Home > Investor Relations > President's Message

President's Message

ir
CODE:1606

President's Message

New JDC President, Yuichiro Ichikawa, addressed his Inaugural Message to the directors and employees of JDC as follows:

Good afternoon, everyone. Today, I have assumed the presidency of JDC. On this occasion, I would like to state my fundamental philosophy as well as my full thoughts to all of you as follows:

My Career and Belief:

I have been with JDC for 36 years till now. I began my career by working as a drilling rig crew and was once transferred to the governmental entity, the then Japan National Oil Corp. (JNOC), which is now transformed to Japan Oil, Gas & Metals National Corp.(JOGMEC). In addition to the works on the rigs, I have so far covered such works and assignments as the research on methane-hydrate, design/engineering for the CHIKYU deep sea drillship, operations management, rig marketing, and corporate management.

I take pride in the offshore drilling business since it is of a vital significance to the energy supply in the world and our technology is indispensable to the resources development. I embrace the great dreams and set the high visions in running JDC as an important part of Japan's as well as the world's energy development and at the same time feel honored in being entrusted to assume the responsibility for growth and development of the respective countries JDC is operating.

I add here that, in carrying out the works, the most important issues for JDC are the safety or incident-free service, environmental protection, health and ever-improving service quality.

Business Surroundings:

The most influential economy index for our business, the oil/gas price, is and will be kept high in the coming years, reflecting the ever-increasing energy demands, especially those in the emerging countries. Under such situation, the oil companies' spending for hydro-carbon exploration, development and production will get increasing. This year is expected to see 10-15% increase in the amount of the related investment over the last year and this trend is anticipated to continue for long. The offshore drilling industry is enjoying those business surroundings and in consequence the utilization rate of offshore rigs world-wide is kept increasing despite still quite a number of offshore rigs having been constructed and delivered. As for the drilling dayrates, the so-called "Lehman Shock" had once pushed them down but today sees improvement and rise again. Looking at the deep sea drilling market, the activities have been revitalized after settlement of the "Macondo Incident" in the Gulf of Mexico but the market situation of this segment now seems to have temporarily lulled as a slight rig over-supply indication has emerged on a world-widely rig count. The conventional jack-up rig market remains on a plateau and it is now very much obvious that there goes a bifurcation in the jack-up rig market with the new build premium class units remain continuously busy.

Other concerns are the changing international political/economical situations such as the strengthened sanctions against Iran, so-called "Arab Spring", stability/supports for the South East Asian countries, Venezuela politics, worsening of economy in Brasil, depletion of the conventional North Sea oilfields, boom in development of African hydrocarbons, exploration/development of the Arctic Ocean hydrocarbons, etc. Let us carefully keep closely watching those situations and put our immediate concerns under scrutiny.

Within JDC, the issues that must be coped properly with are the "polarization" of personnel age composition as well as that of the rig age composition.

The upbeat events surrounding us domestically in Japan are the world's first success in the offshore production test of methane hydrate, discovery of various metal resources within the territorial waters and the on-going drilling works off Sado Island, Niigata Prefecture using the CHIKYU.

Strategy and Initiatives for Corporate Growth:

Let me firstly explain JDC's Midterm Corporate Strategy, in line with which we carry on business. The Strategy lays the two basic policies as the pedestals/top-priority tasks; they are: "Enhancement of Stable and Safe Operational Framework" and "Enhancement of Business Administration". Based upon them, the Strategy sets out the three Initiatives for the Corporate Growth; they are: "Reinforcement of Rig Fleet", "Positive Entry into Deep Sea Segment and Foray into a New Market" and "Expansion of Business Domain through application of Offshore Drilling Technology". We shall devote ourselves to these Initiatives.

"Reinforcement of Rig Fleet":
>New Rigs

The premium class jack-up rig, HAKURYU-11, which was delivered successfully on May 31, will operate for Conson JOC off Vuntau, Vietnam starting in July. Our marketing activities to secure the works thereafter in South East Asia are now at a very final stage.

Additionally, it was determined that we would lease a brand new premium class jack-up rig now under construction from a Japanese lease company for 5 years upon its delivery from the shipyard in Singapore, which is anticipated to occur about two years later. This rig will not be owned by JDC but in effect will join our fleet. This rig, a high-spec unit, will be named HAKURYU-12, specifications of which will be very close to HAKURYU-10's and will surely contribute to increase our earnings.

