#110: John Hooks (Phoenix Energy Services)-Why There's Fewer Drilling Rigs & More Profits Than Ever

I thought Phoenix is a, you know, it's a wonderful service company. We're an energy services sector, that's all we do. We focus 100% on directional drilling, and over the years we've become a force in technology. And you know, we provide services that operators not just need but they want. They want to drill fast, and we focus on that. So you know, the horizontal, every well is drilled horizontally, and since 1995, you know, we've grown the business to be one of the largest ones in North America, for sure.

Yeah, we get into all that too, you know, just trying to diversify. And I've always liked land and buildings, so I've always been into some of that too over the years.

I did. I think I sent you some material in 2006. You know, I was fortunate enough to be nominated to participate in the Ernst & Young Entrepreneur of the Year award. I was nominated and I actually won the service sector Western Canada Entrepreneur of the Year. At that point, you know, it kind of reflected on since when I was probably in high school. In high school, I don't know, I just always wanted to do something that provided income or enjoyment. And you know, I started doing, way back then, even silk screening and stuff like that in my basement, to the point where I actually was doing the high schools all their gym shirts and uniforms and stuff like that. And you know, the one thing about me is that I have a pretty short attention span, I think, and high school wasn't real friendly for me on marks. And I got out of high school, eked out with some very, very bad marks. And you know, I was fortunate, my father worked for a contract drilling company. When I got out of high school in 1976, I went to work in the drilling contract business in Edmonton, working on some rigs. At that time there was some opportunities to, as a roughneck, to go and work in the Beaufort Sea for Dome Petroleum, which was starting to drill up there. Not known to me at that time, I was just a roughneck, but they were looking for roughnecks and drillers to go work in the Beaufort Sea on these drill ships that they were building from Liberty ships in Galveston, Texas. So I got a job, I got offered that job at six bucks an hour, and had about 20 bucks in my pocket my mom gave me. And I actually went down to Galveston, Texas and worked there for about a week and a half on this ship as they were building it. Sailed that ship up from Galveston, Texas to Tuktoyaktuk, the east coast of Canada and through the Northwest Passage. Then they anchored the ship and we started drilling. You know, the money seemed pretty good at six bucks an hour back then, and so I stayed for five years. And I think in all I spent about a year and a half at sea, worked on another one in Singapore, and sailed it back. And actually in 1980 they actually made me the crane operator on the offshore drill ship. So I was the crane operator and I did some driller kind of stuff like that. And then, you know, I didn't want to work offshore anymore, I went back to land rigs. And the National Energy Program came out and kind of really put a damper on the sector, everyone knows back then, just crushed the sector. And so I moved to Houston and I worked for a contractor down there, and I got into sales. Then the industry slowed down there, and that's when I started my first company back then. Met some individuals that had some patents on some connections and stuff like that. Long story short, I started a company called Thread Tech. I was the only employee. I remember trying to sell these connections to big companies like Shell and Esso back then, and of course I'm competing against massive multinational companies and it's just me and some drawings. But got a few in the ground. And I remember the first invoice I ever did, I drove to Lloydminster, it was $67.50. And I drove all the way there and installed it and came all the way back, and that was the total invoice. They'd pay, but I just kept at it. And then back then, you know, I didn't care about the price of oil, I didn't care about the price of gas. All I had to do was I just knew I had to beat on doors and just keep beating on doors and beating on doors, and just kept persevering and never quitting. You know, grew that business up as a private business. Grew it up until it was a substantial business, it did about 80 million a year in revenue. And I sold it, and didn't really have any debt or anything like that. I never wanted to sell it, I always said that a business like that is like a home, not a house. But I came across an opportunity to start in the directional business in 1995, so I sold it after that.

Yeah, well, like I said, my father worked for a contract driller, and I got out of school and, you know, really didn't have an opportunity to get into university or anything like that with my marks. So, you know, I got a job on the rigs. And, you know, once I started, I was attracted. I don't want to say it's like a hockey team because I never got far on hockey when I was young, but, you know, when you're on a rig or you're on a ship and you're working with the same people all day and all night, you've got to get along. And so there is that camaraderie. And then there's hard work. And, you know, I think that if you look back at those years working on the drill ships and working on the rigs and stuff like that, that's where you really get a massive amount of work ethic. Hard work overcomes a lot. And if you go through those experiences, you know, you start to learn what really what it takes, and hard work is one of the big ingredients. Good money too. There's opportunity, yeah, good money. But, you know, there's never equity when you're working on those jobs. But, you know, that's what you learn too, you learn there's probably better opportunities when you start to do things on your own.

