As roles and responsibilities evolve at the well site, contractors should think of efficient wellbore delivery, not the rig itself, as their product

Nabors launches rig control system meant to drive not only automation of basic tasks but also third-party services like directional drilling, MPD, casing running

By Linda Hsieh, Managing Editor and Kelli Ainsworth, Editorial Coordinator

Christopher Papouras is President of Nabors Drilling Solutions.

What do you consider to be the most critical issues facing our industry right now?

There are things we cannot control, such as the markets, the price of oil and gas, and the drastic way the industry has had to respond to it. Among the things we are in control of, hiring qualified candidates to ensure safe operations as the market picks up is an issue that our entire industry faces. It is starting to look like things are picking up, so how will the industry respond to growth after having been down for so long? Since the down cycle has lasted for such a long duration, will the industry be able to hire the skilled workers we have invested in training for many years, or will we have to find new talent? Having the best people to perform the work is critical to ensuring safe operations and to delivering maximum performance and efficiencies in today’s challenging environment.

What will be the biggest challenge when the industry starts to reactivate rigs when the market picks up again?

The industry has always been remarkable at ramping up. However, as I mentioned, the biggest challenge relates to finding the right people to do the work. Staff reductions in this cycle have been larger and longer than any other in my career.  With that in mind, many people who were laid off during the downturn have found new jobs in other industries. We had invested a lot in to these people. For example, field employees at Nabors receive an average of 31 hours of training each year. We were able to retain highly qualified and skilled workers during the cycle. As the market picks up, we must maintain the same levels of safety, quality and performance. The industry has gotten better at those things over the past two years, but can we maintain that while growing? It will be people who will make that happen.

How can we make sure that we don’t let safety lapse?

At Nabors, incidents have decreased by 56% over the past five years. Some may argue this can be attributed to a decline in manhours over the past two years, but we have actually seen the frequency and severity of incidents decrease. In 2015, we drilled a total depth of approximately 7,000 miles across our global operations. In that same year, we achieved the company’s best annual safety performance, with a total recordable incidence rate of 0.82, under the IADC US land drilling average. This is something we are very proud of, as it means we are one step closer to our ultimate goal of zero injuries, zero incidents and zero near-misses. I believe the achievements we have made in improving safety are a direct result of our efforts to strengthen our safety culture and demonstrate management commitment at all levels of the organization. For example, as we faced the most difficult economic conditions, we continued to invest in safety and held our first Global Safety Week during 2015. The message to all employees was clear – no matter what, we will never cut costs to compromise safety. Seeing that commitment from management in the downturn will go a long way in continuing to improve safety performance.

One other key element of improving safety is through enhanced technology and automation. Reducing employee exposure to hazards is critical. For example, handling tubulars has always been one of the biggest hazards associated with working on a drilling rig. Nabors recently unveiled the iRacker autonomous tubular-handling system, which is designed to reduce the potential for dropped objects. This system automates tasks that historically required manual effort and, therefore, makes operations safer on the rig floor. It is just one example of how we are investing in technology to reduce such crew exposure while also enhancing drilling efficiency.

Will it be hard for drilling contractors to bring back the people who have been let go?

In this downturn, the cuts were very rapid and deep. Unfortunately, companies across our industry had to cut many talented people. This particular cycle lasted longer than previous downturns. Good people had to find other work in order to support their families. Some may choose not to return to our industry due to the uncertainty and lack of job security associated with the oil and gas industry. So, yes, it will be difficult to bring back good people who were let go. It is important to note, however, that automation and technology are significantly transforming our industry. We are learning how to do things more efficiently in the oilfield. As a result, the skill set and competencies required continue to evolve. These advancements present new opportunities for people who may be interested in working in our industry, and it is definitely an exciting career growth opportunity for the current talent we have.

What lessons has the industry learned about managing people from what happened in the late ’80s and early ‘90s?

We have gotten much better at managing people. Within just the past five years, Nabors consolidated many of its support functions at the corporate level, such as human resources and HSE, so that we could benefit from best practices while also streamlining the organization. That has helped a lot in improving our approach to attracting, engaging and retaining our employees.  This time we are much more strategic in thinking about people as opposed to just tiers and numbers. During the downturn, we invested time and resources to formalize our succession planning and career development programs for key management positions, which encompassed three tiers in the organization, a total of 190 people. Also, at Nabors we have focused on performance. We believe this is key to achieving our vision to become the global driller of choice. For example, we looked at the performance of all US rig managers and made a conscious effort to retain those who demonstrated the highest level of performance. We also implemented an incentive program that rewards our rig managers for placing and maintaining certain revenue-enhancing services on their rigs.

Finally, despite the downturn, Nabors continued its huge commitment to training. We are much more disciplined about systems and training and how to onboard and move someone in. We have focused on competency assessment and what training people need. We hope these efforts will enable us to grow more effectively.

When rigs start going back to work, do you expect that AC rigs will be preferred?

The top tier of rigs will be preferred, but AC alone is not necessarily sufficient to make a rig top tier. Tier one rigs have more power for longer laterals, such as 7,500 hp, greater setback capacities and advanced moving capabilities. The rigs that cannot set back 25,000 ft of drill pipe take a performance hit. Over the past few years, Nabors designed rigs that exceed the typical tier one offering. For example, our newest rigs have a setback capacity of 25,000 ft of 5 ⁷/8-in. drill pipe. This exceeds the standard tier one setback capacity for smaller drill pipe.

We are also upgrading many of our AC rigs to include more innovative technologies, such as our Rigtelligent modular control operating system. By mid-2017, Nabors will have 100 SmartRigs. Although it has been difficult to invest in the fleet because of pricing, we have made a commitment to do it because we recognized this as the right strategy, and the upgrades are being made at a fraction of replacement or newbuild cost.