Aside from the above, at our Qatari JV Co., Gulf Drilling International Co., Ltd., construction of a brand new premium class jack-up rig, AL JASSRA was completed in March this year, and two more new premium class jack-up rigs are being constructed in Singapore. When these rigs are delivered, the number of JDC Group's rig fleet up to the fiscal year of 2015 will reach 16 in total, an increase of 5 as compared with that in 2012. This will elevate the potential for further increase of our earnings for sure. Thus, the tangible plans for the Reinforcement of Rig Fleet towards 2015 have already been fixed along with the relevant financial arrangements. Beyond the fiscal year of 2016, we are aiming for further addition composing of deep sea semi-submersible rigs and premium class jack-up rigs. As we so aim, we keep closely watching our market situations/prospects as well as new rig construction orders/works and would closely monitor the comings and goings of deep sea drilling projects the world-over. With this intention, we will hold/enhance the tri-party collaborative alliance among JDC, Japan Marine United and IHI for deep sea semi-submersible rig construction schemes. As to the deep sea semi, we have been deliberating on co-owning perspectives with national oil companies and other entities in Africa, South East Asia, etc. We also widen the deliberation to the future prospects and vessel requirements for development of the marine resources abundant around the islands of Japan such as methane hydrate as well as metal/mineral resources, closely monitoring the policies and measures the Japanese Government will set out. Once the time will come, we shall constructively move at once.

>Up-grading and Life-enhancement for the Existing Units:

Firstly, HAKURYU-5 had already undergone the "Deep-dish" conversion works in 2008 and thereby got the hull/structure reinforced and variable deck load increased. As the next phase, the rig will undergo the renewing of aged equipment on a large scale coinciding with the rig's next inspection requiring the dry-dock. Once done, HAKURYU-5's useful life will extend by 15 years or so. We will further deliberate on another phase of upgrading to increase the water depth capability to 1,000 M or deeper.

Secondly, NAGA 1 had already undergone the "Deep-dish" conversion works and obtained the life-extension similarly to HAKURYU-5 and the upgrading of equipment. NAGA 1 will not require further large-scale in-dock works, except for routine maintenance.

Thirdly, as to SAGADRIL-1 and -2, which will come to cease to operate in Iran early next year, these rigs will thereafter need to undergo sizable maintenance works. Preparations for such works are currently underway. Note that the maintenance work for SAGADRIL-2, which has aged quite a bit, will likely base itself on a plan not to operate for the drilling but for work-over or accommodation use for around another 6 years. The utilization plan for SAGADRIL-1, the hull/equipment of which are still in quite better conditions than those of SAGADRIL-2, will be worked out to undertake drilling continuously or work-over for around another 10 years. These two rigs will eventually be needed to be replaced with others not in so distant future and we shall cope with the requisite.

Fourthly, the CHIKYU maintenance issues. Thanks to allocation of extra budgets to CHIKYU by the Japanese Government for the year 2012 in quite a bit of amount, we will see considerable improvement in effecting the maintenance as it will fund purchase of spare parts/equipment quite sufficiently. However, apart from the above-mentioned improvement, there are still perplexities in the maintenance of the subsea equipment/spare parts. That is because of the excessively long delivery time that persists in these items and thus the above-mentioned extra budget allocation hardly brings about its effect thereto. To cope with such situation, deliberation to work out suitable counter-measurements is going on with the owner, JAMSTEC.

Fifthly, HAKURYU-10 is now 5 years old and is in very good and fine conditions. The client appreciates the rig's performance and highly evaluates and praises the service. Routine maintenance would be sufficient to keep the rig so operating and thus no upgrading or life-enhancement is planned as yet.

To conclude, the Rig Fleet Reinforcement has been progressing almost as planned and in this respect the Enhancement of Stable and Safe Operational Framework and the Corporate Growth are moving forward as per the Strategy and the Initiatives.

"Positive Entry into Deep Sea Segment":

Ever since JDC's stock exchange listing, we spell out concrete steps to enter into the deep sea segment through the 3 stages by using the description of "HOP", "STEP" and "JUMP".

