Financial and human capital challenges call for the industry to adopt new ways of thinking

Nabors’ Subodh Saxena: Drilling contractors can address workforce, efficiency needs through cultural shifts and capital allocation strategies that focus on long-term sustainability

By Linda Hsieh, Editor & Publisher

Subodh Saxena is Senior Vice President at Nabors Industries.

What is your outlook for the upstream business, particularly the drilling contractor segment, and do you see any looming challenges?

There is a lot to celebrate today. Even with some economic uncertainty, the foreseeable future is positive for our industry as we head into the so-called “supercycle.” Drilling contractors have pulled out a lot of stops to service customers and their need for additional rigs despite challenges around the workforce and the supply chain, so there really is a lot worth celebrating. 

With that said, I see two key structural issues and challenges that exist within the drilling contractor space. One is around human capital, and the other is around financial capital.

In terms of human capital, we have to recognize that today’s workforce requires a sense of purpose, and they want to work for organizations that have a similar sense of purpose. They also need their employers to provide both psychological safety and physical safety. 

The first element is more of a cultural challenge. Our industry’s culture is sometimes not very endearing to the younger generation, and that impacts drillers’ ability to attract, retain and protect our employees.

The second element revolves around the industry’s HSE performance, which has struggled in the recent activity ramp-up. That is a huge deterrent to our recruitment efforts.

Is that increase in incidents related to the new people coming into our industry?

Partly. We do have a younger workforce who need to be coached and mentored. If you go to any rig today, you will see at least 30%, sometimes even 40%, of the workers wearing orange hats, which means they’re a short-service employee. It is our job to protect them and make them aware of all the risks they may encounter during a drilling operation.

But these incidents are happening across the upstream sector and not just happening with short-service employees. Whether its drilling, completions or production, all segments need to be more vigilant on safety with all of our employees.

Nabors has invested a lot in automation in recent years. Are those technologies helping at all with easing some of these safety challenges?

Absolutely, I think technology will play a huge role in removing people from risky activities like working at height or interacting with the pipe. A customer once said to me that, in any interaction between pipe and human, the pipe always wins. That is so true. So, Nabors’ approach is to focus on the top tier of the hierarchy of controls pyramid, which is elimination of the risk, substitution of the risk, and putting in engineering controls. Automation is definitely part of the solution. Last year we proved we can fully automate any AC rig, which will enable not only Nabors but any drilling contractor to remove crews from red zone areas while delivering consistent best-in-class results to customers. But, like most things, it has to mature.. 

Going back to what you said about the human capital and how our culture impacts our attractiveness to young workers – can you expand on that a little bit?

Younger people today really have optionality. Drilling contractors are not competing for crews with each other; we are competing for the same people against industries from fast food to the high-tech industry.

I think it’s important that people, like me, who have been in the industry for 30 years, understand that the new generation thinks differently. And we have to remember that young people are the only workforce available to us. That means it is up to us to move toward them. We can’t just expect them to move fully toward us, because that is not going to happen.

The cultural change involves understanding who today’s workers are and recognizing that we have to transform ourselves and move toward them. 

Finally, automation also has a role to play in cultural impacts and the attractiveness of our industry. Software and robotics are the exact cool factor we need to recruit the next generation to our industry.

On your earlier point around the financial capital challenge, does that refer to maintaining capital discipline?

That is part of it and is very important, but I believe how we allocate the capital is equally as important. Considering the state of our industry, I believe there are three areas where we need to deploy our capital. First, it needs to go into making our rigs more efficient because that is the only way we provide value to our customers. Second, it needs to go toward improving safety on our rigs because that will help us retain and protect our employees. Lastly, our capital should be spent on improving the general well-being of our employees.

What does that general well-being encompass? 

From a field perspective, today’s workforce is very much willing and capable to work hard for their 12-hour shifts, but when they are off, they want a reasonable quality of living. At a minimum, this means employers need to provide some element of privacy in the living quarters, as well as WiFi. Those investments need to happen. If we don’t do that, we will not be able to attract and retain those employees because they see those things as necessities, not luxuries. 

Even though our industry appears headed into a supercycle, we know that this will always be a volatile business. What can drilling contractors do now to better prepare for the next downturn, whenever it may come?

We have to take a long-term view, which means focusing on the things that will give us long-term sustainability rather than short-term gains. Traditionally, whenever the demand and supply become tight, the first reaction is to build more rigs. But right now, if a company decides to go and manufacture new rigs, that capital is not being wisely spent. As an industry, we have repeatedly given negative return on investment for the last six to seven years. We have to do things that will bring value for us, for our customers and for our employees over the next 10-15 years. Short-term gains should not be the focus.

