CATEGORIZED | 2007, November/December

‘Safety is the most important decision we make. Everything comes after safety.’

Posted on 29 October 2009

For H&P’s John Lindsay, safety must remain top priority as drilling industry balances focus on people, security, environment

By Linda Hsieh, associate editor

In 1986, average crude oil prices fell to $14.64 per barrel and the average US rig count dipped below 1,000 for the first time since 1972. It was a tough year for both the drilling industry and the general oil business. It was also the year John Lindsay graduated from the University of Tulsa with a petroleum engineering degree.

Out of the 50 petroleum engineering graduates at the school that year, half were international students who likely had jobs waiting for them back home. For the other half, the pickings were slim.

“There weren’t many jobs to be had. Only a handful of us got jobs,” said Mr Lindsay, who counts himself among the lucky ones that year. He had landed a position with Helmerich & Payne, and by January 1987 he was roughnecking on H&P rigs drilling in East Texas and Oklahoma.

Twenty years later, Mr Lindsay is serving as H&P’s executive vice president of US and international operations, overseeing a total fleet of 200 rigs. He’s also serving as vice chairman of IADC and on his way to becoming the association’s 2008 chairman, providing leadership for the global drilling industry.

Interestingly, drilling didn’t even appear on his career radar until a year after he graduated college.

PATH TO THE OILFIELD

If you had asked Mr Lindsay in high school what he imagined his career would be, the answer would have been professional football, dreaming of playing for the Dallas Cowboys. His early life had been all about athletics — football, baseball and basketball. He attended his first four years of college on a football scholarship, and the computer science degree he got during that time was merely a secondary pursuit.

After graduation, he pursued professional football for a year. He got the opportunity for that dream tryout with the Cowboys but settled for signing with the Oklahoma Outlaws of the now-defunct USFL.

After being injured, “I was released from the team, and within a month, I was enrolled at the University of Tulsa to get a petroleum engineering degree. The dream of playing professional football was just that — a dream. But it was an unforgettable experience, and I would have always wondered if I could have made it if I didn’t get that chance.”

“So now I was faced with what I wanted to do the rest of my life. I had tried a part-time computer science job while training for my football career and knew I didn’t want to do that anymore. Growing up in Tulsa around the oil industry, I had a general understanding of the business. Plus, I had always liked engineering,” he said. “Of course, at that time, I didn’t realize just how tough the drilling business was.”

That was 1984, and he also didn’t know that the business was only going to get tougher by his graduation in 1986.

ROUGHNECKING START

Mr Lindsay’s first roughneck job put him into H&P’s training program for new engineers, including a short stint as a driller. “It was a very valuable job. I developed a good knowledge base and learned how the money is really made in this business — by our drilling crews and people in the field interacting with the customers, not in the office sitting behind a desk.”

A little more than a year later, Mr Lindsay was promoted to drilling engineer. By 1992 he had been named operations manager for H&P’s US land division and was promoted to vice president of US land operations in 1997. Since March 2006, Mr Lindsay has served as H&P’s executive vice president of US and international operations.

Mr Lindsay estimates that when he joined H&P in 1987, the US land division had no more than 10 working rigs out of 41 land rigs available. By 1994, after an acquisition of 12 land rigs that led to the opening of a South Texas office, the company was running 60-70 rigs, only about 25 of which were in US land. International land rigs and platform rigs offshore the Gulf of Mexico made up the balance of the fleet and all of the profits.

“Our US land guys were concerned that the company might sell off the US land fleet since we hadn’t made any money for several years. It is hard for people to imagine today, but in the early ’90s we actually had rigs running at $4,500 dayrates with four-man crews and no cash flow to speak of,” he said.

H&P’s growth in the US land market began in the late 1990s. As the company worked to improve safety and drilling performance by refurbishing its existing fleet, it realized that rig safety shouldn’t depend solely upon having better drilling processes and better people — rigs should incorporate “safety by design. We determined that it was very hard to take an old rig that wasn’t safe by design and make it safe. So we asked ourselves, ‘How could we design hazards out of rigs? What new technologies could we add to rigs to make them inherently safer and more productive at the same time?’ We recognized that we needed to build a new-generation rig.”

