Each year, we present you with an overview of what is happening in the horizontal directional drilling (HDD) market. We touch base with leaders in the industry to get their perspective and insight into what we believe to be an exciting and diverse niche of the construction industry that has weathered the worst of storms — twice — and remains strong.
In recent years, it has been the expansiveness of the fiber-optic and telecom market that has steered the compact and mid-size rig segments, while oil and gas work, for better or worse, has effected the maxi rig ones. While the fiber-optic and telecom projects continue to thrive, it appears that the oil and gas work is slowly returning.
Government regulations with regard to mud disposal continue to factor into the HDD market, as contractors look to beef up their fleets with new equipment to meet the backlog of work. The lack of qualified works also plagues the construction industry and the HDD segment is no different. The work is there, industry experts say, but the labor shortage continues to be a factor in the industry.
We asked a few industry leaders to chime into the conversation for this year’s glimpse into the HDD industry. Here is what they had to say:
Seth Matthesen: Ditch Witch senior product manager for HDD and fluid management
Nate Eastway: Gabe’s Construction Inc. vice president of HDD and specialty projects
Mike Harmon: Melfred Borzall distribution channel manager
Tod Michael: Vermeer Corp. product manager, trenchless core products
Matthesen: The current HDD market is stable, with growth in the telecommunications and energy industries. This stability, over the past three to five years is recent, as larger drills have been used less frequently over the past few years, causing some fluctuation in demand. What has led the market to stabilize is the steady increase in compact drills. This is due largely to a steady stream of new broadband projects, which is resulting in advanced HDD technology in the mid-size drill market. The Ditch Witch organization, for instance, has developed drills like the JT40 to help ensure operators are comfortable for long hours on the job. These newer units also provide the necessary power for these jobsites, while providing a smaller overall footprint. HDD technology beyond the drill unit has also improved, including advancements in HDD tooling to increase longevity and durability.
Eastway: I would categorize the HDD market in 2017 as average to slightly above average. Market forces, proposed increases in infrastructure spending and boosts to free market policies have increased the quantity of work available, especially considering the difficulties on 2015 and 2016.
Harmon: Upward trending but spotty. The first quarter seemed to be slow all over with the announcements from Google fiber and poor weather, but has been steadily increasing over most of North America. Some markets still seem to be impacted by a slow economy especially on the East coast and primarily in the Northeast. The second and third quarters have seen strong increases, with the Google slow down we have seen others such as AT&T and other telecoms step in at a stronger pace. Large utility lines such as gas, sewer and water jobs are picking up and many in the planning, bid, or production stage.
Michael: The HDD market in 2017 has been relatively strong or improved over 2016. Certainly communication and gas services replacement have been driving factors and probably get the most attention but water and sewer markets have been strong drivers for utility installation contractors as well; even though HDD is not used widely for sewer installation.
Matthesen: The steady progress of broadband projects continues to grow as communities demand high-speed connections. Fiber-to-the-home (FTTH) deployments are a sizable segment of the market, but increasing growth is coming from connections to businesses, government facilities and educational institutions. The strength of the fiber market is supported by the recent stability in electrical, gas and sewer projects. And in some regions, those projects are even growing. Strengths also lie in the diversity and variety of drill technology. Today, there are varying sizes of drills to meet the needs of many different jobsites globally. The advancement of supplemental technologies has also helped the market. For example, mud mixing, electronics/tracking units and downhole tools help assist drills on HDD jobsites.
Eastway: HDD market strengths are still leaning heavily on the oil and gas sector. Though other sectors such as water, sewer and communications are still strong players, especially for mid-market-sized HDD contractors. We’re also seeing an increase in electrical transmission lines being buried, wind farm outfalls and the like, as renewable energy markets continue to become more cost-effective and push to the forefront.
Michael: In general, the HHD market strength appear strong, again communication is strong and it appears it will continue to drive demand for the next several years. Gas services and water are also strong market drivers.
What are some of the trends in the market that you are seeing?
Matthesen: We continue to hear about the need for trained HDD operators. A consistent need for operators in the underground construction market has helped the current workforce become more familiar with HDD equipment, improving how efficiently they work. Since that market is showing no signs of slowing, there is constant demand for novice operators, and they need to quickly get up to speed. Training methods that appeal to the next generation of operators are helping fill that need – such as the Ditch Witch virtual reality simulator and online training courses. Technology that boosts the productivity of HDD equipment continues to be popular in the market.
Eastway: Trends continue to be toward more difficult and boundary pushing HDDs. Longer lengths, larger diameter, deeper depths, compound curves, limited work areas, specialty steering and tracking techniques. It’s an exciting time to be in the HDD industry.
