While most sectors have been faced with economic woes brought on by the financial crisis, the global drilling market has been resilient thanks to strong exploration and production (E&P) activities, which have resulted in a number of medium and long-term contracts for rig operators. Simultaneously, numerous older-generation rigs are being gradually replaced due to stricter safety requirements. The construction capacity for new and high-tech rigs is currently limited to meet both replacement and higher drilling demand, leading to fierce competition in the search for high-spec rigs: This creates great opportunities for prestigious and capable drilling contractors.
At Petrovietnam Drilling & Well Services Corporation (PV Drilling) we are looking to take advantage of these promising activities by actively expanding our operations overseas with our “Cross to the Sea – Steady to the Future” programme. But to develop both steadily and sustainably, PV Drilling is strongly aware of: the importance of effective risk management; integrating management systems to ensure each operation’s safety; the importance of financial management and human resource development; and in building a working environment which encourages the employee commitment. Furthermore, ensuring transparency between the corporation, shareholders and the public is essential.
As its vision suggests, the corporation is keen on developing drilling services as its core business, as well as encouraging its competitiveness in drilling-related services, so that PV Drilling can distinguish itself a first-class provider of full-scale packages for the upstream activities of the oil and gas industry. At present, the main role of PV Drilling is the management and operation of onshore and offshore drilling rigs, which yield significant income streams for the corporation, contributing to 60 percent of its total revenue and 70 percent of its net profit.
The corporation operates a fleet of three jack-up rigs, one land rig, and a Semi-Submersible Tender-Assisted Drilling (TAD) rig – PV Drilling V, which is operating with high efficiency in a deep-water drilling location. All of the rigs are the latest generation, including the jack-up rigs that were built by Keppel Fels – the number one shipyard in the world. By providing five hired rigs sourced from international drillers in offshore Vietnam, PV Drilling currently occupies almost 50 percent of the drilling market in its home country. In 2012, the company gained over $300m (total revenue of $573m) through the safe operation of our own rigs as well as the hired rigs. The momentum continued in Q3 2013, when PV Drilling earned over $330m (total revenue of $480m) in revenue from its own rigs running at efficiency levels of 98-99 percent and zero LTI (Loss Time Incident).
The second most profitable lines of business for PV Drilling are its drilling related services, both traditional and advanced, i.e. well testing, mud logging, directional drilling, MWD, LWD, and many more. In order to ensure the best possible outcome for its operations, PV Drilling may act independently or via its reputable partners – Baker Hughes, BJ Services, for example – so that it can provide all-inclusive integrated solutions for oil and gas companies.
Robust risk awareness
At PV Drilling, risk management has become a salient issue over recent years and is now a part of the corporation’s sustainable development strategy. Health and safety, on the other hand, has been a key focus since the formation of the company, especially for its rig operations.
With the expansion of the rig fleet to five rigs at the end of 2012, as well as the additional hired rigs, the corporation now manages up to 10 rigs with different specifications and technology, ranging from land rig and high-spec jack-ups to deep-water semi-submersible rigs. Accordingly, PV Drilling’s risk management scope has widened to meet the challenges of each rig.
To meet these challenges, PV Drilling has adopted the practices of the Health, Safety,
Environment and Quality (HSEQ) management system, which has brought about a number of global certificates such as the American Petroleum Institute’s Standards for Drilling Operations, the ISO 9001-2008 for quality management, the ISO 14001 for environmental management and the OHSAS 18001 for health and safety management.
Furthermore, in 2012, PV Drilling improved its inventory management policy by applying the Economic Order Quantity Model (EOQ), in which every inventory category has an optimal min/max stock level, which helps to prevent both overstocking and the risk of spare part shortage. Moreover, PV Drilling is successfully experimenting with a new method named Reliability Centered Maintenance (RCM), which uses data from drilling rig operations to manage assets, increase safety and increase the lifespan of equipment.
We are also well aware that people are a key factor in risk management. PV Drilling has a subsidiary specialising in training internationally certified programmes, like OPITO and IWCF Well Control, for our own drilling crews. A competency training matrix has been developed to ensure each role at the drilling rig is well trained and based on real-world responsibilities that incorporate international standards and safety requirements. This helps drilling crews avoid unwanted incidents and reduces the risk of suspending drilling because of human error.