That’s where the FlexRigs came in.

COMPANY TURNING POINT

H&P began designing FlexRigs in 1997 and built six on spec in 1998. Like the year in which Mr Lindsay graduated with his engineering degree, 1998 wasn’t exactly a great year to be putting out new rigs, with the US rig count dropping from 1,000 rigs to 600 by year end.

Still, the company was confident it had built a rig that would provide value to operators, could drill faster, move faster and improve safety. Good field results from the first six FlexRigs encouraged H&P to build 12 more in 2001. These rigs faced another market downturn in 2002, and the subsequent US land rig count dropped from 1,136 to a low of 628. Yet, performance value kept the 18 new FlexRigs working at 95% activity.

Trusting its instincts and with a desire to grow the company counter-cycle, H&P Engineering, in a collaborative effort with drilling operations, designed the third generation of FlexRigs and began an aggressive newbuild program of two rigs a month beginning in July 2002. A total of 25 FlexRigs were put out in a 13-month span, all on spec.

By the time H&P stopped the newbuild program in spring 2004, it had built a total of 50 new FlexRigs since 1998 for approximately $500 million. “I wish I could say it was easy on our employees and shareholders, but we challenged our competitors and the investment community by bringing our new ideas and better performance into a market with too many rigs.”

The very next year in 2005, the company restarted its newbuild program when it spotted an industry need for shallower-depth FlexRigs.

“We put together the largest single contract in H&P’s history at the time with Williams Exploration. They contracted 10 new FlexRig4’s on three-year term contracts. Our engineering group worked with Williams to design a built-for-purpose rig that merged over 100 years of FlexRig experience and the operator’s desire to drill 22 wells from a single location, minimize surface disturbance and enable SIMOPS.” The timing turned out to be nearly perfect, with delivery of the new rigs beginning in January 2006.

With unsatisfied operator demand for a larger US land fleet coupled with many operators beginning to realize AC drive technology’s advantage for drilling performance, contracts came at a faster rate than anyone imagined, Mr Lindsay said. As of early October 2007, the company had 70 of 77 new FlexRigs, on top of the original 50 built on spec. What’s more, all 77 rigs, built for $1.2 billion, have at least a three-year term contract.

From a 3% market share in 2001 with an 1,100 rig count to a 9% market share in 2007 with a 1,700 rig count, Mr Lindsay said, “that’s been our growth story and the foundation of our success.”

NOT A COMMODITY BUSINESS

FlexRigs have created new opportunities for H&P. In March 2007, H&P opened a new market with four FlexRig contracts in California — two existing rigs and two newbuilds, all with three-year contracts. The operator, looking to improve safety and drilling efficiency, has reported in excess of 35% improvement in performance since the FlexRigs began operating there. That’s in line with reports H&P has received from other FlexRig operators, who generally cite improvements in the 25%-65% range.

Approximately 60%-70% of all wells drilled by FlexRigs are directional or horizontal, a growing market that makes up about 40% of all wells drilled in the US today, according to Mr Lindsay. H&P sees more FlexRig growth potential in unconventional reservoirs such as the Piceance Basin, the Barnett Shale and the Bakken Shale.

“We’ve created a different look in what was historically seen as a commodity business. It’s been said that a rig is a rig — it doesn’t make any difference which rig you pick,” he said. “But today we know that everybody doesn’t see all rigs as being created equal. We’re very proud of that.”

Advanced-technology rigs also will continue to provide growth opportunities in the US land market, he said, even in the current environment of equipment oversupply and softer gas prices. “There are still hundreds of conventional rigs out there that average 30 years old, and in many applications where more technically difficult work is required, operators in general want to upgrade to newer technology in order to achieve better safety and drilling performance.”

Mr Lindsay added that H&P will also look for growth in the global market by expanding its footprint. It is currently operating in Argentina, Bolivia, Chile, Colombia, Ecuador, Tunisia and Venezuela. “We have worked internationally for 50 years. In fact, we celebrated our 50th anniversary working in Venezuela this year. Our international strategy will be to grow the company organically by continuing to build FlexRigs with better safety, efficiency and environmental performances.”