Are there any new ways in which our industry can approach technology development that will allow us to maintain financial discipline at the same time?  

One of the challenges we have in our industry is that, because it’s a very competitive industry, we somehow believe that we always have to build our own solutions. But if everybody builds their own solutions, I think that can be very destructive in the bigger picture. Despite the competitiveness, we should be able to understand where we can collaborate with our peers and cross-license where it makes sense. 

We have to overcome this cultural barrier of build versus buy. We do not have to build everything; we should be able to buy what is available off the shelf, even if it’s coming from one of my competitors. That is actually an important element of Nabors’ approach, which is to empower other drilling contractors with our technologies. We hope drilling contractors can collaborate with each other to deploy solutions that are mutually beneficial.

This seems like a big shift away from 15-20 years ago, when contractors primarily developed technologies or equipment for their own rigs.

Absolutely, it’s a big shift, but it’s necessary. Technology today evolves at such a quick pace, and it requires significant investments, so we can’t all invest in everything while maintaining financial discipline. Each drilling contractor has a unique value proposition, so we really don’t need to compete on everything. Find your niche, find where you can prosper and outsource the rest – that way everybody can be successful.

Where do you think the next step changes in efficiency on your rigs are going to come from?

In today’s drilling operations, between stuck pipes and BHAs that are lost due to twist-offs, well control and other safety issues, the industry loses hundreds of millions of dollars. The step change in efficiency is going to come from how we can eliminate those drilling dysfunctions in real time while we are drilling. 

Drilling contractors’ focus has been to optimize connection and tripping speeds, which are valuable, but those are simpler problems to solve. The bigger problems still remain, and they will require significant collaboration with customers. By applying data science and other digital solutions, we can create a loop of continuous improvement. This will allow for better planning because we can choose better drilling parameters, and it will help in the execution of the drilling roadmap. Further, when something unplanned happens, it will allow us to course-correct and quickly push out new parameters to the rig.

Why do you think we haven’t been able to achieve this before?

First, we were very reliant on experienced people to mitigate risks. Second, the industry was not using technologies like edge or cloud computing or algorithms for real-time analytics. Those technologies exist now thanks to investments from a lot of technology firms, and we are able to adopt them to create our own digital ecosystem.

Can you talk about the progress Nabors has made in eliminating the drilling dysfunctions you mentioned?

We have made significant progress in deploying technologies that effectively automate the process of drilling, and that eliminates the variability and inconsistencies that come with human beings making decisions. You may not get the highest level of efficiency from day one of deploying a technology, but you will get consistency and repeatability. Over time as that technology is optimized, you will start to gain efficiency. Technology deployment is a journey, and how people consume that technology at the rig is really what will make it either a success or a failure.

So will humans always be needed at the rig site, even in a highly autonomous drilling operation?

I believe so, although the skill sets of the humans will be different. When Nabors launched our newly built autonomous rig, R801, and when we fully automated an existing rig with our new robotics upgrade, the crew sizes were still the same, but we had more software people on the rig. There will always be decisions that need to be made in real time, and I don’t think artificial intelligence has advanced to such a level that they can be taken by machines completely.

What would you say are the key enablers to seeing more automation at scale across our industry? 

They need to be modular, rig agnostic and capital light. As with anything groundbreaking, the cost of development is high. For something like that to be a success at scale, the cost – both to the manufacturer and to the customer – needs to come down. There will also need to be a mindset shift, where organizations recognize that they want to use the technology, whether they developed it or not, because it improves performance and HSE, and they have to be willing to go through the required learning curve.

Do you see increasing demand from operators for these types of automation technologies?

Absolutely. We have deployed our process and machine automation technologies across our fleet and for various rig contractors in the US, and we have been running them internationally in regions like Latin America. Just recently, we deployed some of our newest automation technology on rigs in Saudi Arabia, which is an exciting milestone for Nabors and the Middle East market. 

What long-term role do you see drilling contractors playing in the energy transition?

I see two ways drilling contractors can play a role in the energy transition space. One is by lowering the carbon footprint of their rigs because that is something that is within their control. By deploying or developing technologies, we can reduce the amount of fuel consumption on our rigs. In turn, that will create value for ourselves, for our customers and for the environment.

Apart from that, there are a few adjacent industries where we can play a role. Geothermal is one of them, which is why Nabors has invested in that.

I would not say that drilling contractors should go headlong into energy transition projects because they are not necessarily going to be aligned to the core business. It depends upon the strategy that each drilling contractor has. I believe that oil and gas will remain important even as the world’s energy mix diversifies in the coming years.  DC