President & Chief Executive Officer, PHX Energy Services Corp.
#Vdoorlocksmith Show with Mike Buker, President – Phoenix Technology Services
Vdoorlocksmith Show with Mike Buker, President – Phoenix Technology Services. We will be discussing industry trends, ...
About Michael Buker
Michael Buker, President and CEO of Phoenix Technology Services, appeared on the #Vdoorlocksmith Show on June 23, 2023, to discuss industry trends. He stated that the company decided in 2013 to "steal market share away from Slumber J Baker and Halliburton" and pursued control over motor, MWD, and rotary steerable technology. Buker estimated that about 40 percent of the company's work is currently remote, and he noted that reducing the number of people on the rig improves safety. Buker also expressed concern about the natural gas market, saying the price of gas has "come way down, down 75 percent" and predicted that this could reduce the number of gas-focused rigs in the U.S., potentially leading to directional tools being redirected to oil-focused operations. He mentioned upcoming travel to Savannah, Norway for the SBE conference, and to Germany and Belgium for a robotics documentary, as well as a planned appearance as keynote host and moderator at a Permian Basin directional drilling forum.
Transcript (64 segments)
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Host0:18
Hello everyone and welcome to the Videor Locksmith Show, where we are unlocking the secrets to success in the oil and gas industry, one interview, one technical presentation, and one technical screw-up at a time. Thank you guys all so much for being here on this wonderful Friday. We've got an absolutely amazing show for you, another great interview for you guys. As always, let me know where you guys are watching from; love to be able to give everybody a shout out on the screen. We just wrapped up this week episode number seven of the Torque and Drag mini series, Learn It, Turn It, Burn It, with Davey Sue Bra Money. I got it right, okay. Davey was absolutely amazing, talked a lot about hole cleaning and how that affects your torque and drag. So anybody who is doing real-time operations, anybody who's in the operational aspect of torque and drag, it's a really great lesson to be able to go back and watch. I highly recommend you guys go back and look at it. We're waiting on one more of the presentations to come in from episode number six with Mitch from K&M Technology. As soon as we get that one, I'll get that put up on LinkedIn, and then the next day I'll put Davey's up as well. On Tuesday we'll have Brandon Foster from TD Unlimited coming back to wrap everything up. So if you have any questions from the prior episodes, anything that you still want to be able to ask to somebody who is an absolutely amazing drilling engineer and torque and drag expert himself, bring those questions on episode number eight for Brandon. I know I've got a handful of questions, but it's not about me asking my questions, it's about getting yours answered. We got a lot of people tuning in today. It looks like we got Ian first. Ian, thanks for being here, tuning in from Woodlands, Texas. Artie Morrison, my good buddy, tuning in from The Woodlands as well. Brad Watson tuning in from Houston. I wonder if anybody's ever gotten together and done a watch party for this; that'd be interesting to know about. Tom Haley tuning in from Willis, Texas, thanks for being here, sir. Barry Lacoste tuning in from Houston, my buddy Barry, thanks for being here. And the infamous John Dewar, John Dewart here, thank you sir for tuning in from Colorado. Keith Stumpter watching from the Permian, he's watching for a specific reason, I know that. And the super famous LinkedIn user, it says Martin Kershman from Techni Solutions in Houston. Thanks Martin for being here. He knows that he comes up as LinkedIn user, so that's smart of him. Steve Treadway tuning in from Dubai, all right, got the international part coming in. Omar from Boston, I think that might be the second time somebody's tuned in from Boston. I look kind of fuzzy, Tracy, we might have to hit the button there in just a minute. Rob Norlander tuning in from Rankin Road, okay, a lot of businesses over there. Oh yeah, that's much better. Robert Estes tuning in from Tomball, thanks for being here, sir. Chris Webb tuning in from San Antonio over there with the TransPac guys. Rodriguez from Germany, oh even more international stuff. All right, Trip tuning in from Sugarland, I was texting him a whole bunch yesterday, I had a lot of battery questions. Celine tuning in from Algeria, thanks Celine for being here. And then we've got Camden Lafayette, thanks sir, and LinkedIn user, Robert Roberts tuning in both LinkedIn and YouTube, well there we go, push up those numbers. And Luther tuning in from Cameroon, and Luther was the special winner of the giant drill bit on Tuesday. So Luther, we will be getting one of these in the mail to you very shortly. All right, who else is there? Nick tuning in from Houston Texas office, oh from the Phoenix office, oh might want to get back to work, I'm just saying, somebody's here today that might want to know that you're doing some work. All right, Paul Moore from Vibration Technologies tuning in from Stanton, Texas. I know that's supposed to have an 'n' on the end of it. Muhammad says, 'Where is my drill bit?' Well, did you win one? Because if you want one, you're on the list to be able to get one sent to you, I promise you that. We're a little bit behind. And Luther says he's from Cameroon. Thanks guys. All right, so very special announcement. This is the first episode with our new sponsor, Patterson. So special thanks out there to Patterson UTI for being a sponsor for today's show. So if you guys would like to win a drill bit, type in hashtag PTEN, P-T-E-N, Patterson Energy, into the comment section now, and we will get you, whoever the winner is, we're gonna get you one of these fancy drill bits. This is if you're watching the Torque and Drag episode and you win there, right? This is for watching the Videor Locksmith Show. Not to say one's more important than the other, but we really wanted to promote the orchestra episode, but also I almost forgot. Oh, knock some stuff over there. That's the Red M cup that I've got. Special thanks to those guys for getting me one. We got a Patterson hat and this thing called Rocks, it's essentially branded ice cubes, and these have the little Patterson logo on them. So you're gonna get a hat, Patterson Ice Cube maker thing, and a Gibson Reports drill bit. So hashtag PTEN into the comment section now. And here's a little word from our sponsor today: 'Our newest alternative power technology is perhaps the most exciting. As Patterson UTI expands the use of lithium-ion battery technology in our rig fleet, EcoCell is an energy management system that uses stored energy to decrease the number of generators needed online and keeps generators running in their most efficient power-to-emissions ratio range.' There he goes, the Patterson EcoCell, really cool, interesting technology. All right, so for everybody that's typed in hashtag PTEN, do appreciate it. All right, Tracy, let's go ahead and throw that thing up on the screen and see how many we got in there. I can't see that number. 25, oh that's pretty good for a Friday. Oh, 26. All right, let's go and hit the drawing. Let's see who our lucky winner of the day is. And it's Paul Moore. Paul Moore from Vibration Technology, they've got a really, really cool technology that just vibrates the drill pipe or anything that's stuck downhole. It's just like a giant vibrating machine, and then whatever it is downhole pulls it right on out. So Paul, thanks for watching the show, I do appreciate it. I've already got your contact information, sir, I've talked to you guys before, so I'll go ahead and get a drill bit and hat and the Ice Cube thing over to you. So all right, so now we'll welcome our guests today, Mike Mooker from Phoenix Technology. Thank you, David, thank you for being on the show today.
