Essay: APMM and Maersk Drilling

Seen from figure 3 above, it is clear that APMM have made a strong commitment to grow Maersk Drilling to become a sizeable offshore drilling contractor. The same commitment can be read in the following statement: ‘In the oil & gas industry, Maersk Oil as well as Maersk Drilling (including Maersk Supply Service) will be prioritized for investment in further growth. [Section deleted]. Maersk Drilling is executing on the ambition of becoming one of the leading drilling contractors within deepwater and ultra-harsh environments and is expected to become a significant and stable contributor to Group profits’ [18, p. 5].
Maersk Drilling is servicing the E&P operators, which is exactly what Maersk Oil is; however, there is no significant collaboration between Maersk Drilling and Maersk Oil. APMM has decided to have an ‘arm’s length’ principle between the two companies; hence, neither Maersk Drilling nor Maersk Oil has historically been giving the other part advantages when deciding supplier and customer. One could argue that this leaves room for transfer pricing optimization, where by APMM could optimize its overall profit, however, this has not historically been pursued.
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3. STRATEGIC ANALYSIS
The strategic analysis is made in order to identify the non-financial value drivers. The analysis is divided into a macro analysis, an industry analysis and an internal analysis of the company’s capabilities. The analysis of the macro environment is focusing on the external conditions that can impact Maersk Drilling’s future possibilities to be profitable. The industry analysis will uncover the unique value drivers in the offshore drilling industry and identify the forces that impact the profitability of the industry. The internal analysis will focus on the competitiveness of Maersk Drilling’s capabilities to determine if Maersk Drilling holds the capabilities to successfully grow its business. The main points from the analytical work will be summarized in a SWOT analysis in order to gain an overview of the company’s situation and to reflect on the most important aspects of the strategic analysis.
Below, the framework for performing the strategic analysis can be seen:
Figure 4: Own processing, Framework for strategic analysis, source: [8, p. 40]
3.1. MACRO-ECONOMIC ANALYSIS
In this section, the most relevant macro-economic drivers that affect the oil & gas and offshore drilling industry will be analyzed. The external conditions are mostly factors that cannot be changed by Maersk Drilling, so their future profitability depends on how well they adapt to these conditions. The PESTLE analysis model [6, p. 67] will be used in the analysis below to determine the various factors that influence the industry. The factors to be analyzed are reflected in figure 10 above and are political, economic, sociological, technological, legal and environmental factors.
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3.2. BACKGROUND INFORMATION
Before moving into the PESTLE analysis, it is essential to understand how the oil & gas market is closely linked to the offshore drilling industry. The offshore drilling industry is a service industry for the E&P operators. See industry value chain below:
Figure 5: Industry value chain, source: [1]
The offshore drilling operators are hired in by the E&P companies to perform the drilling operation on the E&P company’s behalf. Basically, the drilling contractor is bringing an advanced drilling unit and the E&P company is then instructing where and how to drill the prospect(s).
The primary profitability driver in the oil & gas industry is for the E&P companies, not surprisingly, the oil & gas prices. For the offshore drilling operators, the main profitability driver is the exploration and production spendings placed by the E&P companies i.e. how much money is the E&P companies putting into exploration and production work as this is determining rig demand.
Please see overview of the market drivers in the offshore rig market below:
Figure 6: Offshore rig market drivers, source: kindly provided by Maersk Drilling
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From the above overview of the industry drivers, it is clear that E&P spending is closely linked to the oil price. Obviously, E&P companies will need a bit of time to adjust in case of significant changes in the oil prices; hence, there is typically a lack of approximately one year between the oil price and E&P spending.
Likewise, the oil price is, in turn, the primary driver for the demand in the offshore drilling industry, thus, there is a clear link between the oil price and the offshore drilling activity, which is illustrated below:
Figure 7: Own processing, Oil price vs. Rig demand, source: [16] [19]
Consequently, the following macro analysis will focus on the overall E&P market and go into offshore drilling specific details when relevant.
3.2.1. POLITICAL
Political aspects have a significant influence on the E&P operators and offshore drilling contractors. The most significant influencer at present is The Organization of the Petroleum Exporting Countries (OPEC). OPEC is a highly influential political organization in the global oil & gas market which controls 71.9% of the world’s oil resources [20].
