Case Study: Pacific Drilling and Competition in Offshore Drilling

This case study examines the attractiveness of the offshore drilling industry, focusing on Pacific Drilling's entry and positioning strategies. Pacific Drilling differentiated itself through technological advancements, targeting a gap in the market by offering more efficient and cost-effective technologies. While this strategy has long-term potential, it initially faced challenges in attracting clients accustomed to existing systems. The study identifies the challenges Pacific Drilling faces due to dropping oil prices, leading to underutilized drill ships. Recommendations include diversifying their offshore rig portfolio and entering the onshore drilling industry, such as American shale, to reduce dependency on offshore drilling and enhance long-term business opportunities. The analysis concludes that diversifying into both offshore and onshore drilling will help Pacific Drilling maintain profitability in the coming years.

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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 future1.
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 players2.
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 reduced3. 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
1 Kaiser, Mark J., and Brian F. Snyder. The offshore drilling industry and rig construction in the Gulf of Mexico.
Springer-Verlag London, 2013.
2 Abimbola, Majeed, Faisal Khan, and Nima Khakzad. "Dynamic safety risk analysis of offshore drilling." Journal
of Loss Prevention in the Process Industries 30 (2014): 74-85.
3 Chernyi, S. G. "Analysis of the energy reliability component for offshore drilling platforms within the Black
Sea." Oil Industry Journal 2016.02 (2016): 106-110.

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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 industry4.
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 clients5.
4 Kaiser, Mark J., and Brian Snyder. "Capital Investment and Operational Decision Making in the Offshore Drilling
Industry." The Engineering Economist 58.1 (2013): 35-58.
5 Rui, Zhenhua, et al. "Development of Industry performance metrics for offshore oil and gas project." Journal of
Natural Gas Science and Engineering 39 (2017): 44-53.

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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 term6. 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 companies7. 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
6 Allaverdi, David, Arne Herberg, and Udo Lindemann. "Lifecycle perspective on uncertainty and value robustness
in the offshore drilling industry." Systems Conference (SysCon), 2013 IEEE International. IEEE, 2013.
7 Xue, Luning, et al. "A safety barrier-based accident model for offshore drilling blowouts." Journal of loss
prevention in the process industries 26.1 (2013): 164-171.

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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 these8. 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 levels9. 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 term10. In the next few years, having presence
8 Kaiser, Mark J., and Brian Snyder. "The five offshore drilling rig markets." Marine policy 39 (2013): 201-214.
9 Al-Yasiri, Mortatha Saadoon, and Waleed Tareq Al-Sallami. "How the drilling fluids can be made more efficient
by using nanomaterials." American Journal of Nano Research and Applications 3.3 (2015): 41-45.
10 Bazilian, M., et al. "Ensuring benefits from North American shale gas development: Towards a research
agenda." Journal of Unconventional Oil and Gas Resources 7 (2014): 71-74.

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in both offshore and onshore drilling industry will help Pacific Drilling to maintain their
profitability in the coming years.

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Reference
Abimbola, Majeed, Faisal Khan, and Nima Khakzad. "Dynamic safety risk analysis of offshore
drilling." Journal of Loss Prevention in the Process Industries 30 (2014): 74-85.
Allaverdi, David, Arne Herberg, and Udo Lindemann. "Lifecycle perspective on uncertainty and
value robustness in the offshore drilling industry." Systems Conference (SysCon), 2013 IEEE
International. IEEE, 2013.
Al-Yasiri, Mortatha Saadoon, and Waleed Tareq Al-Sallami. "How the drilling fluids can be
made more efficient by using nanomaterials." American Journal of Nano Research and
Applications 3.3 (2015): 41-45.
Bazilian, M., et al. "Ensuring benefits from North American shale gas development: Towards a
research agenda." Journal of Unconventional Oil and Gas Resources 7 (2014): 71-74.
Chernyi, S. G. "Analysis of the energy reliability component for offshore drilling platforms
within the Black Sea." Oil Industry Journal 2016.02 (2016): 106-110.
Kaiser, Mark J., and Brian F. Snyder. The The Offshore drilling industry and rig construction in
the Gulf of Mexico. Springer-Verlag London, 2013.
Kaiser, Mark J., and Brian Snyder. "Capital Investment and Operational Decision Making in the
Offshore Drilling Industry." The Engineering Economist 58.1 (2013): 35-58.
Kaiser, Mark J., and Brian Snyder. "The five offshore drilling rig markets." Marine policy 39
(2013): 201-214.

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Rui, Zhenhua, et al. "Development of Industry performance metrics for offshore oil and gas
project." Journal of Natural Gas Science and Engineering 39 (2017): 44-53.
Xue, Luning, et al. "A safety barrier-based accident model for offshore drilling
blowouts." Journal of loss prevention in the process industries 26.1 (2013): 164-171.