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Michael Buker8:25
Very glad to be here.
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Host8:28
All right, guys, so as per normal, if you've got any questions, go ahead and throw them into the comment section now. Would love to be able to get those questions over to Mike. But Mike, we'll go ahead and start off. Give us a little bit of your background.
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Michael Buker8:42
Sure. I've been in the directional business for a long time. I started in the mid-90s in Canada. I was hired at a division of Ensign Drilling. Ensign had a joint venture with Transocean; they built a coiled tubing drilling rig, which was very unusual at the time, specifically for some re-entry work in Canada. So I was hired by that group. I did some well planning to start, I then moved into an MWD position and bounced around that rig for the better part of a year, all the way from Southeast Saskatchewan to Northeast British Columbia, and saw and learned a whole bunch about our business. That rig eventually got sold and moved off to Alaska, and it was right around that time that I got an opportunity to go to work at Phoenix, and I've been at Phoenix for almost 25 years. It'll be 25 years in March, so next month. Wow, which is... there's a lot of 25-year people at Phoenix, which is sort of an interesting little ecosystem we have going there. There are not many directional companies that have even been around for 25 years, let alone people working that long at one. Yeah, we've got an interesting culture there that I can maybe expand on a little bit later. But yeah, I've been there a long time, and I've done just about everything you can imagine, from field planning, sales, operations management, sales management, business development, working my way through the system. And in 2015, I was appointed as president of the company. In 2017, I packed up my family and moved from Calgary down to Houston, and we've been in The Woodlands ever since, trying to help build our U.S. division.
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Host10:29
Wow. So of all of those job roles in the directional drilling world, which one did you enjoy the most?
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Michael Buker10:39
Without question, the... I'm in a really great position today to be able to sort of see every little function that happens in the company, and I really get a kick out of that. You know, you spend enough time in this business, there's a lot of characters in this business, as you and I were talking earlier. And I don't know what it is about the directional business, but we attract a lot of people who have some really interesting stories, and typically there's all kinds of stuff going on there. So I have the ability today, in my role, to be able to meet and interact with a just massive variety of different personalities. I really get a kick out of that, love meeting new people. You know, we've grown from being probably almost irrelevant in the U.S. market 10 years ago to being one of the leaders in the U.S. market. That's been a tremendous source of pride for the company and for me and all the people that I work with every day. So number two in the state of Texas on MWD footage right now, just to let you know.
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Host11:43
Thank you, yeah.
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Michael Buker11:45
Yeah, and there's a lot of reasons why that has come to be, and it really kind of feeds back into the culture of the company again. But yeah, I think that would probably be it. I get to meet some really interesting people and work with those people on a day-to-day basis.
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Host12:02
So you've mentioned it twice now about the culture. How, what is it about Phoenix that makes you guys different with that, or what are you guys doing to be able to make that something that's important within your organization?
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Michael Buker12:15
So I give our founder, John Hooks, a lot of credit. John founded Phoenix in 1995. He bought some assets from a company that was struggling, he built a team around him, and a lot of those people are still there. And the culture really started with John's effort on, I call it sort of an entrepreneurial culture. So the strategy is give the people the tools they need to be successful and the support that they need, and let them go do what they have to do. They've got some autonomy, and you would see that in all different pockets of the company. And that attracts a lot of really good people that they want that, right? They want to have an impact, they want to know that what they are doing has a direct impact on the success of the company. But people also want a voice, and that's the other thing we're really good at: everybody has a voice. And it's not to say we're gonna take every single consideration into decisions, but there isn't a single big decision made at Phoenix that doesn't have a lot of input from a lot of different people. And so I think if you set that culture, which John has, where you've got some autonomy, you've got some entrepreneurial ability to make some of your own decisions, but knowing that you also are going to have a voice in major decisions, major decisions like what are we going to develop for new technology. And I think that's one of the things that's really driven our success, particularly in the U.S. and particularly in the Permian, is motor development and MWD development. And that's really an effort from a whole bunch of people putting their input in, developing tools, perfecting tools, and then going ahead and running those tools out in the field and hopefully being successful.
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Host14:09
So tell me a little bit about that. What is your guys' process as far as looking at new technology to be able to develop? Because I mean, obviously our industry is one of, you know, the new flavor of power station or the new flavor of MWD kind of stuff. You know, is it a just regular pulse, or is it EM, is it dual telemetry, is it this, is it that? How do you guys go about making those decisions about what to pursue in the future?
