MAN4602 International Business: The Offshore Driller - Case Study

These papers should briefly summarize the central issue(s) facing the company and then analyze and outline a suggested course of action or solution.

Is the offshore drilling industry an attractive industry?

Discuss Pacific Drilling’s strategy for entering and positioning itself in the offshore drilling industry. How successful has it been?

What are the challenges facing Pacific Drilling as oil prices have started dropping in 2014? How should it compete over the next several years?

Answer:

Introduction

The Offshore drilling industry is facing a number of issues in the current time but still it can be referred as an attractive industry. This is due to the reason that oil and gas sector will have business potentiality in the long term also as the demand for energy will get increased in future. All the issues faced by the current drilling companies will be discussed in this essay along with discussion of the potential solutions. It should also be noted that huge investments are required to operate in this industry along with maintaining extensive infrastructure. This may be difficult for the new entrants and will restrict their entry in the industry. On the other hand, restriction on the entry of the new entrants will further increase the market attractiveness for the existing players. This is due to the fact that the less will be the probability of new entrances; the more will be the monopolistic power of the existing players. Oil and gas sector is one of the most profitable and potential industries in the world with revenues being generated in billions.

However, currently all the offshore drilling firms are producing only non-renewable sources mainly petroleum products. Thus, the future potentiality will get reduced in the coming years with the reduction in the flow and source of non-renewable sources, business potentiality of the offshore drilling companies will get reduced. This is coupling with the existing players in this industry creating offshore drilling industry, a highly competitive industry. However, in the recent time it can be said that attractiveness of the offshore drilling industry is increasing due to the fact that average price of crude petroleum is rapidly increasing in the world market and this will increase the profitability of the offshore drilling firms. Hence, it can be concluded that The Offshore drilling industry will be attractive only it can be sustainable in the long term. In addition, the business is more attractive for the existing players than the new entrants.

Positioning strategy of Pacific Drilling

In the case, it is identified that Pacific Drilling initiated differentiation strategy in positioning themselves in the industry. This is due to the fact that they focused more on technological advancements rather just following the industry trends. In the case study, it is stated that majority of the existing players in this industry are just focusing on driving through their existing technologies. It was the approach of the existing business organizations in this industry that only they are capable enough to dig rigs and no one can do it better. This approach leads to the stagnation in the development of new technology in the offshore drilling industry. Pacific Drilling targeted this gap in the industry in positioning themselves. According to their strategic intent, technology is given the major concentration and they entered in the market by offering the latest technologies, which are more efficient and cost effective over the existing ones. In addition, Pacific Drilling also focused on maintaining single type of drill ships in their inventory in order to reduce the complexities and difficulties. This helped them to offer more specialized services to the customers in a particular asset class.  

Extent of success of the strategy  

The positioning strategy initiated by Pacific Drilling can be termed as successful but only in the long term. This is due to the reason that in the case study, it is stated that unique positioning of Pacific Drilling in this industry caused limitations in attracting new clients. Majority of the oil and gas companies are aligned with the existing systems and they found it difficult to adhere to the business process of Pacific Drilling. However, it is also stated in the case study that Chevron agreed to the business approach of Pacific Drilling later. This is due to the reason that offering higher expertise and updated technologies will obviously help the oil companies to get benefited in the long term. It can also be concluded that this strategy of Pacific Drilling will further help them to develop in future due to the fact that currently they are facing issues such as fluctuation in the fuel price and increase in operation cost. With having the access to updated and efficient technologies and single type of asset class, the business process of Pacific Drilling will be more attractive to the oil companies. Usage of more efficient technologies will reduce the cost of operation and will also provide immunity against the fluctuation in fuel price. The strategy of Pacific Drilling can be termed as successful due to the fact that they are able to gain the access to dual gradient drilling process.

Identification of the current challenges

The major challenge that Pacific Drilling is facing due to the dropping of oil price is optimally utilizing their drill ships with the oil companies. This is due to the fact that the less will be the price of oil in the global market, the less oil rigs will be used by the oil companies and they will less contract with the drilling companies. Thus, drilling companies such as Pacific Drilling is having more number of underutilized drill ships without having any contract from the oil companies. It is reported in the case study that currently Pacific Drilling is having two drill ships sitting totally idle and another one will have end its contract by 2015 and the last one will come from the shipyard in late 2015. Therefore, at the end of 2015, Pacific Drilling will have all their four drill ships sitting idle. This is becoming challenging for Pacific Drilling to attract contract for their four drill ships.

On the other hand, another challenge for Pacific Drilling is to keep the drill ships ready for operation. This is also a challenging task for them due to the reason that a single drill ship is having a good number of crew and other elements. This is causing Pacific Drilling to incur huge cost in making the ships sit idle. Thus, along with the challenge of attracting contract for their idle ships, it is also important for them to also keep the sources of earnings for maintenance of their idle ships.

Conclusion and Recommendations

It is recommended that Pacific Drilling should diversify their offshore rigs than their existing one. This will help them to offer the oil companies in choosing from different level of oil rigs ranging from high specification to low specification. In addition, in the current time, majority of the oil companies are willing to contract for the low specification oil rigs due to low involvement of cost with these. Thus, the more diversified will be the portfolio of offshore oil rigs for Pacific Drilling, the more will be their effectiveness and opportunities in attracting oil companies at different levels. On the other hand, it is also recommended that Pacific Drilling should more focus on entering in onshore drilling industry such as in American shale industry. This will help them to reduce their dependency only on the offshore drilling industry. In addition, American shale industry is evolving and entering in this sector can help Pacific Drilling to enhance their business opportunities in the long term. In the next few years, having presence in both offshore and onshore drilling industry will help Pacific Drilling to maintain their profitability in the coming years.

References

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