Harmon: We see large companies are looking to buy smarter, developing stronger relationships with suppliers and the infrastructure getting rebuilt and replaced or added on to handle population growth. Also, we are seeing shared projects, with multiple companies on the same project to spread the risk. High-speed fiber continues to grow.
Matthesen: Contractors are enjoying a market that has a solid backlog of work to tackle. Most sectors in North America have enjoyed a steady stream of projects. Operators enjoy the ergonomic work stations and advanced technologies that optimize drilling performance.
Harmon: I would say the contractors are positive on the future and jobs but are concerned over low pricing on jobs. Many are buying or planning on buying but it is again not at all points in North America — some areas are very slow. I do see and hear about a lot of movement on used rigs. Equipment suppliers seem to be getting creative on packages and financing options. Some rolling start-up tooling into long term financing (this could create problems down the road for contractors that have short-term tooling rolled into the cost of their equipment, creates an upside-down problem very quickly). Again, there seems to be a lot of movement of qualified workers companies hiring away from others. This is due to a lack of qualified workers.
Michael: Many of the contractors we have talked with recently are optimistic about their business. Yes, contractors have been purchasing equipment. It feels like more are purchasing equipment due to trade cycle. Many mention they would expand their business if there was available labor.
What are some of the issues the HDD market is facing?
Matthesen: Growing environmental concerns and federal regulations require drilling mud to be cleaned and disposed of properly. But extracting and disposing of drilling mud is a time-consuming and costly task for many contractors. Costs quickly add up if enough water is not available onsite. Additionally, there are regulatory issues in various regions related to cross boring. More than ever, contractors need to be aware of regulations and follow proper procedures for damage prevention by using soft excavation such as vacuum excavators and proper electronics on a job to help avoid cross bores. The HDD industry is growing, and there is a clear shortage of experienced operators to help with the expanding number of projects. In response, manufacturers must focus their efforts on building effective training programs to help engage with the next generation of workers and continue to retain experienced operators.
Eastway: It seems that the general public has a decreased level of tolerance with construction in general. Everyone desires access to information, water, gas, and similar items, but it seems the public may be less willing to be accommodating to short-term disruptions and inconveniences in order to receive long-term benefits of these services, that’s even with HDD, which greatly limits disturbances to ground surfaces. We also seem to be fighting with some negative perceptions of the HDD installation technique. We are not gas producers, and the fluids we use underground typically only consist of water and natural clays. We just build a small portion of the infrastructure required to bring the needed services to people, such as natural gas, water, waste disposals, electricity, etc. Maybe we need to consider changing terminology to differentiate the work we do from downhole exploration and gathering. As always, we are in need of a larger skilled — or willing to become skilled — workforce. The pay is typically very good and the work is mentally rewarding. Yes, the hours are long and can be labor intensive, but getting 30-plus hours of overtime a week isn’t too bad of a trade-off. We’re still fighting with appropriate restrictions on the disposal of reclaimed and cleaned mud and the spoils from the cuttings. These are becoming increasing restricted and treated as landfill waste. There are many beneficial reuse options available, such as land farming, that we’re hoping can be left open for us to pursue. This would also be a cost-savings to all project stakeholders.
Harmon: Labor shortages, not enough qualified labor to fill jobs and positions; many report they have jobs waiting due to lack of workforce. Also, low bidding by some; pricing per foot has stayed relatively flat for a few years while cost have risen. Pay issues: I hear a lot of contractors talking about slow pay for jobs or high deducts on jobs due to small issues. Equipment downtime is also an issue. As equipment has become more technical in nature it takes specialists to fix sometimes small issues.
Michael: HDD contractors, along with many other utility and construction contractors, are and likely will continue to face a shortage of trained and reliable labor force. They continue to face new regulations imposed by utility owners as well governments. The regulations can include fluid disposal, utility locating requirements and increasing bore log data.
Matthesen: In the short term, the outlook for the HDD market is very positive. The prevalence of fiber projects has created a lot of excitement as new technologies and workers enter the market. In the long-term, we’re currently aware of the potential for overcrowded easements as more utilities are deployed underground. This challenge does create an opportunity for growth in the HDD market as electronics and tracking equipment become essential for navigating underground conditions.
Eastway: I would say the short-term and long-term outlooks are both solid. We have seen a few of the major projects presented with some roadblocks due to inadvertent return and permitting issues in the recent past and we as an industry need to be conscientious of the ramifications of the work we perform. From an oil and gas standpoint, I think the overseas markets and exporting are increasing in importance, especially if prices remain low, productions continue to increase, wells are outputting more on a per well. And it seems likely domestic demand hasn’t kept pace with domestic productions, keeping prices subdued. We need to continue to pursue exporting.
Michael: It is believed we will have continued gas and communication work for several years to come. We do believe communication work will drive regional hotspots and contractors may need to be somewhat mobile to get the work.