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Michael Buker14:48
So for us, that transformation really happened in, I'm going to say around 2013-14. We decided we needed to have a new generation of MWD tool on the market. So we joined forces with Evolution Engineering in Calgary, and together we developed what has now become our Velocity platform and the EVO One platform that was born out of that cooperation between the companies. A couple of years ago, that relationship had fulfilled everything that it was supposed to fulfill, so we went our separate directions, and we've continued some improvements. And the platform that we run is probably quite a bit different than what now that's part of Baker, what Baker would run. But at the time, we again got everybody in a room and said, 'What are the weaknesses of what is in the market today?' And there were a few weaknesses, right? There's reliability, ability to handle shock and vibration, which is a huge issue in our business. We're big believers in dual telemetry; we think that there's a lot of value in that, so that was a high priority for us. So that development started. We have a process internally we call it continuous improvement, but it's really quite simple: you develop a tool, and we want to control that. So we control today the MWD platform and the motors, which I can touch on in a second, where all that is done in-house. We have a big engineering team, and we develop it, we build it, we run it. We have a constant reliability and continuous improvement function happening. We identify areas that need improvement, they go back into the circle, and we just keep going and going. And the idea is if you're focused on what makes our customers happy, which is reliability and speed and efficiency, and you continue to push the envelope on that, good things will happen. So that's what happened on the MWD development. We had a similar process with motors where we sat in a room and said, 'Okay, what are the struggles today?' And there were struggles. You know, power sections were changing, bearing assemblies, there were some inherent weaknesses in some of the older technology. We brought in some expertise, we developed what's now called the Atlas bottom end, and then we did the same exercise: test it, run it, continuous improvement, and we continue to do that today. So that really has driven that technology advancement for us.
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Host17:29
So since you've been in the directional drilling space as long as you have, especially with one company, I know you've probably seen the difference between the way MWD used to be looked at and the way it is now. I mean, obviously there's been, in particular a service company that has had great success with just doing MWD. How much more attention can you say that's being paid to MWD now versus even just five years ago?
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Michael Buker18:01
I think if you were to ask our customer, or any customer, especially in the U.S. market, we operate in multiple different countries. The U.S. is a really unique place today where the drive for performance is as strong in this market in the U.S. than any market that exists in the world. I'm convinced of that, and I've seen a lot of different markets in the world: South America, Europe, Russia, Middle East. The typical drilling engineer is a young, aggressive person who wants to advance, and they know that their mandate is you drill the next well faster and more efficiently than the last well, and good things will happen. And then they turn to us as the service providers to help them do that. And I think back to your question on MWD, that drive has really pushed MWD development in a direction that it needs to go. So I view it as there is a hurdle that you have to get over to even be considered an MWD provider today. And Gordon's has done an excellent job on that, and I have a lot of respect for those guys. We're a customer of theirs. So you have to get over the hurdle, you have to be able to prove that you're reliable and you're fast and you're going to get data into the hands of the right people quickly. Once you get over that hurdle, and then hopefully you can continue to improve the product to the customer, good things will happen. But that's the strategy that I see. The big change that has happened over the past few years.
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Host19:37
Do you think it's also in part that the faster we drill wells, there's less meat on the bone as far as ROP performance, and then reliability becomes a bigger issue? So like if we look back to when we're drilling 25-day Eagle Ford wells, a single MWD failure, you know, the percentage amount of time for the well is much less as to now where they're drilling five, six day Eagle Ford wells. One MWD failure is a lot larger portion of the total AFE, or at least the drilling side of it. So do you see going forward that that same kind of trend is going to continue to where even more stake is going to be put into the reliability side, and it's not just MWD, it'll also be the motors and stuff? So like, will that become a bigger driving force within the industry?
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Michael Buker20:33
I think the expectation is, as a service provider, we have to be working on making those MWD tools more reliable every day, and working hand in hand with the customer is really critical in that step. We've learned over the years that if you can develop a relationship with your customer where everybody's just going to have an open, honest conversation about what's causing the problem. And there's this old issue in our business where everybody likes to point fingers, right? 'Well, it's the mud, or it's the bit, or it's this, or it's that, or it's the rig.' But the best performance I've seen is when the customer and the service provider can sit in a room and have an open, honest conversation and say, 'You know what, it is this, whatever that happens to be, and together we're going to fix that.' So I think if that happens on the MWD side, you're going to continue to improve. But in our opinion, the real driver for ROP success and improvement is motors. The advancements we're seeing in power section technology, the ability for bearing assemblies to handle higher spec power is critical. More robust, able to handle more fluid for better hole cleaning. There's all these parameters that have gone into that, in conjunction with improved bit technology. I think that's where you're going to see, when you talk about we've gone from being 30 or 40 days to drill a well to 15 days or 12 days in the Permian, to how do you get that to nine or eight? Your MWD tool has to be reliable, I think that's a given, but the real improvement is probably going to come on the back of the motor as opposed to the MWD tool, assuming that tool was as reliable as it should be.
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Host22:33
So you're saying about the interactions with the operators, how receptive have operators been to being able to have those open conversations as far as, I don't want to call it joint development, but there's agreed upon like, 'Hey look, we're going to run into issues, but let's solve them together' as opposed to just run us off and bring in the next guy who's giving you a whole bunch of promises?
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Michael Buker22:58
That's a great question. And what I can tell you is, I've been doing this a long time, and 10 years ago it was very unusual to have a situation where you could sit in a room with a customer and have a real open, honest conversation and it actually progressing. But today, I would say that almost every customer is willing to do that, to sit down at least on a monthly basis, ideally it's every week, and review, 'Okay, we had this particular problem on this rig, what happened? Well, it looks like we had a high shock and vibe event, and here were a few suggestions that we made to try to eliminate that.' The customer might come back and say, 'You know what, we appreciate this suggestion, but we were in a situation where we just couldn't change any parameters, so we understand what the situation was in that case.' As the service provider, we have to continually be improving our tools to be able to handle higher shock and vibes. But sometimes the conversation might be that the rig hoisted off bottom without following proper procedure and that caused some issues with the motor. And those are the kinds of things where I think when you really get into that with your customer, and then you bring the rig contractor in and you have a conversation with them, that's when good things really start to happen. And we've seen that where you have non-productive time, there's a million different ways to measure, but non-productive time per thousand feet drilled or whatever it happens to be, going from X here to Y here, our experience has been that really improves when you can sit down and everybody has a little bit of skin in the game and you're able to have an open, honest conversation, which is not easy. Because we have to look internally, and then also our customer, they have to be willing to do that as well.
