Now is time to invest in people, Jacob urges

Should drilling contractors be investing in people instead of equipment? That was the question Ed Jacob, Goober Drilling CEO & president, posed to the audience at the 2009 IADC Drilling Onshore Conference & Exhibition on 21 May in Houston.

And the answer, Mr Jacob contended, is definitely people. It may be impossible to pinpoint the exact total cost of training a skilled rig employee, but there’s no question that the repetitive cycles of ups and downs have added tremendous costs to the industry – the training during the boom, the layoffs during the slump, then the re-training when the market picks back up and getting back the efficiencies that have been lost.

Should drilling contractors be investing in people instead of equipment? That was the question Ed Jacob, Goober Drilling CEO & president, posed to the audience at the 2009 IADC Drilling Onshore Conference & Exhibition on 21 May in Houston.

And the answer, Mr Jacob contended, is definitely people. It may be impossible to pinpoint the exact total cost of training a skilled rig employee, but there’s no question that the repetitive cycles of ups and downs have added tremendous costs to the industry – the training during the boom, the layoffs during the slump, then the re-training when the market picks back up and getting back the efficiencies that have been lost.

Ed Jacob, Goober Drilling CEO & president

Looking at the many booms and busts the industry has gone through since the ’80s, Mr Jacob noted the tremendous losses of talent that have repeatedly taken place.

For example, take the period of 1981 to 1986 – the rig count fell from 4,165 to 841. This meant going from an estimated 91,630 employees down to 18,502 – a tremendous loss of talent.

Or look at April 1999, when the rig count hit a bottom of 380, or roughly 8,360 employees. Less than a year later, in December 1999, rig count and employee numbers jumped to 674 and 14,828, respectively. That’s a lot of people who had to be either brought back or newly trained.

“And we wonder why we lose efficiency?” Mr Jacob asked.

From 1981 to 1999, land drilling contractors lost 91% of their rig employees and 89% of their drilling superintendents. It was a game-changer that essentially altered the way we ran our business, he said.

Now look at the past eight months, when we went from 1,921 rigs and 42,262 employees in September 2008 to 868 rigs and 19,096 employees in May 2009. Another drastic reduction in rig count, personnel and supervision.

“Even with all the negatives we’ve heard all day, I contend that we can see the light at the end of the tunnel. And if we’re not preparing now for the next demand increase the customers will be wanting, then we’ll be too late because I do believe that business is going to pick up faster than we think,” he said.

So should we be investing in equipment or people?

On the equipment side, let’s assume that a rig stacked for 90-180 days will cost $100,000 to $250,000 to bring back to service and a rig stacked for 180-plus days will need more than $500,000. It would cost the industry approximately $355 million to put 1,050 rigs back to work, Mr Jacob said.

On the people side, if you estimate that the industry has lost 10,425 skilled positions in the past eight months and assume a $75,000 career training cost per employee, the total career training cost for these lost positions is $782 million.

Add to that the intangible costs of losing talented employees:

• • Efficiencies lost.
• • Increased safety risks.
• • Customer dissatisfaction.
• • Brand image.
• • Labor pool perception
• • Organized labor.

Think Mr Jacob’s assumptions and estimates are way too little or way too much? He concedes that these are his assumptions, but he does challenge everyone to do their own analysis and see what their own human resources policies and procedures have cost them.

“Now is the time to high-grade,” Mr Jacob said, “Now is the time to invest in people, and it will pay off when this business turns around.”