By controlling approximately 3 quarters of the world hydrocarbons, OPEC can influence the price of oil by increasing or decreasing their production of oil. Saudi Arabia is the most significant country in OPEC and holds approximately 15.9% of the global oil resources. In addition to being the country in the world with the greatest oil resources, Saudi Arabia also has significant lower lifting cost of approximately USD 20 per barrel compared to more than USD 100 per barrel for highly complicated deepwater and shale oil production in other parts of the world [21]. This allows Saudi Arabia to stay profitable even at low oil prices.
The recent collapse in the oil price is a highly complicated matter which is driven by a number of aspects. At its core, it is considered to be the response to an unsustainable trend in oil market fundamentals at oil prices of USD 100+/bbl. Basically, supply started to significantly offset demand as Libya’s oil production got back on stream, US shale production increased significantly, and general production increased from the frontiers in Canada, Brazil and US Gulf of Mexico. Meanwhile, demand growth has been limited due to
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increase in fuel efficiency and Chinese growth and other emerging economies slowdown. Historically, OPEC has in similar situations been the balancing factor by lowering production, however, this time OPEC decided not to balance the market and basically is producing more than what the markets can balance. A significant over-supply has been the result, causing oil prices to collapse, resulting in the international E&P market being under significant pressure [21].
General political and geopolitical risks may as well impact the E&P sector and may hold back investment in countries in spite of favorable policies and strong economic incentives. Instability, challenging regulatory environment, nationalization of property, terrorism, civil conflicts, strikes and acts of war, can all cause investments and operations to be put on hold or cancelled. All of these political aspects are present and negatively affect the E&P industry.
Also, political decisions to drive cleaner sources of energy due to climate changes are impacting the industry. Environmental obligations to reduce CO2 emission negatively affect the oil & gas companies’ opportunity to invest and grow their businesses profitable and, therefore, may result in lower E&P spendings and thereby demand for drilling units.
3.2.2. ECONOMICAL
The price of oil and gas is the primary factor to decide whether a reserve is economically feasible to produce or not. Basically, the higher the barriers to extraction, this could be deepwater, harsh environment or a compartmentalized field, the more risk is added to the project. These unconventional types of extraction usually cost more than a traditional extraction in shallow benign waters or onshore. This does not mean that E&P companies typically cancel a project simply due to a dip in oil price. Often, these projects cannot easily be shut down and then restarted. Instead, E&P companies attempt to forecast the likely prices over the term of the project in order to determine the likelihood of being profitable. Please see below illustrated the historical developments in the oil price and the forecasted oil price by the World Bank:
Figure 8: Own processing, Oil price and oil price forecast, source: [19] [22]
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The World Bank is projecting the future oil price to increase from its current level to 103.4 USD/barrel on yearly average in 2025. This is corresponding to a compound annual growth rate of 6.23%.
The world economy depends on continual supply of oil and gas at reasonable prices to sustain global growth, just as the global economy and growth is essential for driving demand for oil & gas. The demand for oil and gas will suffer whenever there is a downturn in the economy due to the fact that industries and transportation requires oil & gas to run. Demand for energy is, therefore, largely driven by economic growth and rising population [23]. Historically, financial crisis has led to remarkable effects on the oil & gas markets. Please see graph below:
Figure 9: Own processing, World GDP vs. World Oil Consumption, source: [24] [20]
According to United States Department of Agriculture, expectations are that global GDP will increase over the coming decades by 3.08% between 2011 ‘ 2020 increasing to 3.48% from 2020-2030, especially, driven by emerging markets such as China, India and Brazil [24].
According to U.S. Energy Information Administration [25] demand for liquids will increase with 1.1% year on year and by 2040 have reached a consumption level of approximately 120 million barrels per day, compared with approximately 90 million barrels per day in 2014. On top of this, today’s existing production capacity is expected to decline with, on average, 6.5% year on year according to Uppsala University [26]. Please see illustration below:
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Figure 10: Own processing, required increase in oil production capacity, source: [25] [26]
Seen from figure 10 above, the oil industry has a significant challenge to overcome; leaving a strong growth potential for the companies working in the industry.