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Host24:55
So once you get all the people together like that and everybody's working towards a common goal, do you think that it could also be the ability to create the step change in how we do the business model? Because a lot of what the business is is still based off of day rate, right? Whereas ideally we probably move to more of a performance-based or per foot contract so that we know, 'Hey, we're just going to drill the wells faster.' So if we put this price point and we drill this one in seven days and the next week it's six days and then five days, that helps out. But that mentality also looks at everybody in the room being on the same page, because if the rig's not working properly, then you guys are losing out, and that's not beneficial. Do you think we could get to that point through having those kinds of conversations to where we're able to make that step change?
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Michael Buker26:00
I can think of a couple of examples in the past few years where we weren't charging a footage rate or a flat rate, but we were still on a day rate, but I think the relationship had progressed with everybody, with all the service providers, that that would work. Everybody understood what was important, they're putting their best foot forward. And yeah, I think that that has some validity. But like you said, it falls apart pretty quickly when... we've found that you have to have a whole lot of different caveats associated with footage, because what happens if, whatever happens, you know, the rig breaks down for two days? There's lots of what-ifs that you have to factor in. If everybody's working towards the same goal, I think it could work. Yeah, I think that's reasonable.
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Host26:51
Do you think that there's any other than technological innovation that can take place in the directional drilling and MWD business?
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Michael Buker27:01
There's a lot of conversation around reducing the number of people on location, centralizing decision making. I think that's... we have a lot of customers today that have different models floating around. We have a couple customers that they have their own drilling command centers in their offices that might be in Houston or Midland or elsewhere, and they want all of the decisions being made within the confines of that operation center. And by doing that, they're accomplishing a couple things: less people on location, lower health and safety risk, fewer people driving to and from location. The idea is it's more about consistency than it necessarily is about speed. They, being our customer, want to drill on a consistent basis. And yes, they want it to, cost is obviously a big issue, we got to make sure we're keeping that in mind. But the concentration of really good decision making in a room is more valuable to them than say saving a day off of the next well. So that's an interesting model. We have our own remote center set up where we're doing MWD work, survey management, steering wells remotely as well. So I think that will probably continue, the evolution of that will continue. I don't ever see a day on the horizon where, you know, years ago people would say, 'Well, there's algorithm-based directional drilling decision making software out there, and that's going to replace all the directional drillers.' That's not going to happen. I just don't believe that. I think you have to have really good quality people that are at least overseeing the decision. I think you might be a little bit more efficient in the future, you may not need two directional drillers on every rig, or you could ask really good quality drillers to manage two or three remote jobs at a time, that sort of activity. But I think you'll still need good people to oversee the operations.
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Host29:13
So this makes me think of a couple of questions. Now we start talking about the remote center. How do you handle working with operators that want to vertically integrate like that? Because obviously, as more operators start to go that direction, then they're going to be looking for good qualified personnel. They're probably not going to be going to the open market for those, they're looking at the free agents, safe assumption. They're probably going to be poaching employees. So in that context, if there's an operator that you're doing work with right now, and then all of a sudden they start to, 'Hey, we're gonna start putting together this remote center and bringing DDs in-house,' how do you guys handle that?
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Michael Buker30:00
We very delicately, is the way. As an organization, we're very focused on making customers happy, and so having a tough conversation with a customer is not easy. But I can tell you that we've had those conversations, and at the end of the day, if this is the direction that the customer is going in, it's probably not a terrible thing to have an ex-Phoenix directional driller working for customer X. So when we get that, we don't want to lose good people, obviously we don't, but we also understand we can't stand in the way of progress, especially if this is going to help that driller's career path. By all means, go do that. But yeah, it can be a little dicey sometimes, a little uncomfortable, because that's happened and it'll continue to happen. But we take it on a one-to-one basis just to see how things go, and yeah, typically not a real comfortable conversation to have.
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Host31:05
So then the other side of being able to do the remote operation stuff and reducing personnel at the rig site is continued development, right? So for the guys that have that high level of experience to be able to come into the office, right, they have that experience because of the amount of time that they spent in the field doing things. Now granted, when you're in the office you're looking over three rigs, the amount of experience you get goes up threefold at that point in time. But they still had that base foundation of being out at the rig site and doing all the work there. So how do you guys combat that as far as being able to train and bring up people in the industry so that there is somebody to fill that person's position if and when they get either pulled away by the client operator, or just, 'Hey, I've made my money, I'm done,' which I think very few of us have been able to cross that bridge, but there's definitely something to that.
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Michael Buker32:06
Well, that's a really interesting point. You know, when I started in this business, the directional driller was viewed with a sort of an aura of, 'Holy cow, the directional driller's here,' right? And there was some level of mystique. And rightfully so, there was a lot of knowledge that those people brought that was extremely valuable, and not just on how to steer a well. Typically back, I can think, when I very started way back when, I worked with these two Scottish directional drillers, and these guys were characters, like a lot of people in our business, but they were so knowledgeable about rig operations, not just how to steer the well. These are the type of guys that they could listen and they could hear something wasn't quite right, they would mention to the company man, 'I think there's a problem over here,' and sure enough there was, because these guys had spent 20 some years on drilling rigs. So that expertise is hard to replace if that directional driller isn't working on the rig. So if all of that expertise is in a remote center, you do lose something on the rig site. I think rig technology continues to improve so that some of that probably isn't as necessary as it used to be, but that is a problem. So we're big believers in training. We have a really extensive, I would say for a company our size, I don't think anybody trains as well as we do. We've got this continual cycle we call it a boot camp. We've got very strict requirements that these guys have to meet, and at the end of their boot camp they're ready to go, and they're not cut loose on their own until they can prove their proficiency, but they're close. And these guys, the boot campers, work their way through the system, they'll eventually likely become directional drillers. So I think to answer your question, the process is in place where the expertise gets established and they can move into these different remote centers without too much trouble. As a percentage of overall work we do today that is remote versus on the rig, it's probably, and I'm gonna shoot from the hip here, it's probably about 40% remote. So we still have a lot of activity that requires expertise on the rig, and that does give an opportunity to train those people in that way.