At the time of the listing, the stage of "HOP", or accumulation of know-how, had almost fully been attained but not reached the stage of "STEP" as we had not undertaken the deep sea "commercial" drilling contract operations as yet. In 2011, we have gone into the stage of "STEP" when our first "commercial" drilling operation with CHIKYU to drill gas wells offshore Sri Lanka has successfully completed and proven JDC's entry into the deep sea segment to our Industry. Thereafter, we have made another milestone when the offshore production test for methane hydrate for JAPEX using CHIKYU was successfully carried out for the first time ever in the world. CHIKYU is currently drilling for JX Nippon Oil & Gas Exploration Corp. offshore Niigata in the Sea of Japan. In this stage of "STEP", we will recruit and employ necessary personnel for rig crewing and implement the well-planned and systematic crew cultivation/training programs for the upcoming reinforcement/expansion of deep sea rig fleet. Going forward through the stage of "STEP", we will proceed to the stage of "JUMP", or, the phase to secure deep sea drilling contracts/rigs of our own. To this end, we are working our ways to secure long-term drilling contracts, hopefully, from national oil companies of oil producing countries and, with such security, we will own the deep sea rigs of our own and operate them by ourselves.

"Expansion of Business Domain through application of Offshore Drilling Technology"

Firstly, let me glance on the methane-hydrate (MH). We at this moment look at the possibility of development of MH in Japan, where the government ministry in charge has set out the relevant programs, which consist of the 3 phases. The Phase 1 was already completed in 2008. The Phase 2 began in 2009 and saw the successful completion of the world's first offshore production test of MH yielding 120,000M3 of gas for 6 days. This test was carried out as programmed from January to March this year. The Phase 3 has the programs to work out the relevant technology towards the commercialization of the gas production by 2018 by ways of consolidated research/verification of technical issues, economical assessment, effects to surrounding environment, etc. JDC has been positively participating in the programs by carrying out the contracted researches during the Phase 1 and continuously into the current stage of Phase 2 wherein JDC has expanded JDC's involvement into the design of in-hole test system, which is the core-technology of the offshore MH production test, and also engaged in the actual drilling works for the MH. The test success was the news coverage in various media the world-over and attracted high attentions.

And then, let me go on to the Horizontal Directional Drilling (HDD) works. Our HDD technology and works provide the clients with an alternative to conventional methods of placing various product lines and cables, etc. under waterways (under river crossing), highways, shoreline, congested areas, environmentally sensitive area, mountainous areas, etc. We shall continue and expand this business domain.

Enhancement of Stable and Safe Operational Framework: and Enhancement of Business Administration:

I now get into the above-mentioned policies, which are the pedestals for our Midterm Corporate Strategy.

Enhancement of Stable and Safe Operational Framework;

The Enhancement of Stable Operational Framework can only be possible by securing long term contracts and extensions. In this connection, I would manage JDC by way of setting up and pursuing certain overriding principles and objectives besides the conventional annual budget and midterm plans; such principles/objectives to be worked out by setting out and basing itself on the business portfolio which envisions the prospects together with the numerical model simulation covering a long term for, say, 10 years and demonstrates the ways/measures to attain the objectives. In so managing, top-priority is continually to be placed on upkeep of the positive and harmonious relationships with the national oil companies and other enterprises in the oil producing countries. As it stands now, we shall intently endeavor to secure the contracts for the new build premium class jack-up rig, to be named HAKURYU-12, as the other new builds HAKURYU-10 and -11 have been/ will have been placed into the long term contracts. It goes without saying that securing of the subsequent contracts for the old timers HAKURYU-5, whose current contract will soon come to terminate, SAGADRIL-1 and -2 is equally vital to JDC. As for SAGADRIL-1 and -2, a suitable maintenance program will be worked out so that these rigs can be positively marketed and put into operation under contracts after the termination of the current contracts in Iran. Meanwhile, replacement of these rig(s) will also be engaged in our thought.

In regard to the Enhancement of Safe Operational Framework, which is of all-time utmost importance, HSQE re-education/training complying with ISO needs to be implemented besides the on-going safety management according to our HSQE System. For such implementation, a suitable training program would be formulated. Minimization of equipment breakdown time is of another requisite. Maintenance schedules must therefore be very well planned and minutely be carried out. Particular concern in connection with maintenance is that the workload is getting heavier concurrently with the aging of our rigs. Specifically, further recruitment/employment of the electrical and mechanical engineers must go on and further insights into innovation of fit-to-the-purpose methods to expedite the personnel training are under way and this is a way for risk control.

