Originally printed in Oil Driller magazine, Fall 2006
Rig work year-round
By Nancy Jakubic
‘Leveling the load’ is not a new issue in the drilling industry. The trade-off between an intense glut of activity in the winter and the perceived higher costs associated with spring and summer drilling has long been a hot topic.
However, in recent years, the oil and gas industry operating in western Canada has become increasingly aware that extending the drilling season beyond the winter as much as possible is a sound business model. Two studies, one commissioned by the industry and undertaken by Ziff Energy Group in 2001, and another spearheaded by the Petroleum Technology Alliance Canada with Deep Blue Associates in 2005, came to the same conclusion.
“These studies indicated that the industry could provide better service if there was an opportunity to spread the work more over the course of the year,” says Don Herring, president, CAODC. “The oil companies would be winners because the cost of their well could be reduced. For the contractor, the equipment is better utilized. For the rig crews, the work would be spread over the course of the year rather than lumped in during the beginning of November to the end of March.”
As a result of the Ziff study, B.C.’s Department of Energy, Mines, and Petroleum Resources set up a summer drilling program initiative. So far, it’s the only province to formally take up the cause.
“Alberta doesn’t have a program to promote summer drilling and of course Saskatchewan doesn’t need one,” says Herring. “It would probably have some advantage in northwestern Alberta, but because drilling activities are so high, the provincial government isn’t convinced they need a summer drilling policy.”
That’s not the case in the industry.
“As a service provider our goal is to meet our customers’ demand,” says Jason Hager, vice president, Enhanced and Big Sky Drilling (Ensign). “We encourage our customers to seek longer-term commitments and provide pricing incentives and cost certainty to do so. By having our customer commit to a long-term strategy we are afforded the opportunity to make the commitment and have the infrastructure to support that commitment from our customer.”
Hager notes that in N.E. British Columbia, year-round roads and increased infrastructure have allowed operators in the region to access locations over the summer for nearly the same costs as winter drilling. The early production time gained from earlier access mitigates any increased cost. While larger operators have an easier time to procure equipment and personnel given the larger scope of their projects, Hager believes the smaller operator has the opportunity to take advantage of the gains as well.
Pat Deis, drilling advisor for Encana, works in the foothills of Alberta, drilling in a region that stretches as far north as Fort Nelson in northeast British Columbia. Deis says Encana has been trying very hard to level the workload throughout the year.
“We’ve had some success in achieving a more level load over the last three years,” Deis reports. “We’re aiming for an even better even load in the future. The advantages are such that, when rig demand hits its peak in January, you’re not out there trying to procure drilling resources in a marketplace that’s extremely tight. If we don’t demand as much right then, we’re sort of helping out that whole situation of being able to meet our expectations and working as many rigs through the wet season or the spring as possible.”
In some areas of the western sedimentary basin, there is no access to the location except in the winter. All areas have issues in the spring when the road bans come into effect and rigs in many parts of Western Canada are unable to load.
That’s where the planning comes in.
“You try to get to locations where a rig may be able to drill more than one well on one location during that period, and not have to move during the season.”
Window of Opportunity
“Companies know from experience what the window of opportunity is to work in some of those areas,” says Herring. “They know they need to be in a certain area by a certain date and when they need to get out. If they’re unfortunate enough to get an early spring then they’ll have to move equipment at night and try and get it out that way.”
Herring says even after the road ban is off, there still are some aspects associated with physical conditions that make it hard to move.
“In some places in Saskatchewan or southern Alberta if it rains too much, you still can’t get to the location,” says Herring. “You can get on the main highway, you just can’t get off. Certainly, that’s an issue in the exploration areas. You’re not able to get access because before you were driving on a temporary road you built over the frost. If you are unfortunate enough to get your equipment stuck in there, it will probably stay until the next winter.”
“You’ve got to come up with locations that you can access during the wet seasons,” say Deis. “You try to get to locations where a rig may be able to drill more than one well on one location during that period, and not have to move during the season.”
In 2004, Encana worked over 55 rigs in its Foothills Region in January but went as low as five rigs in the spring. In 2005, the peak season saw 45 rigs but over 20 rigs worked through the spring. In 2006, the peak was again at 45 but the company worked as many as 30 rigs through break-up. Deis says working through the break up takes an enormous amount of planning, but the curve is getting flatter all the time and Encana does see the benefits. Well costs show that the rigs that work steadily produce lower costs.