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Host34:34
So with that advancement in doing the remote operations, what are some of the biggest lessons learned that you guys have seen in implementing that? Because I've heard a lot of people say, 'Oh, it's less people on the rig, it's this,' but there's a lot of other areas where there are improvements that come along with that. What have you guys seen?
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Michael Buker34:55
Less people on the rig, without question. If you can reduce the amount of windshield time field people have, it's a safer industry for everybody.
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Host35:06
Excellent. Well, we'll take...
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Michael Buker35:08
Excellent.
That and of course if you're not standing on the rig floor it's a safer situation as well, so that's true. Our experience has been that if you're drilling with a bent motor and you have to slide, you're really counting on the expertise of the rig's driller at this point if there's no directional driller standing there. That rig driller has to be comfortable sliding and they have to be trained, and if they're not keeping up with build rates or they're getting off on azimuth, things can happen. Our experience has been, and I think where the industry is headed, the remote stuff will probably gain more traction with rotary steerable tools in the ground as opposed to a steerable motor. That's one angle that we see that has picked up a lot of speed for reasons such as ease of communication with the tool. The downlinking today is a remote function, so you don't necessarily have to count on the rig driller to have that level of expertise to be able to slide; the tool is doing that for you. That's probably the biggest change we've seen over the past couple of years, the advent of remote with rotary steerable as opposed to that motor. So I'm glad you brought that up.
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Host36:33
So obviously then there becomes the expertise of having run a bit motor and then expertise of running rotary steerable. I know that you guys have made a big investment into the rotary steerable side of the business. Does that then become another caveat of like, okay, we've got to make sure that these guys are trained not only on just bit motors but also on rotary steerables as rotary steerable continues to gain traction?
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Michael Buker37:02
Yeah, that for sure. As part of our training process, that's a requirement that if you want to move up, you need to be able to show proficiency with drilling with a rotary steerable tool. We have made a big investment. We own 50-ish rotary steerable tools today, which would put us probably third in the industry today behind Schlumberger and Baker, I would guess. We're big believers. Actually, I think number one is Transpacific; the insurance guys say they own that. That's Chris's thing, he says most of them. Yeah, sorry, that's probably true. So yeah, we're big believers in the technology, and our field people love the fact that they can get exposure to rotary steerable tools with us. Of course, we think we do things a little bit differently than some of the big majors do. The biggest one that we're told is important is we are not afraid to point the finger at ourselves if it's our problem, and our customers really appreciate that. The two that you mentioned before would never do that. I'm not going to comment on that, but I was employed by one of them, I can say for sure probably less likely. We're really focused on keeping customers happy. For a long time, we had to do that because up until the development of the Velocity MWD platform and the Atlas motor and the acquisition of 50 rotary steerable tools, we had essentially off-the-shelf technology. We built this company on NOV motors and Tensor or QDT MWD platform. Everybody had something that was pretty similar, so you had to out-hustle your competitor to be successful, you had to service your customer, you had to develop relationships. We're still a very relationship-focused company. We've got customers in our facility in Houston almost daily coming for tours, coming to do a witness, coming to look at a piece of equipment that they want to learn more about. So I think we probably are a little more focused on that side of the business than maybe the big guys have to be, because they probably haven't necessarily been forced to do that since they had great technology for a long time.
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Host39:44
So there's a course for you. Because the directional drilling business does have such a low barrier to entry, right? It could just be you know me and you just start up and say one of us has got a relationship, the other one's got a little bit of a slush fund, let's go rent some motors, let's rent some MWD tools, let's go right. Take this scenario for what it's worth. It's no more Phoenix, whatever reason, snap figures you're on your own, but you want to go start a directional drilling business. Which way is the best way to go? Is it internally developing your own technology or starting off with just some off-the-shelf stuff that's available to the industry? Because I know that's a big challenge for a lot of companies: do we start to do the internal development like you guys have done, or do you just fight with your relationship with the client and take what's available openly to the market where you've got companies that are specifically focused on just pushing that one singular technology forward?
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Michael Buker40:51
My answer to that is it depends what you want to accomplish. Do you want to be in the top-tier premium market, or do you want to chase the lower, lesser market? We made a decision back in 2013 that we want to be able to steal market share away from Schlumberger, Baker, and Halliburton. That was a decision we made as a company. Okay, what do we have to put Weatherford out of business? Yeah, well, yeah. So what do we need to be able to do that? Well, we need motor technology that we control, we need MWD technology that we control, and we need a rotary steerable tool. And so that's what we did. I think there is a low barrier to entry to this business, extremely low. All you have to do is look at a list of new competitors. I just saw one the other day, and there's another five names on there I've never heard of. I think those guys, if that's the market that you want to compete in, great. But if you're going to go to work for the biggest, busiest, best operators in the market, they demand a very high level of technology and expertise, and again I keep saying it, but continual improvement. That type of business the lower tier probably can't provide if they're buying their technology off the shelf and they don't really have control over improving the technology. I just can't see that being successful if you're going to go work for the big guys.
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Host42:31
Excellent. Well, I do want to do this before we get too far into it. Tracy, do we have some questions? All right, this one's from John Dewart. Telemetry is mud pulse and EM, which have relatively low data rates. Companies have worked on hardwire systems with significantly higher data rate. Do you see the future continuing as mud pulse EM or switching to a hardwire pipe?