3.2.3. SOCIOCULTURAL
Sociocultural factors include cultural changes and values amongst external and internal people; affecting the company directly and/or indirectly. For the oil & gas industry, this includes among other things the increasing preference for using alternative energy sources (i.e. renewables).
Despite that fact that demand for energy is increasing, the share of oil contributing to satisfy world energy demand is decreasing while other sources like natural gas, coal, nuclear and renewables are increasing. Maybe the most remarkably is the raise of renewable energy sources; however, it is important to remember that by the end of 2013, total renewable energy was only contributing with 2.7% to satisfy global energy demand [20]. Even though, this trend is expected to continue, renewables are projected to represent less than 10% of global energy demand by 2035 [27]. In other words, it seems highly unlikely that renewable energy is going to replace the demand for oil and gas in the short to medium term.
But, in general, people have started to put more value to healthy living and are more concerned about the environment and this cultural change is likely to be the new norm. As a result, there will certainly be a continued focus on the environment, social considerations and responsibility of societies and governments; resulting in increased focus on alternative energies (wind, solar energy, biofuels, hydro, etc.).
As new and more environmental friendly energy sources are developed and the cost of their production is reduced, the picture is going to get less favorable for oil producers. The time horizon for this to impact is, nonetheless, considered outside the scope of this thesis.
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3.2.4. TECHNOLOGICAL
The oil & gas industry as well as the offshore drilling industry is extremely technology driven. Improving today’s technological capabilities is the key to addressing world energy demand for the future, which is increasing as per figure 10. Improved technology can give access to oil concessions, which previously was not technologically accessible or not economically feasible to develop.
Moving technological boundaries is of significant importance for an offshore drilling contractor in order for them to provide the E&P company with the materiel and services they require to explore and develop the specific project and/or to ensure that the material used is efficient and offering as low total cost of operations as possible to the E&P company.
As reserves are increasingly depleting and new discoveries are becoming more and more complicated to explore and develop, due to increasing water depths, high pressure / high temperatures reservoirs or harsher environments, the general impression is that technology and technological advancements will have a profound impact on the future oil industry and, not least, on securing the long-term sustainability of the industry.
3.2.5. LEGAL
The oil industry is subject to strict legal regulations, which range from the imposition of specific operational obligations, like HSSEQ (health, safety, security, environmental and quality) controls while in operation. Improving operational health, safety, security, environment and quality will increase reputation and sustainability of the industry, which effectively can lead to increased monetary value creation for shareholders as well as attracting the essential talented personnel to ensure the future of the industry.
In large parts of the world there are significant uncertainty relating to the interpretation or changes to different laws and regulations. As a result, companies could be required to postpone or abandon operations, or sudden additional cost could be required to continue the operation, resulting in decreasing margins. However, the major legal concerns affecting companies come from compliance with laws, regulations and obligations relating to people and environmental safety. Which, if not managed properly by the E&P company and/or the drilling operator, the companies can be subject to receiving significant fines, which may impact the reputation and the financial results of the involved companies.
3.2.6. ENVIRONMENTAL
Environmental aspects are increasingly affecting companies working in the oil & gas industry as well as their returns. With the oil & gas arena being considered a highly polluting industry, it can come as no surprise that the industry is subject to highly regulative political interventions when it comes to protecting the environment. The industry is being regulated by the respective governments in the countries they operate
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in. Often, the regulations do not come with ‘little to no’ economic impact on the companies ‘ significant safety features and procedures; slowing down the operation, can be the consequence. This can, as a result, mean significantly increased operational expenses for the offshore drilling contractor and the E&P operator.
Another environmental aspect that can affect the offshore drilling industry is harsh weather. Hurricane season in the US Gulf of Mexico is each year responsible for numerous rigs needing to be temporarily taken out of operation or can even result in the units being damaged. Also, extreme harsh environment in the North Sea can severely impact the operation there. These factors, together with other unexpected weather conditions, can adversely impact offshore drilling operators, resulting in an increased risk and therefore potentially a less favorable environment to invest in.
