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Houston driller steps into Permian market after 83 years in operation

Posted on September 10, 2018

Courtesy Photo Of Nicklos Drilling

Image: Nicklos Drilling’s new Rig 6 will be the first of four rigs to be deployed to the Permian Basin. It is currently being assembled in Gillette, Wyo.

It took a while for Houston’s Gulf Coast-focused Nicklos Drilling to decide to head west and enter the Permian Basin drilling market.

The eight-decades-old company took about four years to decide to establish a Permian presence.

The original Nicklos Drilling, founded in 1935, had rigs from South Texas to North Dakota when it sold to Nabors in 1996. Jim Nicklos, whose grandfather founded the company, and Jack Blanton immediately started a new Nicklos Drilling with the intent of keeping it small, manageable and focused on the Gulf Coast.

Roland Smith, senior vice president, recently was in Midland to help establish the company’s Permian Basin operations. He said he left a division of a large drilling company intending to start a drilling company in the Permian Basin. But after discussing his plans with Jim Nicklos, company president, he decided to join Nicklos and extend the company’s footprint into the Permian.

“There’s no grand plan for 100 rigs,” Smith said. “We’ll start with four rigs and if we go to six, great.”

The way Smith sees it, the success of a drilling company rests on three legs.

The first leg is, “you need the right rigs.” He said the company is doubling its fleet by purchasing four rigs to deploy in the Permian Basin. The four will be 1500 HP walking rigs with7500 psi capabilities and AC top drives.

The second leg is capital. He said drilling companies come into the region underfunded and quickly fail.

The third is what Smith calls the most important leg of a drilling company’s success: people.

“The human resources aspect is so tough to get (out here),” Smith said. “That’s what I was the most nervous about. But that’s been the easiest piece. But having an 80-year-old reputation behind you helps. People respect it.”

He said the company is paying wages that are a little higher than the market rate and paying 100 percent of employees’ insurance. The company recently hired Jerry Ware as West Texas drilling superintendent. Ware, who has more than 25 years operational management experience, first came to the Permian in 2010 and managed the start-up of two major drilling contractors in the area.

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“That third leg plays such an important role. If crews work together continually, that brings a lot of efficiencies that are not on the spec sheet,” Smith said.

It also brings safety, he said. “Senior, tenured employees: You get that when you care for your employees.”

“Everyone is talking about the Permian,” he said. “They come here, they don’t have all three legs, it doesn’t work out, they go home. So many companies don’t think long-term. It took Nicklos four years to decide to come to Midland.”

Drilling companies are challenged because the industry has changed so significantly because od efficiency gains and technological advances.

“You used to drill wells in 30 to 60 days and get a day rate per day,” Smith said. “Now it’s shrunk to 17 to 19 days.”

While those efficiencies are great, they impact the rates drilling companies earn as well as their employees. It is easy to measure the additional stress on equipment; however, keeping up with employees’ well-being proves to be more of a challenge.

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The answer, he said, is long-term contracts. Drilling contractors seek six-month to three-year contracts with clients to justify the investment required to keep up with the changes.

Yet another challenge is to build the newest in drilling rigs, at a cost of $25 million to $30 million each, or upgrade older rigs, he said.

“There’s only so much updating to a rig you can do. At the end of the day it’s still a 20- or 30-year-old rig,” Smith said. “And a rig that was drilling 5,000-foot vertical wells is now drilling 10,000-foot laterals.”

The rigs Nicklos is bringing to the Permian Basin were built to drill in the Bakken. The company that was selling them considered moving to the Permian but decided to stay in the Rocky Mountain region and upgrade its fleet to new AC rigs, Smith said.

“It’s hard to work a rig that’s more than 10 years old up there, with the emissions regulations and other regulations,” he said.

He acknowledged that now may not be the best of times for a drilling company to enter the Permian Basin market as pipeline constraints are prompting oil and gas producers to tamp down on activity.

“We’re seeing the drilling rig market lighten a little, which is not great for us,” Smith said. “But a little bit of lightening is probably good for the market. I’ve talked to a few operators who plan to keep drilling, at some level, but not complete all their wells. When the new pipeline capacity comes online, it will be another set of challenges.”

Mella McEwen is the Oil Editor and covers the latest business and energy news. You can read more from her here.  |mmcewen@mrt.com|

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