In some cases, there are operators drilling less complex wells that do not require an AC rig. This was illustrated by the initial increases in the US land rig count last spring, which principally consisted of non-AC rigs owned by smaller contractors working for smaller operators.

Do you still see a role for SCR rigs, particularly the newer ones?

The issue with the SCR rigs is that they were built at a time when wells took 90 days to drill, so they only had to move four times a year. They were not designed to move.

Wells take 10 to 15 days now, so rigs are moving 15 times a year. SCR rigs will have to become capable of moving more efficiently, or they’re going to struggle. If it takes them two to five days to move, the operator will be losing a well every year because that time is spent on moving.

How quickly might contractors be able to bring idled rigs back to work once demand rises?

The low count was below 400 in mid-2016, and now we’re at 553 (as of late October) so we’ve added 150 rigs in five months. The question is not the ability to add rigs; the question is how much money must be spent to add that incremental rig.

So far, the rigs that have gone back to work are the ones that have only recently been idled. But if you are going to reactivate a rig that has not worked in two years, there will be a higher cost. If that cost is too high, we would barely be making money because the current rates are so low. It would take two years just to make back what we have to put into the rig to reactivate it. Contractors would not do that over the long run.

I believe we are going to reach a point where contractors will really struggle to put these idle rigs back to work, and they will need to ask operators to pay higher rates. The question is, when does that happen?

What technologies is Nabors working on to improve drilling performance for the future?

We are deploying a new rig design that is optimized for multiwell pads and for pad-to-pad moves. It has a high setback capacity and four engines that provide greater power for longer laterals, and we are adding additional automation, such as a racking system. The goal is to offer the customer a real hands-free operation.

Additionally, we are deploying our new rig control system, which automates basic drilling contractor operations, but we also want to use the rig to execute services that have typically been performed by third parties – directional drilling, managed pressure drilling (MPD) and casing running, for example. Our view is that the technology on the rig will enable us to perform these services far more efficiently than a third party would.

The rig crews are already doing a lot of these services but at the direction of a third party. If we can automate some of those execution steps, do you really need the third party to do it? I also think there are lots of advantages to be gained with the rig taking ownership of such services. You can get savings and efficiencies that you simply cannot get by having two separate entities working in a vacuum.

Take MPD, for example. MPD has gotten very little market penetration in the US, mainly because it is very expensive. It is inefficient to have a third party bring a separate MPD system to the rig, where it might take a day just to rig up. If a well is drilled in 12 days, the operator would have to make up the two days just to justify the system. Having MPD built into the rig will help to address such inefficiencies and cost challenges.

Automation of directional drilling is incorporated into our Rigtelligent control system. Today, a directional driller will look at the progress of the bit and evaluate the next steps in their head. Then they will tell the driller what to do. That loop is not very efficient. It requires having someone interpret and communicate information. We think that performing calculations and giving steering instructions are tasks that are best done by a machine, so we are developing a control system that will either instruct the driller how to proceed or to simply execute the task. Operations will be monitored at our 24/7 centers staffed by experts.

What will be the barriers to bringing a concept like this to the market?

I think the two biggest challenges will be internal culture and external culture. We have to say we are no longer a “drilling contractor.” That is a big cultural shift. In other words, our product is not the rig. The product is delivering the wellbore. If our product is just the rig, we do not necessarily need to design the rig to make the wellbore more efficient, so the rig will look a little bit different and have different capabilities. In 2015, Nabors implemented a major reorganization to build a performance- and wellbore-focused culture. In an effort to further differentiate ourselves through the use of technology and to accelerate the development and implementation of surface automation tools that integrate with downhole technologies, Nabors Drilling Solutions was created as part of the overall reorganization. This group consists of various functional groups that were previously part of our drilling equipment manufacturing business and our directional drilling business.

There will also be challenges with the operator because we intend to transform the industry. This will change the way that the operator procures their services. They might have one department that procures the rig, another that procures directional drilling and yet another that procures MPD services. The analogy I suggested to one operator is a smartphone. Independently, there is one group that buys a phone, one group that buys a camera and yet another group that buys the GPS. They might be getting very good prices, but collectively, the multiple teams will never buy a smartphone. Ultimately, it is going to be a big challenge to change the mindset of the operator to adapt to the model.

Besides the services you already mentioned, are there any additional services that you’re thinking of incorporating into the rig?

We are specifically targeting services that we feel are better performed with the rig as the platform. We are not bundling, which is trying to add services for the sake of increasing revenue. Companies have tried that, and it doesn’t work because you’re not adding value. Twenty years ago it was necessary to deliver these services that way, but the technology has changed, so the model must change. We will target any service that fits this methodology.

What’s your outlook on additional newbuilds for the land market?

In the US land market, it comes down to: At what point does the operator say existing rigs are not good enough for what they want, and are they willing to pay a higher rate to get that new rig? We’re a long way from that. Nabors is making a lot of investments that we think are going to pay off even at the low rates, as we believe that the customer will recognize the performance impact of these tier one rigs. The situation is quite different internationally, where there are abundant opportunities for new and upgraded rigs. We are introducing various efficiency-enhancing rigs and associated technologies.

Would you say drilling contractors are planning their business on the assumption that oil is not going back to $100?

Definitely. Our approach is to assume that oil will remain volatile and be range-bound for an indefinite period with a mean price at or slightly higher than current levels. We continue to invest in people, technology and equipment, which will fit our strategy of performance and sustainable technology differentiation. DC

iRacker, Rigtelligent and SmartRig are registered terms of Nabors Drilling Solutions.