Yeah, well, I guess it's because in the past it always attracted individuals that I think were really outgoing, outdoor people that probably didn't have to work in the energy services sector. And I'm not talking about the owners of the companies at this point, I'm talking about the people that work day in and day out, 24/7, 365. That takes a special breed of person. There is no breaks when you're on a rig or frac jobs and stuff like that. They don't stop for downtime, you've got to keep going. So you attract a certain type of person, and that type of person I think has a lot of positive things going on. Some of the traditional values that any entrepreneur or business owner would value.

Yeah, I mean, I always liken it, you know, when you look at even today, people that have left the sector unfortunately because the sector is much smaller than it was. They're away from home, they're working 12-hour shifts and in some cases only a few days off a month. So it does take a special type of person. But like I said, it's that type of hard work that I think brings value to a person as they go through their life later on, for sure.

That's right.

Yeah, I didn't, I was the only overhead. You know, I came back from Texas and after working. I will say this, like when I worked offshore, after I think the first year and a half offshore, I know I saved my money. It was only six bucks an hour, but when you work 80-some hours a week every week and sometimes two to three months straight without a day off. And you have to remember these ships back then, they had no communication, no movies, no TV, no nothing. You just worked. I think the longest one I did was when I went from Galveston to Tuktoyaktuk on the sailing, never saw land hardly at all, got stuck in the ice a lot. But I worked midnight to noon every day for I think 10 or 11 weeks straight and then a week off and then go back. So whatever money I made, I saved it. And I actually bought a house, a townhouse on the Willow Park Golf Course back there when I was 19 years old. Even then I was kind of getting into it. And then believe it or not, I remember moving to Houston, I think I had 20,000 cash. And I was getting, back then interest rates were absolutely unbelievable, I think I was getting like 20% interest on that term account. So I didn't have anything, but I didn't have much. I came back and started that company, and $17,000 was the revenue of the first year, for sure. But I was the only employee. But I knew I had to go hire another person, a salesperson, and that's what I did. So I just kept pushing it, and you know, didn't even think about the money then, you just kept on going.

You know, it's a good question because I was going to compete against big multinational companies that make pipe, casing, tubing, drill pipe connections. And I think the biggest thing was, when I was in Houston living down there, I met an individual and he introduced me to a really cool guy. And this guy invented some of these connections. He was an older guy than me, I was in my mid-20s actually, and this company was selling these connections in the United States and elsewhere in the world but weren't selling them in Canada. And I asked this individual if I could take these connections to Canada and sell them here under his patent and pay him a royalty. And he had nothing to lose at that point because they weren't in the Canadian market. So that's what I started with, a design of a connection that was kind of proven in a way but not ever run in Canada. And so I brought it up here and, lo and behold, you know, we just kept, I just kept pushing and pushing and pushing. And then I bought some other patents on other connections, and then I got a distributorship on the pipe from some of the Canadian manufacturers. And then it came to the point where we designed certain pipe for disposal wells and connections for disposal wells. So we became real specialists in that field. And still with the work ethic that you couldn't get from the big multinationals because we were on the ground, we were in Nisku, we had trucks, we had people, we could go out there and provide all the services they needed in a couple hours' notice. And it became a pretty good going concern company. So I think the technology for sure differentiated us, and the work ethic for sure, and just the fact that we were an Alberta, Calgary-based company that was providing a great service. I always like to say, it's not that difficult, I mean, customer satisfaction. And if you always remember that and do that, you always want to retain and gain, you want to gain a customer and retain that customer. And the best way to do that is satisfaction.

Yeah, I mean, the reality is in North America these wells produce oil and gas, but they produce a lot of water. And this water has got to go somewhere. And disposal wells were getting more and more prevalent. And so we provided, one of our bigger parts of our business was providing the technology and the pipe and connections and that to line these disposal wells.

