood Group became our major investor. Things have fallen into place very well for Opus Offshore as we go along, and, hopefully, this will continue.
Opus recent acquired Songa’s Mercur and Venus mid-water semisubmersibles and established a strategic JV drilling management company. Can you tell us more about the strategic motivations behind this acquisition and partnership?
Typically a drilling company needs to be able to run on its own operations, but since the Macondo incident, most operators demand drilling experience and a strong track-record before a company can act as a drilling contractor. Building the assets has been Opus’ bread and butter since day one, which ensured that we had the first piece of the drilling contractor puzzle solved. However, we did not have the second piece of that puzzle, an operating arm. Of course, a drilling company can easily allow another company to manage their rigs, but, at Opus, our vision is to be a full-fledged drilling contractor, both as owner of the rigs and operating the rigs too. To be a true drilling contractor, you need to not only own assets but run them as well since added value comes in operating assets.
Given our ambitions to be a drilling contractor, we decided to seize the opportunity to purchase the Mercur and the Venus and to use these midwater rigs as forerunners to our own midwater business. The Mercur and Venus will thus be our building ground to gain experience and employees. Furthermore, this joint venture mandates that we absorb all of Songa’s international operations and employees, with the option to complete this buy out in two to three years. In our view, we are not competing against ourselves by buying the Venus and Mercur, as some customers will prefer to work with these older rigs, while others will prefer newer rigs such as the Tiger drillships, thus creating a win-win situation.
Why did you decide to base operations in Singapore?
When we founded the company, we looked at setting up operations in Beijing, Shanghai, Taiwan, Bangkok, Hong Kong, Malaysia, Manila, Perth, and every other major city throughout the western region of APAC. Nonetheless, we always came back to Singapore as the best center of operations for reasons including tax regime, quality of personnel, ease of doing business, access to suppliers & vendors and facility of travel. Finally, we decided not to fight the pull of Singapore, and we established our HQ here. Opus plan is to maintain the regional HQ in Singapore with global operations. Off and on, I personally have been working on projects in Singapore since 1983, and doing business in Singapore for the past 31 years has been highly rewarding.
What is your vision for the company’s operations internationally?
Opus Offshore aims to be based in Asia since all of our shareholders are located in the region, while also being operating internationally. We will go anywhere that there is work in the midwater segment, but we cannot and will not go to markets that do not match this niche such as the North Sea, especially the Norwegian continental shelf. This is why the Songa JV was such a perfect fit; they do not want to be operating internationally at this stage, and we do not have intentions of working in their home market, which ensures no conflict of interests. In all of these geographies, we will avoid the ultra deep-water market and the jack-up market for the time being, focusing on the floating midwater market with vessels that can work in water depths of up to 5,000 feet
It seems that in order to maintain a steady flow of flow of continuous work for drilling assets in Asia, a concentrated amount of marketing is needed due to the relative short term nature of MODU contracts in Asia in particular. What is your assessment of the contracting market for drillships in Asia?
The contracting market is much tougher in Asia due to shorter contract times, but long-term contracts do exist, and we believe that Opus’ entry to the market will encourage longer term contracts. Currently, there are few long term contracts because most rigs in Asia are older, and oil companies are quite hesitant to offer a long-term contract for a 35 or 40 year old rig. However, companies in the region can easily handle a long term contract with a new vessel such as the Tiger that has the flexibility to operate from 300 to 5,000 feet. Furthermore, being a drillship, the Tiger can be mobilized much faster than a semi-submersible, while also having five ram, 15K BOP, 150 pob, offline stand building, two moonpool carts and a big moon pool particularly conducive to development work. Our drillships can do more tasks more efficiently than the older drillships, so we believe the delivery of the Tiger opens a new type of contract strategy for oil companies.
When will the first Tiger come online, and what type of customers are you targeting?
The first Tiger rig will come out at the end of the year and will be at work by the first month of next year. To prepare for our rigs coming online, we have done pre-marketing presentations to oil companies that highlight the benefits of the Tiger. Since our very first presentation last year, many companies asked who would operate the rig, but we were unable to give a clear answer until the announcement of our JV with Songa. Now that we can say with certainty that the Songa-Opus JV will operate the rigs, our positioning on the market has been clearly reinforced.
In terms of customers, we will mainly focus on the NOCs and oil companies with substantial midwater acreage. In addition, the design of the Tiger drillships has incorporated the requirements specified by large oil companies, which means this vessel will be fully compatible with oil companies’ requirements. Thus far, we have received very good reception, even if the market is a bit soft at the present. However, we are looking at longer-term projects commencing next year.
The company’s motto is ‘simple is best’ – what does this tell us about Opus Offshore’s operational, management or business philosophy?
As a private company, we do not need to put out press releases all the time, even though we have recently received a lot of attention with the announcement of the JV with Songa, the acquisition of the Venus and Mecur, the launch of Tiger 1 & 2 and exercising of Tiger 3 and Tiger 4 building contracts. Furthermore, we do not mind spending money on operational items to keep our rigs safe, but we do mandate that money is well spent and that procedures are done right the first time. I am very particular about maintenance, details and ensuring a visually appealing final product. Overall, they look good and they will operate well in a safe and efficient manner. Our aim is to reduce the clients’ well delivery costs.
Personally, with my strong drilling contractor and project management background I have managed regional offices and over two billion worth of projects, but I have never been in the spotlight before. I was nominated to be CEO among the three founding members and our major shareholder, and I am happy to accept this or any position that would best benefit Opus Offshore.
Where do you plan to take Opus Offshore in the next three to five years?
Opus has a very focused and simple objective – we are convinced that the way forward is new-build vessels for midwater that are fit for purpose. We will not do modifications or upgrades on older rigs since for all intents and purposes a company will spend the same on a modification as for a new build. Within this clear objective, we want to keep the Mercur and Venus as temporary frontrunners to gain the necessary track record as an operator. If companies want a midwater rig for a brief period before a new Tiger rig can arrive, we can offer these older rigs for a period prior to the delivery of the newer rigs. In the next five years my vision is to have a fleet of eight to 12 new midwater floaters within Opus’ fleet.