Pacific Drilling Analysis Case Study

The greatest strength that Pacific Drilling (PACD) brings to the industry is its unique and efficient technology in drilling. But with this, it faces a problem in gaining new partnerships besides Chevron. This has caused PACD to not efficiently utilize all of its assets as seen by the return on assets ratio in Exhibit 1.
        Even though the net profit margin shows a significant increase in the year 2014, the current ratio and quick ratio in Exhibit 1 indicate that the company’s ability to pay short-term and long-term obligations are decreasing. This is crucial because the majority of PACD’s assets are invested in their equipment and rigs. Therefore leaving them in idle causes a huge loss, since much of their capital is invested in assets with low liquidity.

Examining Exhibit 2, Porter’s 5 Forces, we see that the threats to new entry and threats of substitution are low because it is very expensive to enter the market and no one has the same technology as PACD. This allows PACD to continue building a name for itself based on its cutting-edge technology and customer satisfaction. The industry is currently seeing, for the first time, that deepwater drillships are being cold stacked, which is why the supplier power is low. Since the demand for drilling in the market is low, producers are not signing contracts with drillers. This also causes the competition rivalry to be high, since drillers are competing for the little amount of contracts available, even to the point of accepting jobs below market rates. PACD is only working with Chevron at the moment, so this further increases and justifies the presence of high buyer power.

The oil industry is volatile, and since drillers are directly affected by this market, their success becomes dependant on it. One of the opportunities mentioned in the SWOT Analysis in Exhibit 3 is to take advantage of the recession to gain new partnerships. This can be supplemented by their strengths that they are currently the leaders in the new technology, as well as customer satisfaction (even though it is with 1 customer).

Finally, Exhibit 4, Strategy Triangle, outlines some of the immediate, short-term and long-term goals: the recommendations for PACD. Therefore, PACD should immediately find customers for the 2 idle drillships, while at the same time attempting to satisfy the long-term goal of diversifying its partnerships. It can do this by strategically offering buyers an incentive to partner with them, like a one-time, below market rate in order to build its portfolio and break the stigma of “loss of efficiency when switching to new partnerships”. This incentive of a lower rate can help PACD diversify its customer base while also utilizing the 2 idle drillships, instead of them remaining in idle and depreciating.

While doing this, PACD should also improve on the process of taking on new partnerships, so that the temporary loss of efficiency can be further reduced, which will new potential partners at ease. Once this process is streamlined, PACD will have built a solid, diversified portfolio with a track-record of accepting new partnerships efficiently and seamlessly.

EXHIBIT 1 - Financial Analysis