3.2.7. PART CONCLUSION
Overall, the macro-economic environment that Maersk Drilling operates in can be concluded to be highly uncertain. The industry is significantly influenced by things far out of Maersk Drilling’s and any other offshore drilling company’s control. Worthwhile mentioning is political uncertainty, with OPEC having a significant impact on the industry and even global economic development, due to their ability to influence global oil prices. Uncertainties to global economic development also influence the risk in the drilling industry, since economic development is essential to drive global demand for energy. To satisfy the future growing economy’s demand for oil, massive investments are needed going forward. To meet future demand for oil and to compensate for the declining production capacity from existing global oil fields, significant investments and hereunder investments in offshore drilling will be required.
Sociocultural aspects are increasing the demand for renewable energy, however, renewable energy is unlikely to significantly impact the need for oil & gas in the short to medium term.
In the technical arena, significant technological advancements will be required to secure the access to next frontier oil & gas reserves. The legal and environmental regulation in the oil & gas industry is, however, adversely impacting the appetite for investing in certain countries and areas of the world; nonetheless, the increased risk is likely to be offset with the future forecast oil prices, making the investments attractive.
Despite the significant risk and increased operational cost experienced by the E&P operators and offshore drilling contractors, there is still extensive demand for energy and oil & gas is an important part of the supply. The fundamental drivers are in place, which will secure the growth of the drilling industry in the foreseeable future. How attractive it is and whether it is enough to secure the long term growth of Maersk Drilling will be investigated in the industry analysis.
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3.3. INDUSTRY ANALYSIS
To identify the attractiveness of the industry that Maersk Drilling is working in Michael Porter’s Five Forces model [8] will be used. The Five Forces framework is an analytical tool for accessing the competitive environment. ‘It is the combined strength of these five forces which ultimately determine an organization’s return on investment or the potential for profits within a given industry. The five forces are (1) threat of new entrants, (2) bargaining power of buyers, (3) bargaining power of suppliers, (4) threat of substitute products or services, and (5) intensity of rivalry among firms in the industry’ [8, p. 69]
The analysis of the industry is based on the overall offshore drilling industry; however, focus will also be on specific segments where Maersk Drilling operates.
3.3.1. THREAT OF NEW ENTRANTS
‘Threat of new entrants is the extent to which new competitors may decide to enter an industry and reduce the level of profits being earned by incumbent firms. Where organizations in an industry earn profits in excess of their cost of capital, the more likely it is to attract new entrants’ [8, p. 71]. The threat of new companies entering the industry entry will depend on the existing barriers of entry and the reaction of existing competitors. If barriers of entry are high, the threat of entry to the industry by new organizations will be low [8, p. 71].
Despite offshore drilling industry being highly capital intensive, the industry is characterized by having low barriers of entry. There is easy access to technology as standard rig designs are available from the yards; leading to increased commoditisation of the industry. Consequently, through the past rig order booms, established, as well as new players has aggressively been building as a response to E&P companies’ high demand, and both rig ordering, as well as attrition activity are closely correlated with the industry profitability. Please see graph below:
Figure 11: Own processing, Historical deliveries and attrition vs. oil price, source: [16] [19]
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While adding capacity takes years, most of the added equipment has very long utility period and has historically led to prolonged declines in pricing when demand weakens i.e. the industry is therefore prone to periods of surplus capacity, which hurts profitability for the players. Please see graph below:
Figure 12: Own processing, Supply / demand balance, source: [16]
In addition, there appears to be little economies of scale in the offshore drilling industry since the major offshore drilling contractors, like Transocean and ENSCO do not seem to achieve any significant better results than competition. This can be seen in the competitor analysis later in this thesis. This makes competition between new and established players in the industry more head on.
However, despite generally low barriers of entry, segments exist with higher entry barriers:
The ultra-harsh jack-up segment in Norway enjoys the benefit of having high barriers of entry and very little degree of commoditisation, similar to the global ultra deepwater floater market that has some barriers of entry in the short-to-medium term; both of which Maersk Drilling finds itself in. The barriers into both segments are due to the required knowledge to operate these complicated assets, the significant capital requirement and R&D. However, in the long run, the ultra deepwater market is also expected to increasingly suffer from commoditisation and fierce competition, whereas, the high barriers of entry into the Norwegian ultra-harsh jack-up market are expected to remain high as the size of the market segment is too small, with depleting fields. Consequently, it is an unattractive target for rig operators not already established in the market.
