IADC CONNECTION • 2023 CHAIR
Moderated growth may create
healthier business environment
for drillers in coming years
IADC Chair: Drilling contractors focusing on rig
upgrades, not newbuilds, as industry heads
into what will hopefully be a longer upcycle
BY LINDA HSIEH, EDITOR & PUBLISHER
We’re at an exciting time in the drilling
industry – not only because rig counts and
dayrates have both been going up but also
because we’re poised for the possibility of
a multi-year upcycle, depending on how
the economies in North America, Europe
and China evolve in the near term. A lon-
ger period of stability is exactly what this
industry needs, said Andy Hendricks, 2023
IADC Chairman and Patterson-UTI Energy
President and CEO.

“If you look over the past decade, we’ve
gone through at least three very short-
lived cycles in the onshore sector, which
creates a lot of challenges from a drilling
contractor’s point of view,” Mr Hendricks
said. “It doesn’t allow companies to recov-
er financially, and it stifles technology
growth. But most importantly, it nega-
tively impacts our employees. Every time
we go through one of these cycles, we have
to rebuild our employee base. A multi-year
cycle will be very healthy for both drilling
contractors and other service companies,
whether in the North American onshore,
international or offshore regions.”
The reason Mr Hendricks is bullish
about a longer upturn, he said, is that there
has been a fundamental change in the
way public E&P operators manage their
business. “Several times over the past decade, US
producers have ramped up production and
chased growth because that’s what their
shareholders incentivized them to do. In
doing so, it really led to overproduction,
which then led to challenges in the global
oil markets,” he said. “But now, US produc-
ers are focusing much more on returning
42 cash to shareholders. This is actually a
huge positive for our industry, as they have
been growing but with moderation.”
Drilling contractors and other oilfield
service companies are also aligning with
this philosophy, prioritizing things like
dividends, share buybacks and debt repay-
ment. “There’s this belief out there that drill-
ing contractors have overbuilt the mar-
ket. Well, not necessarily,” Mr Hendricks
remarked. “We’ve just tried to stay aligned
with our customers through these very
short cycles. Now that our customers
are exhibiting moderated growth, drill-
ing contractors, too, will exhibit moder-
ated growth. This creates an environment
where we’ll likely see a much healthier
business environment, possibly for the
next few years.”
As a result of this capital discipline,
North American onshore drilling contrac-
tors appear to have no plans to start a
newbuild frenzy this time – even though
the market is tight and top-tier drilling
rigs have been practically sold out since
mid-2022. The last newbuild cycle, which
ended in 2015, was essentially a retooling
of the industry with AC high-spec rigs, but
that transition is no longer necessary.

“There’s no need to build new rigs. We’d
rather just work the rigs that we have,” Mr
Hendricks said.

That doesn’t mean there isn’t capacity
to add rigs, he added, but drilling contrac-
tors are focusing instead on upgrading and
reactivating existing rigs. At Patterson-
UTI, for example, while all of its rigs are at
a minimum AC, high-spec rigs, additional
work is ongoing to take drilling rigs built
before 2013 and make them full super-spec
rigs. These can be structural upgrades or
other work related to the rig’s electrical or
circulating systems.

“That’s what we’ve been doing for the
last year and a half, and we’ll contin-
ue doing that for the foreseeable future
because we just don’t see the need to build
new rigs,” Mr Hendricks said.

Facing challenges
on people, emissions
While a multi-year upcycle will be posi-
tive for the drilling industry, it will also
bring associated challenges. Among the
most important will be staffing, especially
for entry-level rig crews.

“The type of work we do – working out-
side in the weather and being away from
home for 14 days at a time – it’s not appeal-
ing to some people,” Mr Hendricks said,
adding that even when companies find
individuals who are willing to try it, many
leave within the first 30 days. “They try it
out, and they say, ‘It’s not for me.’ Turnover
at the entry-level position is definitely one
of our biggest challenges in the US onshore
drilling space as an industry.”
Automation – which has seen signifi-
cant investments from drilling contractors
in the past decade – is not yet reducing
the number of people required to operate
a drilling rig. A drilling rig still requires a
lot of manual labor, not just during drill-
ing or connections but also during rig
moves. “Outside of a few very interesting
prototypes, there’s not yet a wholesale
automation of things like pipe handling in
the onshore space that would allow for a
reduction in the crew size,” Mr Hendricks
said. In fact, the number of people that work
on a drilling rig in the US has only grown
in the past four years. “It’s because of the
intensity of the drilling operation, which
drives the need for extra personnel on
locations to manage all the tasks around
the drilling operation and keep up with
the rig maintenance.” For example, in the
Permian Basin, Patterson-UTI’s annual
horizontal footage drilled has grown by
160% over the past five years.