“H&P has historically had a ‘differentiated’ approach to the business, and the FlexRig exemplifies that,” Mr Lindsay said. “But it is our people that have been and will continue to be our most strategic asset at H&P.”

STRONG OUTLOOK

The last time Mr Lindsay spoke with Drilling Contractor in late 2006, natural gas prices were soft, storage levels were high, and contractors were worried about newbuilds flooding the market.

“Nothing has really changed since then on the natural gas macro, but clearly one question has been answered,” he said, “and that is the industry has added to the total rig count that is nearing 1,800 rigs, and several hundred rigs have stacked in favor of newbuilds and newly refurbished rigs hitting the market, yet the industry has been able to maintain a fairly healthy drilling environment.”

Not that the drilling business won’t continue to be tough and cyclical, but Mr Lindsay believes the industry’s long-term future looks bright. “The next 10 years should be better than my first 10 years in the business (1987-1997),” he joked.

Pointing to the growing dominance of unconventional gas plays in the US, which have wells with high depletion rates and lower initial production rates, Mr Lindsay is “cautiously optimistic” that rig demand will remain high as operators work to keep production up. “Unconventional gas has changed the US land business. The ‘gas factory’ approach to drilling wells has opened opportunities for many companies that are willing to capitalize on the new technology, ideas and advancements available today.”

As for that fickle variable called natural gas price, he doesn’t spend much time worrying about it. “Why worry about something I can’t control? We will stick to our strategy and focus on providing great service and value to our customers, and we believe the best rigs will continue to work. I think that if natural gas prices remain flat or trend lower, we’ll be busy. If prices go up, we’ll be very busy.”

INDUSTRY CHALLENGES

When asked where he wants to focus his 2008 IADC chairman term, Mr Lindsay was resolute about his top priority — safety. “Safety is the most important decision we make. Everything comes after safety, because if we can’t do it safely, we shouldn’t be doing it at all. We need to think about each of our decisions on safety and have the mindset that all accidents are preventable,” he said.

At H&P, safety performance has been Mr Lindsay’s proudest achievement. “I’ve seen my share of injuries and, unfortunately, a few fatalities in the last 20 years. I know that the most rewarding thing we can do is to continually improve the working conditions for our employees so they can go home safely. I feel very proud seeing our safety performance get better every year.”

But just because we’re getting better doesn’t mean we’re good enough. Mr Lindsay cautioned that many people still get injured in this industry each year, and no company has reached the finish line until it reaches zero incidents.

Another important challenge for the industry, he said, continues to be people. One aspect is recruiting, training and retaining, a hot topic that has been discussed at plenty of industry meetings and events. “In the late ’80s to late ’90s, we skipped a generation of hiring as many quality, technical people as are required, and we need to catch up on that. Moreover, if we do come upon a down cycle, we can’t afford to let people get away.”

Another less-noticed aspect of the people problem, he pointed out, is getting the young people who are already in the industry to become more involved.

“When I go to IADC conferences and meetings, I don’t see the large percentage of young faces as we should. We have to get the young people in our organizations more exposed to professional organizations like IADC. It’s a great forum for knowledge sharing, and IADC can tackle a lot of issues that individual companies don’t have the time or resources to resolve. It’s an important association to be a part of, and we need to get our young people more involved.”

Security is another challenge, he said. Company leaders must take responsibility for helping employees to understand potentially threatening security situations — wherever they’re working.

Finally, there is the environment. “We owe it to ourselves, our communities and our companies to improve environmental performance. But we must be careful not to lose focus on personnel safety,” he said. “Shifting our primary focus on safety while trying to improve environmental awareness at H&P has happened before, and our safety results suffered. We must keep our priorities in order, but I believe, as an industry, we can do more to enhance environmental stewardship.”

LIFE LESSONS

Although it’s a shame that Mr Lindsay didn’t fulfill his dream of a professional football career, his experience in the sport was rewarding. It taught him “valuable lessons that are important in the drilling business — hard work, sacrifice, a certain amount of playing with pain, and commitment to the team above yourself,” he said. “I think about H&P and the people who work here, how hard they work and the sacrifices they make — it’s a real privilege to work with them. I look forward to the future, continuing our growth, creating opportunities for individuals and advancing the reputations of H&P and our industry.”

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