Another necessity for the safe operation is to improve the risk management manuals on a steady basis to cope with any and all emergency situations properly at any time.

Enhancement of Business Administration

As I have already mentioned in the above, along with the reinforcement of rig fleet, the major and formidable task I shall tackle with is the recruitment and training of necessary personnel. Besides the well-planned recruitment, training and personnel assignment, the issues I place emphasis on are how to cope with/overcome the "polarization" of personnel age composition, earlier promotion of young-aged middle class management personnel and positive assignment to the operation site of those somewhat underutilized female personnel despite the possession of required capabilities. In particular, I see the imminent need for raising the motivation of the specialized ship service/maintenance personnel. Note that such readjustment or increase in amount of pays must go along with growth of each individual's ability and thus we deliberate to work out the fit-to-the-purpose measures for competency building and self-development. Also, training program to develop English proficiency for Japanese nationals is being keenly deliberated.

The tendency in recent years is that the well drilling works are getting more complex and oil/gas fields smaller. Thus, operators demand from drilling contractors higher work efficiency and reliability than ever, while minimizing the cost and non-productive breakdown time. In other words, highly skilled experts are being demanded. At JDC, the time has now come to see continuous retirements of personnel due to successive aging for quite some time ahead. Under such situation, experiences, skills, knowledge, know-how, etc, which the experts possess will have to be surely taken over by the young aged personnel. Effective ways to make it happen without fail are continuously being sought and worked out. At JDC Singapore Office (JDCS) as well as P.T. Japan Drilling Indonesia (JDI), whose importance for the JDC operations are getting more and more, strategic moves for upcoming personnel transition between generations are being tackled with. At the present moment and for quite a long time ahead, JDC's operations in South East Asia, especially in Indonesia and Malaysia, are getting more robust than ever and thus all measures to overcome manpower shortage at JDCS and JDI are being implemented. Also at the Drilling Technology Dept. as well as Horizontal Drilling Dept. in Tokyo, the personnel transfer plans along with training plans will have to be worked out and implemented for smooth personnel transition between generations.

Enhancement of financial stability is another key initiative. To implement and attain it, we shall intently endeavor to enrich our equity capital, diversify the ways of financial arrangements inclusive of lease financing as well as to secure contracts from healthy clients, whereby to bring about upkeep of sound operating cash-flow.

Additionally, as a way to sustain growth and expansion of JDC, we are determined to further solidify our corporate management system. In particular, segregation of duties between the Directors and Executive Officers will be implemented upon my presidential appointment. Such segregation makes it definite that the Directors are responsible for decision-making of the directions and policies for running the Company and that the Executive Officers are responsible for the implementation thereof. The full-time Directors used to be the members of our Managing Directors' Meeting but thenceforth the members are changed to the Managing Executive Officers and the Seniors. Besides these, we will be bringing in the KPI (Key Performance Indicator) system as a means to strengthen our capabilities for project management through various outside trainings, on-the-job trainings, etc. as well as to minutely optimize the cost performance. In order for us to promptly grab the customer needs attuning to the market trend of the time, we will also bring in the effective means to acquire the marketing/technical information in a structured and consistent way by defining which department to play what role and thereby serve the objective of shared possession of such information. There is a flood of information, in particular, the numerical data re: financial/accounting, document information, drawings, photos, but they mostly remain mere data and not put into practical use as the management resources. We will further enhance work efficiency and labor-saving and at the same time deliberate on how we can make use of those information.

In Conclusion

There is a lot to do to get JDC Group further grow and move our corporate value up. As it stands now, I consider that the immediate needs are to reinforce/expand our rig fleet and to secure/train our workforce.

To talk about the corporate culture of JDC, it would be the professionalism that prevails in the rig operations. At JDC, there are a great number of expatriates consisting of various nationalities and I perceive that it is such professionalism that motivates those expatriate personnel to work on our rigs over long periods. I am justly proud of this corporate culture of JDC and, for and in our personnel training, I will cherish it.

As mentioned in the beginning, I have been working with a strong desire to develop JDC to such a company as every personnel will embrace the dreams, hopes and prides in serving JDC. I will carry on the same way in my new career and wish that everyone at JDC will also be on the same way. Let us challenge and tackle with the Strategy and Initiatives stated herein and carry JDC forward and higher.

Lastly, I sincerely wish each and every one at JDC and the families all the best for the bright future.