3.3.2. BARGAINING POWER OF BUYERS
‘Buyers can affect an industry through their ability to force down prices, bargain for higher-quality or more services, and to play competitors off against each other’ [8, p. 72]. This effectively means that the buyers can bring down prices for the products a company in the industry delivers and; hence, lower their earnings. This is typically the case in commoditized industries.
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In a highly cyclical industry like oil & gas, the bargaining power tends to shift over the cycle. The bargaining leverage is determined by the demand/supply balance in the industry. At present, the ball is in the court of the E&P companies; however, at latest market peak in start 2014 the drilling contractors were able to extract additional value from the customers by charging a higher premium on dayrates due to limited availability. In general, there is a high degree standardisation in the industry with little product differentiation, which can result in severe price competition. However, some E&P companies prefer high-technology and high-efficiency equipment; leaving some room for differentiation, which decrease the competition between players and the pressure on pushing down prices.
3.3.3. BARGAINING POWER OF SUPPLIERS
‘Suppliers can exert bargaining power over participants in an industry by raising prices or reducing the quality of purchased goods and services. The factors that increase supplier power are the mirror image of those that increase buyer power’ [8, p. 74].
Similar to section 3.3.2. above, the bargaining power of suppliers is highly cyclical. However, the equipment supplier base is highly concentrated and dominated by only few suppliers (Keppel FELS, Samsung Heavy Industries, NOV, Aker Solutions and GE etc.). Rig cost is a simple equation of supply and demand for units, please see figure 6, and specifically, for the offshore drilling contractors, rig prices are of significant importance. Competition between yards has historically become fierce when demand is low to secure utilisation of their facilities, which makes the industry attractive to invest in at those times, but has historically led to an unattractive outcome due to over-supply as a result when significant new capacity gets ordered at once. This is again witnessing a highly cyclical bargaining power of suppliers, which can be challenging to maneuver in.
Figure 13: Own processing, Average newbuild asset prices per market segment, source: [16]
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Another challenging aspect in the offshore drilling industry is adverse industry demographics and a general shortage of rig crews here considering rig crews as industry suppliers. This is likely to increase the labour cost for rig crews due to the scarce supply in a growing industry.
3.3.4. THREAT OF SUBSTITUTE PRODUCTS OR SERVICES
‘This is not competition from new entrants, but from products and services which can meet similar needs. Existence of substitutes means that customers can switch to these substitutes in response to a price increase. The more attractive the price-performance ratio is of substitute products, the greater the restrain on an industry’s profit’ [8, p. 75].
Substitute risk is low as no substitutes for offshore drilling units currently exist. Within the industry, higher-end rigs tend to substitute lower-end rig types in market downturns.
On an energy supply level, it is clear that renewable energy sources is a substitute to oil & gas, however, this is unlikely to significantly influence the global need for oil and gas for a foreseeable future as discussed in the macro analysis earlier.
3.3.5. INTENSITY OF RIVALRY AMONG FIRMS IN THE INDUSTRY
‘A determinant of the competitive state of most industries and their overall profitability is competition among the organizations within the industry. When organizations in an industry exhibit a high degree of rivalry, this causes industry profits to be reduced. Such rivalry may take the form of incumbents’ competing aggressively on price. Price cuts can be matched by rivals and ultimately lower profits for all organizations in the industry. In contrast, advertising, product innovation and improved customer service may act to expand overall demand in the industry’ [8, p. 76].
The total global offshore drilling rig fleet consists of 1071 units operated by more than 150 drilling contractors [16]. The largest 10 drilling contractors operate around 48 % of the global fleet, which can be seen in figure 2. This is resulting in the offshore drilling market being highly fragmented with little pricing power due to a high degree of competition.
