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Pacific Drilling: The Preferred Offshore Driller

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PACIFIC DRILLING: THE PREFERRED OFFSHORE DRILLER Haiyang Li, Frédéric Jacquemin, and Toby Li wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-04-08 From June 2014 to January 2015, the market price of oil fell from US$1151 per barrel down to $49 per barrel.2 As oil prices went down, so did the appetite of energy companies for offshore exploration. Further compounding the problems was the oversupply of rigs, due to drillers having overbuilt during the boom times. As of March 2015, there was no near-term recovery in sight for oil prices, which had major implications for Pacific Drilling, a growing offshore drilling company based in Texas. Founded in 2006, Pacific Drilling owned and operated a fleet of eight high-specification drillships operating in ultradeepwater drilling environments in depths up to 3.7 kilometres (km) and offered the most advanced drilling technology available. As of 2015, the company had nearly 1,600 employees and had generated more than $1 billion in annual revenue (see Exhibits 1, 2, and 3). With growing competition from rivals — both emerging and more established companies — Pacific Drilling sought to expand its customer base. However, the close relationships that it had cultivated with its existing partners (which had helped its early stage growth) raised concerns that the driller had become too closely linked to them (in terms of culture, processes, and technology) to effectively translate its efficiency gains to new producer partners. The company’s chief executive officer (CEO), Christian J. Beckett, and his team received a range of opinions about what the company should do to weather the storm and emerge stronger. Investors also felt the pain from the company’s stock price sliding from $11 per share in 2014 to less than $4 per share, as did the stock price of all offshore drillers during that time (see Exhibit 4). As he considered the available options, Beckett faced another critical crossroad. The company had survived tough times before — in the early stages of the company’s development, the team had successfully manoeuvred through the 2008 financial crisis as the credit markets collapsed. But as Beckett admitted, the current challenge was unique in many ways, and Pacific Drilling was a different company from earlier. However, it remained to be answered to what extent Beckett and his team could rely on what they had successfully done in the past, and to what extent they would need to adapt. 1 All currency amounts are in US$ unless otherwise specified. 2 Brad Plumer, “Why Oil Prices Keep Falling — And Throwing the World into Turmoil,” Vox Media Inc., updated January 23, 2015, accessed April 12, 2015, www.vox.com/2014/12/16/7401705/oil-prices-falling

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