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Michael Buker42:58
So we've got what, PDS NOV and RealWells with the wired pipe technologies. We have been on, I don't know the number, but it's a large number of wells where our customer was trialing wired pipe. I know that the technology is continuously improving, but as soon as you add a new component to your drill string, things get very complex. Let's take an agitator. Now you have to have a wired agitator in order to get that continuity of wired signal from the BHA up to surface. Our experience has been that at times it's been great technology, you're getting really fast data rate and everybody's happy, but more times than not the flow of data is interrupted for some reason. The complexity of designing a drill string goes up by a very large amount considering the fact that now we're going to run a different agitator type for whatever reason, or we're going to add a second agitator, or we're going to add a particular crossover. That gets really complex having to worry about wiring all of those different components of the drill string. So we don't see that gaining a lot of traction on the horizon just based on that reason. And please anybody correct me if I'm wrong on that one, but it's been a struggle. I think cost is also a big element. I mean, obviously it's not cost to you, it's cost to the operator. I can think of one particular case where the customer was paying more to run that wired pipe than they were paying for their entire directional package. It seemed very strange to us, but I know they were trying really hard to get this high data rate. But yeah, I would agree cost is a struggle in that business.
H
Host45:10
All right, John, thank you for the question. Exchange entry: any innovations for underbalanced drilling on the horizon?
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Michael Buker45:18
Wow, that's an interesting question. Not that I've seen. I haven't seen a whole lot of that. So no, I can't answer that. I can't give you a very good answer on that one other than I'm just not seeing it.
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Host45:31
Fair enough. Michael Phillips says RSS is definitely easier to run remote, but both HMP and neighbors are making strides to steer motors remotely. Any thoughts on that?
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Michael Buker45:46
We've seen that, and I don't want to give the wrong impression. We do remote work with motors and rotary steerable tools today, and I think we're pretty proficient at it. But my take on it, our take on it, would be there's probably going to be more emphasis on steering with rotary steerable tool type remote work in the future as opposed to motors. That would be my take on it. But yeah, we do that today. But again, you're relying on the rig crew to be able to make those decisions and carry out that steering, tool face orientation, everything that goes with steering a motor. Sometimes that's not easy because if all of a sudden you've got a new driller on the rig floor who maybe has never done this before, it's going to take some training. Then you get into okay, we're going to send somebody out to train. It gets very complicated when you have to rely on that model.
H
Host46:49
All right, Tracy. Hybrid seems to be the future. MRI hybrid. Jose, tell us what you mean by hybrid maybe. Not really sure. Does Phoenix have plans for high-temp tools and geothermal drilling market?
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Michael Buker47:09
So I'll start with geothermal. Phoenix invested in a geothermal company in Canada a couple of years ago. The company has plans to develop an electrical generation field through geothermal. They've progressed to the point where they're just about ready to start drilling some wells. They're going to be fairly deep wells. If I have my numbers right, I think they'll be somewhere in the range of 10 or 11,000 feet TBD, into a hot briny solution. They're going to produce it, spin a turbine, and re-inject it. We invested in the actual company itself for a couple of reasons. We think that as a pure investment it's probably a really good thing. I think most people would probably agree that that industry is going to gain a lot of traction in the future. Any consistent form of green energy that's economically viable is probably going to attract a lot of attention. Plus we wanted to gain some expertise on drilling into this geothermal market. We're learning not only that temperature is an issue, but potentially there are some techniques that are required to drill a well that's going to be producing a tremendous amount of fluid. So we're learning that as well. So yeah, I think the geothermal piece is something that we'll continue to focus on. And what was the other part of that question? Oh, high-temp tools. So we do know work in say the Haynesville today, and MWD-wise it would take some effort on our part to develop a tool that could handle that type of temp. We think we have a motor that would do very well there. So the answer to the question is we're always looking for the next innovation. Higher temp will definitely be on the horizon at some point. There's a lot of other priorities within our engineering group today. One thing I'd say we've gotten very good at is prioritizing the important stuff and getting those over the finish line before we take on new projects. There was a time when we probably had 40 projects that we were working on and none of them were getting completed. This is years and years ago. It sounds like me today. So it's gotten better, and we have a really fantastic group of engineering horsepower. So high temp isn't really in the cards today, but there's some interesting stuff coming.
H
Host49:59
Before we worry about a high-temp tool, would you guys ever consider an acquisition as a way to be able to get into some of those markets?
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Michael Buker50:09
We'd never say no. Being publicly traded, there's lots of good that comes with it, and maybe in a lot of... I'm not going to say bad because it's not bad, but there are some challenges that come with being publicly traded too. One of the challenges is we're constantly approached by somebody. Our whole industry has seen a bit of a buoyancy, right? The old rising tide lifts all boats kind of thing. So I think a lot of people see an opportunity to maybe they've had a business for five or ten years and they'd like to get out. So we get approached with a lot of deals, and very few of them really make a lot of sense for us for a couple of reasons. Our equipment's very proprietary, so it's not like we can go buy a competitor that has an Atlas motor. So if they did have one, that would be strange. You'd have to dig into that. And so high-temp tool, yeah, I think we were big believers in we have a platform and we don't want to stray from that. If I look back, one of the advantages of being in business for 28 years is you learn what you do well and you learn what you do poorly. What we used to do poorly was we had a mishmash of MWD tools and motors. We had bearing assemblies from all these different suppliers, which is a challenge, and we had multiple different MWD brands, which was always a challenge: inventory, servicing, lots of headaches. And they're going through acquisitions and ups and downs, and they might decide that we're not going to build this part anymore, so you're going to have to find it from somebody else. That's why controlling it in-house is so important. High-temp tool, it's not really something that's a big priority for us today, but if there was a... it would probably be more likely that we would acquire some technology that we could incorporate into our existing platforms to help us do high-temp work.
