ECONOMICS OF CONTRACT DRILLING—A DILEMMA

Abstract

By comparison within the petroleum exploration industry, few other industries have been confronted with as many severe economic and political shocks resulting in loss of control over activities and assets through government scrutiny and imposed decisions. Throughout their thirty-year history, Australian companies involved in the contract drilling industry have been faced with cyclic supply and demand trends.

In 1982, as a result of the downturn in exploration in Canada due to the policies of Pierre Trudeau, the Australian contract drilling industry was flooded by an oversupply of rigs resulting in a reduction in rates by up to 35 per cent. This oversupply situation continues today in Australia, and contractors are now facing severe economic difficulties as they attempt to gain a reasonable market share to ensure that their nucleus of highly trained personnel are not lost from the industry.

Contractors have implemented cost control programs which if continued for some time will have adverse effects. As maintenance programs have been curtailed, capital expenditure has all but been eliminated and training programs deferred.

Shareholders in drilling companies have become so disenchanted with their return on funds employed that they are looking to divest these assets. In this time of uncertainly one wonders where the industry, so vital for our national good, is going. The plight of the contractor is one area which must be addressed by the whole industry.