I probably avoided him anyways. He saved a bunch of money in the rigs when he was 19, 22. Yeah, yeah, I don't know a lot about that story, but I did hear that, yeah. Very little time. I mean, after I got off the offshore rigs and moved to the States and then came back, my time on the rigs was just going out to them like and running pipe and coming back. I mean, I would go to a mill in Calgary, I would put the connections on the pipe at the mill or off-site third party, and then I would drive to High Level or Zama Lake or wherever they wanted to run this. I'd drive 15, 16 hours and I'd get on the rig, the service rig usually, and run the tubing. And then I would drive all the way back. And you just do this over and over again. And yeah, you put a lot of miles on back then, and a lot of time and energy, but you learn a lot too, right.

Well, yeah. Well, you know, but at that point I had owned, I'd started the company Thread Tech, so I owned it. So that was my obsession. You know, I always say if you're sleeping real good all night long, there's probably not a good chance you're a real entrepreneur. If you're an entrepreneur, you're probably not sleeping through the night, or just driving by anything and looking at anything and thinking about it and what could be of that or this. When I started Thread Tech, it was my obsession. I couldn't afford a facility at the start. I remember putting these parts and pieces down in the basement of an acreage that I had and then loading my truck up and going from there and stuff like that. So everything just revolved around that. It was selling, I had to go and sell it, I had to make it, and then I had to run it. And I did that until I could get up to a level where I could actually hire another salesperson, and that helped. And then another one, and then more people, and then actually built a facility in Nisku and hired operations people, and then it started to really go. But at the beginning there, I just had to do it all.

Yeah, you know, I'm not that bright a guy. I never went to school beyond high school and didn't do real good in math then either. But yeah, I tell you, I didn't have a lot of options. It seems, but this seemed like a really good one to me. The bank account was growing, well, at the beginning it didn't. But that's kind of misleading too. I mean, it really got, I think I was as good at selling it as the procurement of it. I was at selling it after I learned. And you know, I would go down to Texas and deal with machine shops and make deals with them and try to get a better deal all the time when I had to manufacture these things. We started to get into some really high volumes, like thousands of these a week, even, of these couplings for tubing and stuff. And I remember at one time I went down to a machine shop and this very wealthy machine shop owner had maybe a hundred of these machines making connections for companies all over the world. But he took a liking to me and liked what I was trying to do on a very small scale. And I just said I can't afford to pay you like up front like you want. So he actually made a deal where I negotiated a deal where he said, I'll make these connections for you and I'll put them up in your facility in Canada, and then when you take out so many, like I'll send 10,000 of each size you need, you send me a fax and I'll invoice you. And so I thought, well, that's a good deal. So I would go sell it to the oil company, try to get 30 days, pay, and beg for that. And if they did that, by the time that I ran it and sent him the fax and got the invoice and wait 30, 40 days, and then I'd pay him 30 days after that, I was like 60 days before I paid him, and I had already been paid. So you start to get creative and stuff like that. But yeah, some luck along the way too, I guess.

Yeah, you know, no. Because what happened was in 1999, when I had Thread Tech and I was sitting in my office, and I was actually in an office, because I couldn't afford a good office way back then, I was in an office above Tom's House of Pizza on McLeod Trail there, paying 200 a month with Thread Tech. A gentleman that I met in Texas had come back to Canada and said, hey, he'd heard that there was a little directional company from the U.S. that was up working in the Midale area that would be for sale. And this was when horizontal directional drilling was in its infancy. And I said, oh, really? That's kind of interesting, I don't know a lot about it. He said, well, come with me. So we just got in this car and went to the facility where this was. And it was a very small company, and met the manager there. And being an entrepreneur, I thought maybe, wow. I'd heard where maybe 5% of the wells were drilled horizontally then, or less, and they're just starting to think, wow, well, why wouldn't everybody do this? And that kind of made sense to me. So I bought this company from some of the money that I made from Thread Tech. And I had to finance it. It didn't make money the first year. It did, I think, two to three million in revenue. It became, and it wasn't called Phoenix then, which is another long story which I might get into. So anyways, I had them both at the same time. So I had Thread Tech and Phoenix. And I had to move, so I moved downtown into some really cheap office space down here and had them both under the one office there, which kind of helped because I had one account and could do both. But yeah, so for a couple years there I had both. So there was no slow down, I was more busy than ever. Because I kind of really got attracted to, Thread Tech had good people, I had a good person running it beyond me. And so I put a lot of my attention into trying to grow the directional horizontal company that is now Phoenix today. And, you know, some of those days, I mean, we had to cover the payroll from one to the other, or whatever it took. You just kept on, like I said, beating on doors. It was all private then, of course. And so yeah, I mean, it just got busier and busier, but never stopped.