H
Host52:24
Yeah, well you touched on it there and it's something I definitely want to ask you about: the positives and maybe not negatives, as you say, challenges of being a publicly traded directional drilling company. There are several companies out there that are publicly traded that participate in directional drilling, but you guys are really kind of narrowly focused in just that area, not also a rate contractor or have a whole bunch of other product lines. It's really where you guys are mainly focused. So what is it like?
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Michael Buker53:01
Most of the time it's actually really good. The upside of being publicly traded is if we need to raise funds, the market is there in a normally functioning market. The scenario is we make a decision we're going to do a big expansion of something, and we need some money, so we go to the market, we sell some shares, we generate some cash, and then we go and invest and grow. For a long time we did that. If you look back at our history, we went public in 2002, so it's been over 20 years. That actually was an acquisition of a company called Nevis Energy Services, and that's what really got us into the U.S. market from being a Canadian-only market. Nevis had an operation running in the U.S., and so we became public, we expanded, we raised money publicly, and we expanded into the Rockies and into the Northeast and South America and Europe and Russia. A lot of that has changed over the years. And then there's the scrutiny of a publicly traded company versus a private company. We have to live by a certain set of rules that private companies don't necessarily have to. The other part of it is transparency. Everything we do is 100% transparent, and that's just the nature of being public. Our financial reporting, a lot of our operational information is included in our quarterly or annual reports because that's what our shareholders want to see, and that's okay. But the downside to that is all of our competitors get to see all that too. So we try to balance that. There really are only two pure horizontal drilling companies that are public that you can get easily accessible data: ourselves and Cathedral. Like you said, there are other subsidiaries of bigger companies that have LX, Patterson, Neighbors, yeah exactly. But you really can't drill down in their data and get comparative directional drilling data very easily. So I've had many of our competitors say thank you for being public because we love being able to look through your information and figure out what you guys are up to. But that just goes with the territory.
H
Host55:31
All right, Jesse, what else we got there? Does Phoenix have any plans for GWD platform, gyro while drilling?
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Michael Buker55:40
We really don't. Again, that's another idea that gets kicked around a lot. We would probably go out and work with a third party to help us develop that if we felt like it was something that we had to move up the priority list. But today it's not a big issue for us to have that. So today it's really not something that we're... I'll just say the gyro market as a whole has significantly dropped off in the last 10 years.
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Host56:18
Yeah, oh yeah, I've got data on that, so I know that one. So Jose had his question earlier: hybrid seems to be the future, MRI and hybrid. He means dual telemetry.
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Michael Buker56:32
Oh okay. We are big believers. There are times when pulse is just fine, and there are times when customers demand higher data rates, more concentration. In our opinion, the demands on the ability to get bigger bundles of information up to surface faster are just going to continue to increase. If you look at things like communication with rotary steerable tools, there's going to be a lot of data that is required to get up to surface quickly, and we think EM is going to be a big part of that. I'm sure there are lots of competing views on that when it comes to high-speed pulsers and the whole thing, and that's also things that we're looking at. But yeah, we're big believers in EM technology. There are techniques that we have for filtering and downhole antennas to improve EM telemetry capabilities. So yeah, for us, our opinion is yes, that's probably the future.
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Host57:42
All right. Mr. Phillips has anyone looked at combining mud pulse and/or EM telemetry as a sort of short hop to a wired pipe tech above the BHA?
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Michael Buker57:57
Not that I am aware of. Yeah, I don't know. I don't think so.
H
Host58:06
Oh, is that all the questions that we've got there? All right, so I want to be able to ask you something else just because it's very pertinent and we've kind of hit around the topic a lot. As far as you said about drillers being the actual driller or for the drilling contractor steering wells, the movement of people going from the rig into office and remote locations, we've talked about training people. Have you guys seen a challenge, let's say mainly during 2022, the challenge of being able to bring either people back into the industry that had left or hiring new people or finding the talent to be able to fulfill positions during the growth period? Was that a big challenge for you guys?
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Michael Buker58:54
Generally no. Our experience was on the directional driller side of things, field personnel, directional drillers specifically. When things went through the depths of the downturn in the summer of 2020, which I think if my numbers are correct, that was the all-time low rig count in the U.S., about 240 rigs in August of 2020, which obviously was a horrendous time for the entire industry. A lot of those guys, as the industry picked back up, wanted to get back in, so there was a good supply of directional drillers. MWD-wise, maybe not quite as easy, but we went out and we aggressively trained and recruited. That part of it, the field part of it, was certainly not easy, but we managed to keep up with the growth as things progressed during 2022. Other positions were tougher. Shop positions were harder to fill, especially odd hours, so an afternoon shift or a weekend shift, those became really tough to fill. And then some really specific skilled positions like machining, those were tough to fill as well. But for the most part, we've worked through all that now. We're fully crewed, we think, for the amount of work that we see on the horizon. We continue to train field personnel internally, but I think for the most part those struggles are behind us.
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Host1:00:31
How do you see the future going forward for the directional drilling business, say 2023 and on?
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Michael Buker1:00:41
I think if you, we have a view where we view the North American market as a whole that's going to be roughly a thousand-rig market for the foreseeable future. So if you look at the U.S., it's about 760-ish rigs. Canada is running around 250-ish today. That'll of course taper off come spring, but we're somewhere in the thousand-rig market today, and we think we'll probably be back up to a thousand-rig market after spring break-up in Canada. So we view sort of the 2023 rig count bouncing in that thousand to 1,050 range. So then we say, okay, how do we fit into that? We spent a lot of money on capital expenditures last year, and we're still waiting to receive some of those tools to come in, so we do have some growth ahead of us. We think we can keep up with, we'll be able to attract more work even in a rig market that isn't growing as quickly as it was last year, especially on things like motor rentals. Our Atlas fleet is in high demand, and we'll probably keep up the size of our rotary steerable fleet as a proportion of the overall fleet. So we'll probably buy more rotary steerable tools as we see demand continue to tick up. We see a lot of demand on the rotary steerable business in the future here. So I would guess that the percentage of the overall market, the rotary steerable percentage, will tick up this year as well. We're starting to see some interest from some customers that historically really haven't had an interest in rotary steerable, and now they're asking us for some advice on a particular area. So I think that's probably going to lead to bigger demand. They start dipping their toe into it just a little bit, and then they want to jump in full head.
