Market characteristics

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Drilling for oil has been taking place around the world for over 150 years and, as in any major industry, there have been very substantial innovations over the years. The process of drilling a well is fairly standardised globally but there are important differences in terms of how the industry is organised and how market participants interact with each other between regions. Russian onshore drilling models have key differences to the Rest of the World that play to EDC's competitive strengths.

The major differences between Russian drilling market and RoW

Russia Rest of World
Long-term contract model
- Low volatility of pricing and volumes
Spot market
- High volatility of pricing and activity
Turnkey contracts
- Optimal for simple drilling solutions
Dayrate contracts
- Optimal for complex drilling solutions
Static, basic, ageing fleet
- Low efficiency and low utilisation
Versatile, mobile, modern rigs
- Faster drilling, less downtime, better utilisation
Small independents and in-house units
- Easier for EDC to sustain competitive advantage for longer
Independent, profit-oriented companies
- Highly competitive market
Full service
- Integrated project management model
Discrete service providers
- Greater specialisation

The implications of differences on the performance of market participants

These differences are important to note from two key perspectives:

  1. EDC can sustain its leadership in the Russian onshore market in terms of growth and profitability as we were the first large Russian drilling company to privatise and have used this first mover advantage to improve our efficiency and invest in our rig fleet.
  2. The market reactions to financial crises are very different. We present below EDC's experience in 2009, in the aftermath of the financial crisis, with that of the North American market.
  EDC experience North America experience
Volumes 2009 metres drilled down c. 6% 2009 rig count down 42%
Pricing Prices flat in Rubles Major decline in dayrates
Customers Oil companies maintained capital expenditures in Ruble terms, impact softened by adjustment in foreign exchange rates Substantial capex cuts
Costs EDC cut costs and capital expenditures, increased margins and bought back shares in 2009 Margins collapsed

 

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