No, I kept Thread Tech, I still had owned Thread Tech, and I started Phoenix right. I bought Phoenix and then I started it kind of, and then so I had both companies for a number of years. And then after I got, when Phoenix really started to take up a lot of my time and some other things, like there's a lot of stuff that happened back then in the pipe business, where big corporations were starting to buy up all the mills and stuff like that. And it was getting maybe a little bit more difficult that I could see in the future to try to keep my position there. So I actually sold the company then to the company that actually had the patents everywhere, the only one they didn't have was in Canada, because back then I'd bought the Canadian rights. And the other company that bought from this gentleman for the rest of the world didn't have Canada. So it made sense for them to do it. And they became a big company, actually a big, big company in the energy sector, mostly in the US. But yeah, so then once I sold that, then I continued to just focus 100% on Phoenix.

Yeah, '95. Yeah, it was when I started Phoenix. And gosh, we had, I think we could do like two jobs a day in Midale there. We didn't really have any equipment. The people that I bought the company from owned the equipment. I couldn't afford the equipment that we needed to drill the wells. So I leased the equipment from them on a lease purchase. And over time they actually kind of got in some trouble, so I actually bought out the lease when we started to grow and made some more money. And then, yeah, then we really started looking at how we could expand and stuff like that. There were some companies that were really a lot bigger than us at that time, of course, because now you're going up against Schlumberger, Halliburton, and Baker, who all do that. And Weatherford at the time were probably the biggest by far. We were very, very small. You know, maybe like I said, started at 2 million. And pretty much organic growth through the whole period. But you know, this year I guess we'll probably do over 600 million. And we're probably the second biggest in North America. So again, it was just, it's all people, customer satisfaction, technology. You know, we do a lot of things right. We do some things wrong, but we try to learn from it. Phoenix just became my obsession in 1995 and beyond, and to this day I'm still there. So they must like me.

Well, I don't give up. You know, we've been, I honestly, the first 20 years was absolutely bliss. It was wonderful. You know, we, I always say that as an entrepreneur we want to be a company builder. And forces outside that include commodity prices, but political, geopolitical forces, politics, made us company destroyers after the first blissful 20 years. All of a sudden we had to destroy our companies and lay off hundreds and hundreds of people because of certain decisions that were made or certain events that happened that reduced the commodity prices where you don't make enough money. So they either, I have really bad timing and didn't get out, but I stuck in there and just kept at it each time this happened. And they were short by nature back then. We built it back better. And then of course in 2015, the industry really went down in a big way and it's been down up until a few years ago. So again, we did what we had to do. I hate to say it, but we became very good at that. It's nothing to be proud of, but we've got to keep the company strong, right? And we learn lessons along the way. And to this day Phoenix really has no debt. And you'll probably see that as one of our themes as long as I'm around anyways. And I think the others feel the same way, we just can't get into a position where we're going to become weak. It's been a wonderful ride, but it hasn't been without some massive amounts of some great ups and some really massive downs. But overall, right now it's looking pretty good for a while here.

Yeah, yeah. Geez, that's a good question. You know, luck, yeah, there probably was some areas where maybe luck did play in our way. But in all honesty, we started to attract really good people. And I think that that's because of us. People don't want to work for bad people. And myself at almost 30 years, and my CFO at almost 30 years, and my president now at 20. We've got people in this company way over 20 years tenure. It's the same group, and there's a reason for that. And we learned so much from the downturns and the mistakes, and we work as a group. So yeah, there's probably some luck and stuff like that. But the reality is that just, I don't want to say we're that good...