As a result, safety management and rig operation efficiency is currently operating at an excellent performance rate of 98 percent, which is a figure envied by most drilling contractors. Furthermore, International Association of Drilling Contractors (IADC) has awarded the PVD 1 rig a certificate for six years running with zero LTI, to PVD II for four years with zero LTI and to PVD III for zero years LTI. This recognition is also an honour to our drilling technicians and is the competitive edge PV Drilling has over its international competitors.
Fundamentally sound finance
In the context of the domestic and global economies, PV Drilling has achieved outstanding financial results that have exceeded shareholder expectations. Revenue has hiked at a compound annual growth rate (CAGR) of 30 percent, net profit has jumped by 24 percent, and total assets have also climbed to over the $900m yardstick, with the appropriate capital structure of 35-65 percent between equity and liability. Most profitability and solvency ratios are in a steady upward trend. This effective financial management has helped PV Drilling overcome limited resources to conserve that success.
Cost control function also plays an important role thanks to the application of the ERP Oracle system. An annual budget is set up to enable a wider analysis of revenue, expenses, capital expenditure, etc, resulting in the optimal financing plan. By monitoring the short, medium and long-term budgetary needs, the risks are well identified and mitigated with appropriate solutions.
PV Drilling is confident that 2013 will be a pivotal year to push its business expansion strategy to potential markets in South-Eastern Asia (SEA). This expansion strategy bears an important meaning to the sustainability of PV Drilling.
The rig market in SEA has kept growing in recent years: There are more secured contracts in SEA with the rig utilisation rate recovered to more than 90 percent. The demand for jack-up rigs reached 57 in 2013, and the forecast for 2020 indicates that drilling campaigns in SEA require up to 70-80 jack-up rigs annually, mainly driven from demands in Indonesia, Malaysia, Myanmar, and Thailand. As a result, the day rate of jack-up rigs contracted in 2012 increased and ranges from approximately $130,000/day to $145,000/day, compared to $120,000 to $130,000/day in 2011. This upward trend hasn’t waned in 2013, with the current day rate at around $160,000-190,000, which could increase even higher in the coming years.
In 2013, the expansion priority is to set up a joint venture (JV) in Singapore named PV Drilling Overseas, in which PV Drilling makes up 55 percent of the share capital, and the remaining is owned by Singaporean partners. The JV ordered a new high-spec jack-up rig, named PVD VI, built by Keppel Fels and delivered in Q1-2015. Furthermore, PV Drilling is considering the potential of investing one more jack-up rig and one semi-submersible rig from the JV during the period of 2013-17 to capture high drilling demand and improve day rates. With these new rigs, PV Drilling has more resources to provide drilling services in its neighbouring countries of SEA and later on, other locations in the world market.
Community and transparency
PV Drilling is always aware of CSR and is committed to advocating the national tradition of solidarity. During 2012 and 2013 the corporation contributed to myriad social programmes, such as house building, school and medical clinic building, cardiology sponsorship for children, as well has educational sponsorships.
Last but not least, PV Drilling pays strong attention to information transparency, which is an essential part of sustainable growth. Transparency builds up confidence with shareholders and the public. As recognition for our efforts, PV Drilling has been included in the top ten of ‘The Best Annual Report’ in Vietnam in the past six consecutive years and has also been recognised in the top five for ‘The Sustainable Development Report’, voted by IFC, PwC and ACCA.
During 2013-2015, PV Drilling expects to achieve a strong CAGR of 15 percent in revenue, and 20 percent in net profit, mostly boosted from the operation of PVD VI and growth in advanced oilfield services. Furthemore, the corporation expects to maintain positive free cash flows and well-controlled leverage ratios to ensure a favourable financial status.
Being recognised with the international award of “Best Drilling Contractor, Asia, 2013” by World Finance for two consecutive years is an honour for PV Drilling. This outstanding achievement surely enables PV Drilling to have stronger confidence to move beyond Vietnam’s border and compete in the global drilling markets.