“When we get onto a location, we’ll be drilling right through that [breakup] period,” says Deis. “That takes an enormous amount of planning to make sure you hit that kind of target but the planning is what I would call ‘cheap’ relative to the benefit.”
“When crews have steady work they become more familiar with the processes and the efficiency gains are exponential.”
The equation which compares winter drilling costs to spring and summer drilling costs is a complicated one. John Jacobsen of Precision Drilling agrees there are challenges to spring drilling but that the pros outweigh the cons.
“Most times in the spring we can’t move the rig because of road bans, so unless the rig’s on location and has the product that it needs to drill then it will be shut down,” says Jacobsen. “There’s also times when you need some additional services like when you’re close to finishing the well, you need loggers and cementers. In a very few cases, the rig would be strapped up and it would work through break up, but in most cases it would shut down, waiting for the frost to come out of the ground and the roads to dry up.”
In spite of that, Jacobsen says that depending on the area of the country, as long as a company has access, it’s actually cheaper to drill in the summer as compared to the winter.
“That’s because you don’t have all the excess fuel you burn to heat the rig,” says Jacobsen. “In some areas, like northwest B.C. where it’s wet most of the year, companies can spend about $80,000 per location for matting so those locations cost a little more. But I think it gets close to about the same price as drilling in the winter because again you don’t have all the extra costs of heating.”
In addition to heating costs, the equipment itself comes at a greater cost in the tight winter drilling season.
“From an operator perspective, seasonal and commodity fluctuations carry with them supply/demand variations in rate structures, equipment shortages, manpower challenges and logistical mobilization considerations,” says Hager. “When the demand for rigs exceeds the supply of rigs, contractor rates will reflect the challenges of these shortages.”
In such a situation, the contractor, who can charge more in the tight winter marketplace, seems to benefit from the short drilling season; but in reality, the contractor pays a heavy price in the ‘feast or famine’ drilling cycles. Hager explains, “When the cycle reverses, whether it’s seasonal or for longer periods, equipment becomes idle and effectively moth balled until it is called into service again. Those personnel we trained will leave the industry and seek alternate employment in other industries.”
Consequently, one of the biggest advantages to leveling the load relates to the rig crews. If the industry can achieve a steadier workload throughout the year, the workforce will benefit in the long term.
“In any industry, not just the drilling sector, when you have a stabilized work environment there are far more gains than simply reduced operating costs,” says Hager. “When crews have steady work, they become more familiar with the processes and the efficiency gains are exponential. Safety statistics improve and equipment downtime is decreased.”
The CAODC does its part in attracting, training and maintaining rig workers.
“We try to do a couple of things to provide as reasonable an environment as we can,” says Herring. “We explain the seasonal aspects of the business. In the spring, equipment gets repaired, the workforce upgrades their training and enjoys some time off.”
Another initiative the CAODC has been pursuing to help mitigate the labour impact caused by the seasonal imbalance is the Rig Technician Apprenticeship program. By 2008, all crew members in Alberta from motorhand to driller will be registered apprentices or journeymen.
“In this industry, to the extent that people move from one contractor to another or from one rig to another, there are definite advantages to having a training program that measures skills at arm’s length,” says Herring. “It helps contractors because they can see what the rig worker has done. We also know from looking statistically at other trades that people who are a member of a trade tend to have fewer turnovers, identify themselves with the trade, and return to that industry. Even if they leave an industry for farming for four years, they’re thinking, ‘I really am a journeyman. A rig technician.’ It identifies them with a vocation.”
“A less seasonal industry will have nothing but positive impact through increased efficiencies, reduced downtime and increased safety for our personnel,” says Hager. “Given we are a commodity-based industry we will always have cyclical challenges but seizing the opportunity to mitigate those challenges will be the gain for all parties involved.”
“I think the big benefit at the end of the day is crew stability,” says Deis. “Trying to man an enormous amount of rigs in January and February is a challenge for the industry, and, if they all get laid off in the spring, they’re hard to get back again. It also makes it hard to attract people to our business. But if we can level the load, the crews realize there’s a career here and it’s a good one.”