For drilling contractors, Mr Hendricks
said he believes the primary value propo-
sition of automatin existing rig systems is
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2023 CHAIR • IADC CONNECTION
getting repeatability of the best-possible
operation. Consistency around tasks like
how the bit is set on bottom and how to
steer the well, irrespective of the human
driller’s level of experience, will help con-
tractors to achieve higher efficiency across
entire rig fleets. Then, the eventual auto-
mation of pipe handling will eliminate the
interaction of humans and machines in
the red zone.

Emissions reduction will be another
key challenge for drilling contractors
over the next few years. Patterson-UTI
has been working at the leading edge of
these efforts, launching innovations like
EcoCell. This lithium battery hybrid power
management system “allows the rig to act
more like a hybrid vehicle because it’s not
relying on engine power all the time and
reduces fuel usage and emissions,” Mr
Hendricks said. “I believe that, by working
with the E&Ps, we can continue to make
a difference and reduce emissions at the
wellsite through technology and innova-
tion.” Parallel efforts are also ongoing around
using highline power and natural gas as
alternatives to diesel, which have become
more routine onshore.

While drilling contractors will continue
to invest in emission-reduction efforts and
technologies like these, Mr Hendricks said
there’s still a big question when it comes to
the future of emissions reporting require-
ments: Who owns the emissions from the
prime movers, like the generators, on a
drilling rig?
“As a drilling contractor, we don’t deter-
mine the specification of the operation. We
don’t determine how many generators are
required. We don’t determine if a generator
gets replaced by a lithium battery solution.

We don’t determine the fuel source. Those
are all specified by the E&P company,” Mr
Hendricks explained.

This is a looming challenge that will
only become more important as inves-
tors, regulators and the public continue to
scrutinize emissions levels in the coming
years. Mr Hendricks said he believes the
drilling industry will need to consider
who is the real owner of these emissions
and urged companies to have discussions
that could lead to an industry consensus
among drilling contractors, service provid-
ers and E&Ps.

Emissions reduction innovations like Patterson-UTI’s EcoCell will be critical in the
coming years. The technology uses lithium batteries to store and dispense energy
for use in drilling operations, which allows for a steady and optimized load to be
maintained on a rig’s generators. The company says EcoCell can reduce rig fuel
consumption by more than 20%.

Goals as IADC Chairman
Looking at his term as IADC Chairman,
Mr Hendricks said he is excited about lead-
ing a healthy and thriving industry as the
association’s members work to advance
safe working conditions for everyone on
location, improve the onboarding of new
employees and continue to push the limits
of new drilling technologies.

Compared with the first time he served
as IADC Chairman in 2017, he believes the
optimism permeating the industry today
will drive a more productive and energetic
term in 2023. “I’m certainly earmarking to
travel to a number of meetings and confer-
ences in various parts of the world so I can
meet with IADC members and hear what
their concerns are. We want to make sure
that IADC’s programs are addressing the
needs of our global membership.”
Mr Hendricks also expressed strong sup-
port for IADC’s ongoing efforts to promote
the drilling industry’s value to external
stakeholders. Being able to demonstrate
our value to society and improving our
public image will be essential to recruiting
young talent, he said.

“I applaud IADC’s efforts with universi-
ties and the student chapter program in
terms of getting the message out on what
we do and why it’s important,” he said.

“When I meet with students at IADC meet-
ings, you don’t just meet students in petro-
leum engineering. There’s also chemical
engineers, mechanical engineers, electri-
cal engineers – you get a cross-section,
and I think that’s hugely important to help
feed talent into our industry.”
Regardless of the public’s perception of
our industry, however, the fact remains
that the world needs oil and gas. While
many are choosing to focus solely on the
energy transition and renewables, people
who work in this industry know that it’s
not really a transition but an expansion of
global energy requirements for the foresee-
able future.

“The discussion should not be pitting
one energy source against another. As the
world’s population grows, we’re going to
need all energy sources,” Mr Hendricks
said. “Our industry may not be loved, but
we’re needed. And we’re going to do our
best to help meet the world’s energy needs
in a safe and sustainable way. I am proud
of our industry’s ability to produce afford-
able energy that makes peoples’ lives bet-
ter.” DC
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