As illustrated in figure 11, there is very little discipline among industry players and, hence, significant risk of overbuilding during boom periods where many rigs get ordered at the top of the market which lead to periods of overcapacity. Generally, drilling contractors maximise utilisation at the expense of price which together with the industry cyclicality leads to volatile day rates; making it a tough industry. Please see illustration below:
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Figure 14: Own processing, Historical jack-up day rate volatility and utilization, source: [16]
The industry suffers from a high degree of commoditization; especially in the jack-up market which results in fierce price competition. However, sub-segments exist based on advanced technology, environment and regulation allowing for a relaxation of price competition such as the ultra-harsh jack-up market and to some extend the ultra deepwater market.
3.3.6. PART CONCLUSION
The overall industry suffers from cyclical demand, which can be difficult to navigate in, and a high degree of commoditisation; diluting the industry’s internal differentiation with pricing becoming a key determinant of oil companies buying criteria. The general industry likewise suffers from crew shortage, lack of discipline during market booms and no economies of scale, making it overall seem unattractive.
However, the offshore drilling market is still expected to see significant growth as the underlying oil market fundamentals continue to be strong as identified in the PESTLE analysis. The strong oil market fundamentals will particularly drive demand in the deepwater market as the easy accessible oil is depleting.
Thus, a few market segments remain structurally attractive, but for different reasons: The Norwegian ultra-harsh jack-up segment enjoys the benefit of having high barriers of entry, very little degree of commoditisation, a healthy demand/supply balance and limited competition also in the longer run. However, the segment has a modest growth potential as Norwegian oil reserves are depleting. The global ultra deepwater floater market has a very strong growth potential, a healthy demand/supply balance and some barriers of entry in the short-to-, in the medium term. However long run, the deepwater market is expected to increasingly suffer from commoditisation and fierce competition, similar to what the overall industry is facing. Please see the industry analysis summed-up in the figure below:
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Figure 15: Own procession, Industry analysis (Porters Five Forces) summary
3.4. INTERNAL ANALYSIS
The aim of this section is to analyse the internal environment of Maersk Drilling. This is important as, even in the same macro- and industry environment, companies with similar resources will experience different level of profitability, which is typically a result of companies having different competitive advantages. Hence, this section will seek to analyse if Maersk Drilling has any competitive advantages, which Maersk Drilling will be able to utilize to their benefit to grow the business.
In general, Maersk Drilling has followed a differentiation strategy (in contrast to a low cost structure). This has been executed through a number of growth strategies. Using the terminology from H.I. Ansoff’s growth vector matrix [8, p. 222], the strategy of Market Penetration has been selected, especially, for growing Maersk Drilling’s business in the ultra-harsh jack-up segment, where Maersk Drilling has held a dominant position over the past three decades, and continuously has been investing further. The growth strategy for entering the ultra deepwater floater market is considered to be a Diversification approach, as Maersk Drilling had very limited experience in the ultra deepwater floater market before the delivery of Maersk Drilling’s three ultra deepwater semisubmersibles in 2008. However, Maersk Drilling successfully established itself, and continued expanding into this segment by buying more ultra deepwater assets in
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2011. These investments allow Maersk Drilling to limit its exposure to the more unattractive segments of the industry and into the most lucrative.
One can argue that also the Market Development and Product Development strategies have been used in certain cases; however, the ones mentioned above have been the prevailing.
Please see Ansoff’s growth vector matrix below:
Figure 16: Own processing, Ansoff’s growth vector matrix, source: [8, p. 222]
Maersk Drilling seems to be making a tremendous efforts in its in-house engineering capabilities in an attempt to deliver on their value proposition to ‘deliver lower total well cost’ for their customers [28]. This is done through offering high efficiency rigs to their customers, which enables them to unlock the hydrocarbons faster than if they were using traditional equipment. Obviously high-end equipment will come at a price, which is typically higher than standard equipment, but with the very expensive operations in the oil industry; investing in efficiency might improve the competitive advantage.
The company has been, and still is, constructing very specialized ultra-harsh environment jack-ups targeted for the Norwegian market with high efficiency capabilities. To mention a few: high pressure / high temperature capabilities (HPHT), dual pipe handling, multi machine controlled drill floor and year-round operational capabilities despite the harsh and varying environment [28]. This effectively means that the units will be able to work with limited involvement of personnel; thereby, limiting the safety risk for the people working offshore as well as human failures. This is considered attractive for the E&P companies.