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Host1:02:34
What is the biggest challenge you face right now as a directional drilling company?
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Michael Buker1:02:40
I think it would be... I wouldn't necessarily... My initial answer to that was going to be competition from all of the startups that happened, but I think we are somewhat insulated from that a little bit because of the premium market that we try to chase. But that's not to say that it's entirely gone away. There is some to that. I worry a little bit about what's going to happen with the gas market. Natural gas market price of gas has come way down, down 75%. I have to think that's going to have an impact on the number of gas-focused rigs in the U.S. in particular. Typically what happens is if all of a sudden there's 25 fewer gas rigs drilling, those rigs and those directional tools are going to go somewhere. So I think what would probably happen is some of the oily guys will take that opportunity to bring in a premium rig, and those directional tools are probably going to try to follow that rig, and it might get a little bit more competitive. So I think that might be a bit of a challenge on the short term. I suspect that the gas price weakness is probably fairly short term because come summer and fall we're going to be talking about cold weather and LNG exports again, and there's lots of things that I think will help that market. Specifically for the directional drilling business, the challenges still exist around shock and vibration. There are competing efforts here, right? There's the drill string vibration effort versus the longevity of a rotary of an MWD tool, and those two don't get along very well. So we have to manage that. We've spent a lot of time and effort trying to make MWD tools more robust, so that's something that probably keeps us up a little bit at night too.
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Host1:04:51
All right, do we get another one in there? Jose asks sometimes for an MWD it's a challenge to have an opportunity to switch into DD. So how do you guys handle taking guys from the MWD side over to the directional drilling?
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Michael Buker1:05:08
We highly encourage that, and a lot of companies don't. But if we have a senior-level MWD operator that wants to become a directional driller, I'm more than happy to move them into that role as a trainee, and then it just continues to open up opportunities for new MWD operators into the mix. So yeah, we're 100% on board with that. I don't know what the number is, but it would be a fairly large number of our current DD fleet that were MWD operators previous to that.
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Host1:05:49
Awesome. As a former MWD, it's great to be able to hear that. Well, kind of run out of questions here. Anything else that you would like to be able to either tell the industry or any of the other Phoenix personnel that might be watching today?
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Michael Buker1:06:08
I think we've covered it off. I feel incredibly fortunate to have been in this business for 20 overall, probably 27 years at Phoenix for 25 years. I truly feel like I've won the lottery when you get to come to work. People say it all the time, they say I love the people that I work with. But you don't work at a place for 25 years and not form relationships with a lot of people. I tell people often that there's a group of, I don't know how many people in Phoenix, just off the top of my head there's probably 20 or 25 people that we all work really closely together, and so we're like a family. Sometimes families don't get along on every point, but at the end of the day we sit in a room and we talk about what's best for Phoenix. That is not always easy for some people. If your choice is what's best for me or what's best for the company, often people will revert back to what's best for me. But at Phoenix we have a saying that you have to make a decision based on what's best for the company. When we get to that point, we all agree and we head off in a particular direction. I think we have the best people in the business. Our field personnel work so hard day in and day out, time away from their families. We're a company that hasn't forgotten where money is made in this business. A lot of companies get caught up in spending a lot of time in Houston and Calgary and Denver and Pittsburgh, but the truth is you make money on drilling rigs in West Texas and East Texas and Northern Canada and the Bakken and the Marcellus. That's where the money gets made. So we try really hard to make sure we take good care of our field personnel.
H
Host1:08:05
Well, that's great, dude. Mike, thank you so much for coming on the show. I really do appreciate it. For everybody out there, thank you guys for watching. Try to thank, yes, once again tune in Tuesday 8 a.m. with Brandon Foster from TD Unlimited. We'll be wrapping up the eight-episode mini-series of the Learn It, Turn It, Burn It, Torque and Drag mini-series. It's been an absolutely amazing educational piece. I've had people tell me that if you were to pay for a course like that individually, you'd probably be about $25,000, and it's all free. It's on YouTube, it's on LinkedIn. Go check it out and go watch it. We'll be back next week for the V Door Locksmith, another in-studio appearance here with Walter Phillips, who is on the production side, so suck around rod pumps and things of that nature. He's going to be talking about how torque and drag actually affects the operations of actually getting these wells to be able to produce. So kind of on the heels of the torque and drag mini-series, he's going to come in and be able to give us some great insights as to the ways that we drill these wells and how it actually ends up affecting the production. So another great episode to be able to tune into. After that, I'll be taking two weeks off because I'll be in Savannah, Norway for the SBE conference, then traveling to Germany and Belgium to be able to film the robotics documentary. And then after that, we'll be back in town the week after that, it'll be back in Alaska. So the whole month of March I'm pretty much on the move. Oh, I can't forget, Wednesday next week we've got the Permian Basin Association directional drilling companies forum, which I will be the keynote and host moderator of. We've got I think seven or eight directional drilling companies that represent the vast majority of the work taking place in West Texas who will be there to be able to share their thoughts and feelings and talk pretty much a carbon copy of the conversation that we had today, but we're getting even more companies involved. So if you want to see me, I'll be there in Midland next week Wednesday. Get your tickets. It's going to be a great wonderful event. I think that's it for today. So please like, share, subscribe to all the social media stuff. Thank you guys for watching, I really do appreciate it. And as always, know your industry.