Maersk Drilling is, in contrast to an otherwise conservative industry, trying to push the boundaries of the industry through their rig portfolio and service offerings. Part of this is their special Service Delivery Model [28], which is intended to facilitate a proactive interaction with their customers to ensure an efficient, consistent and safe operation. The intention is to ensure that the planning engineers in the E&P company takes advantage of the rig’s unique capabilities, which, if correctly applied, will facilitate a more efficient operation through optimizing offline work (maintenance, logistic requirements etc.), which is possible on Maersk Drilling’s units. This approach is an attempt to counter the commodity issue of the industry and lifts Maersk Drilling above it. To facilitate this program Maersk Drilling has employed performance coaches’ and service delivery engineers who are responsible for sharing experiences and learnings across Maersk
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Drillings fleet [28]. This is likely to result in a higher number of employees and thereby a higher overhead cost for Maersk Drilling.
Human resources are a challenge in the oil & gas industry. Adverse demographics are resulting in a large portion of industry professionals soon retiring with limited number of qualified candidates to take over in the growing oil & gas industry. Maersk Drilling has introduced a number of initiatives to overcome this challenge. Specialized accelerated training programs have been introduced (MITAS, Driller Trainee, Rig Manager Development and SWAT programs etc. [28]). These programs have enabled Maersk Drilling to grow its employee base by more than 30% since 2010 [2] and to have sufficiently trained staff for their new assets being delivered. Further, Maersk Drilling has in collaboration with Maersk Training in Svendborg, invested in a highly advanced drilling simulator complex to take well control planning to the next level, where full rig team can perform training in a close to real life environment [29].
Moreover, Maersk Drilling has in contrast to their peer’s access to significant capital through APMM’s strong financial position. This will enable Maersk Drilling to take advantage of market downturns to invest, which may be difficult for peers, as they will often have to rely on external financing.
This is some of the unique offerings by Maersk Drilling, which on a technically and service level brings them to the forefront of the industry. If these efforts payoff in a financial sense, will be a separate discussion in the financial analysis.
3.4.1. PART CONCLUSION
Maersk Drilling has an extensive experience based on its more than 40 years of presence in the challenging North Sea market. The fleet is also among the youngest in the world and is providing the global E&P companies with differentiated high-end technology and service offerings. This enables Maersk Drilling to assist their customers in achieving lower total well cost and providing better service; making them an attractive supplier in the competitive industry. With the significant in-house engineering capabilities, specialized training programs for their employees and probably easier access to capital, Maersk Drilling should be able to manoeuvre the cyclical industry and avoid much of the profit deteriorating aspects. Therefore, Maersk Drilling seems to have a competitive advantage with regards to the mentioned factors above; however, it is likely to also have a higher total cost base both from investing in high-end assets, operating high-end material, as well as offering an extensive service package which is requiring additional human resources.
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3.5. CONCLUSION (SWOT)
The SWOT analysis is used to highlight the main external and internal factors and to give a holistic view of the company. The SWOT analysis can be used to weight the strengths against the weaknesses in order to assess how Maersk Drilling can utilize external opportunities and neutralize external threats. Strengths Weaknesses
– Advanced and modern rig fleet
– Innovative rigs and service offerings
– Positioned in attractive market segments
– Established and experienced player
– Ability to invest in market downturns
– Small player
– Assets likely offer lower return due to higher asset costs
– Operational cost likely to be higher than competition Opportunities Threats
– Significant global economic growth expected
– Growing oil demand
– No market substitutes
– OPEC
– Highly competitive market with low entry barriers and cyclical bargaining power in all areas
– Challenging legal and environmental environment
– Renewable energy
– Oil & gas resource depleting
Table 1: Own processing, SWOT conclusion on Maersk Drilling strategic analysis
Comparing the above with the Maersk Drilling strategy and portfolio, Maersk Drilling appears well prepared to handle the challenging macro environment ahead and the continuous challenges in the industry. This is mainly driven by Maersk Drilling’s focus on the most attractive market segments.