Looking at the Maxi Rig Market

After several status quo years of work, the maxi rig market appears to havestumbled a bit in 2005 — at least in regard to rig sales — with those in theindustry attributing the drop off in large diameter work to a sluggish gas andoil pipeline market.

In asking manufacturers and contractors about large rig work, TrenchlessTechnology found it to be relatively quiet — a little foreshadowing of theanswers to come from those we spoke with when asked for their perspective on themarket.
There’s nothing to be worried about yet, they say. It’s just not astrong market for rig sales or work and contractor pricing right now. Thatdefinition could be changing with two huge projects possibly looming in Canadathat would open the proverbial floodgates for big rig drillers all over NorthAmerica.

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When Trenchless Technology posed the basic state of the market questions tomanufacturers and contractors in 2004, rig sales were said to be erratic inNorth America with more activity being logged overseas — most notably in Chinaand South America. In 2005, work continues to be plentiful overseas, while rigsales for North America appear to have fallen flat.

Whereas in 2004, several new rigs were introduced into the maxi marketplace —such as Vermeer’s D300x500 and American Augers’ five maxi rig models — no suchrigs are making a big splash in 2005. And although contractors say they areworking pretty steadily this year, that work has not boosted rig sales, somemanufacturers say. Contractors say that they are finding work but the price perfoot continues to stall the market.

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Maxi rigs are a $1 million-plus investment and the need for a new one isn’tevery few years, such as with the compact rigs. Maxi rigs are used between 5,000to 10,000 hours. Unlike their smaller counterparts, maxi rigs are typicallycustom-made for a particular job, such the 660,000-lb drill that Tulsa Rig Ironbuilt for a customer’s job in Russia last year. There is also no shortage ofexperienced drillers, unlike what the compact market is facing.

Mike Sadler has been the national sales manager with Tulsa Rig Iron for oneyear but has been involved in the maxi rig market since 1992 and undergroundconstruction since 1975. Tulsa Rig Iron, based in Keifer, Okla., manufacturesand supplies maxi rigs, as well as the support equipment, such as mud systemsand high-capacity pumps. He says he’s seen the ups and downs of the market overthe years and describes 2005 as a down year.

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“Bottom line, it is slow,” says Sadler. “In my opinion, there are too manycontractors chasing too few jobs. You still have that core group [of big rigcontractors] but the prices per foot are still pretty flat. The big rigs are allgeared around the pipeline industry and the pipeline industry is fairly flat.There’s been some work in the water and sewer industry, which has picked up alittle of the slack, but there’s not enough work out there for these contractorsto get their prices up. Until they get their prices up, they’re just going tohave to make do with what they’ve got.”

Vermeer Mfg. underground market segment manager Ed Savage concurs withSadler. Vermeer, based in Pella, Iowa, produces two maxi rigs: its D200x300 and300x500. “[The maxi rig market] is very cyclical,” he says. “[The market] runsso hot and cold because it is very project based. The mid-size and compact rig[markets] are project-based too but there are so many other markets they cantake them into use. But with the big rigs, if there are no big projects goingon, they just sit.Obviously customers aren’t going to buy them if they don’thave any projects.

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“The gas and oil markets are really what drives this,” he continues. “Thereare a few oddball bores out there where they just need to get a big piece ofpipe across something like the Mississippi River or there may be a telecomproject where they are looking to put conduits inside the steel casing but thatis not the majority of the business. There’s some good things being talkedabout. It’s just not getting here quick enough.”

In speaking with contractors who specialize in big rig work, they acknowledgea general slowdown and the continued low pricing per foot, but say they arestill relatively steady in their projects. Not necessarily the huge diameterprojects, such as Laney’s 56-in. sewage siphon casing from 2004 as an example,but still busy.
“We’re busy right now. We’re not overly busy and we’re notturning work down but we’re definitely busy,” says Grady Bell,estimator/engineer at Laney Directional Drilling.

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Based in Humble, Texas, Laney Directional Drilling is one of a core group ofcontractors that specialize in projects using maxi rigs. Other key maxi rigplayers in the United States include Michels Corp., Brownsville, Wis., InterConConstruction, Madison, Wis., and Southeast Directional Drilling, Tempe, Ariz.,Mears Directional Drilling, Rosebush, Mich., and The Crossing Co., Nisku,Alberta, in Canada.

Laney has 12 custom-built maxi rigs in its fleet that range in size from300,000 lbs to its largest of 1. 7 million lbs. “There’s always a concern [aboutthe amount of work],” Bell says. “We don’t have a huge backlog. It’s nice tohave six months or a year’s worth of work lined up but it’s rare that thathappens in our business. We have a couple of months of backlog right now sothings are good.”

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Steve Allen, manager of HDD operations at InterCon Construction Inc. withmore than 24 years of directional drilling experience, notes that the overallmarket has been slow but he sees the tide turning in a positive way. “I wouldhave to say that it’s been slow but building some momentum,” he says. “There’sbeen infrastructure rebuilding, such as water and force mains, especially alongthe eastern and western seaboards. They seem to be driving the market a littleright now, as well as the wastewater and water intakes and outfalls. There’sbeen a respectable amount of large diameter gas main work that has finally comeout for bid, but the volume of the market is still not high enough to keep thenumber of rigs that are out there busy.”

Madison, Wis.-based InterCon Construction, which has been in business since1984 and became a subsidiary of the InfrastruX Group in 2001, is a provider ofinfrastructure services, including natural gas and product pipeline, electricityand telecommunications, as well as large diameter, long-length directionaldrilling. In its fleet, InterCon Construction has three maxi rigs — all AmericanAugers machines, ranging in size from 330,000 to 1 million lbs.

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Allen and Bell say that the low pricing is a big concern for drillers. “It’sstill low and it’s a very big problem,” Allen says. “Prices seem to be climbingslightly but they are still far below what they should be. Labor rates have notdecreased or stabilized and they continue to go up every year… bid prices havenot shown a substantial increase in several years.”

“With the big rigs, the prices are low,” Bell says. “I wish they were higherbut when you have this much competition that’s the way it goes.”

When asked what it would take to bring the market back, some point to twoenormous projects in particular north of the U.S. border that, if they come tofruition, will have a huge impact on the maxi rig market in terms of rig salesand work in the places of origin as well as in the United States. One is asecond Alaskan Pipeline and the other is the much-debated, $6 billion McKenziePipeline project in northwest Canada. The latter project would open the CanadianArctic for natural gas drilling and send the gas 800 miles south to Alberta andthen to the 48 U.S. states; it is currently tied up in opposition with somenative tribal groups over the land.

“If [the McKenzie Pipeline project] happens, because of the size of the pipe,a lot of big rigs will be needed for all of the river crossings in order tobring that pipe down to Edmonton, Alberta,” Sadler says. “If both of those jobs[McKenzie and another Alaskan Pipeline] come about, then a lot of big rigs willbe going to work.”

Sadler notes that both of those projects are years away from happening.However, “The HDD portion of those projects will be the first that go in. Theywill want to do the HDD of all the rivers first so when they start the actuallaying of the pipeline, those crossings will have been complete and they willjust keep on going.”

Allen is well aware of those projects and says there are some contractorspositioning themselves now for when the green light is given. “If the AlaskanPipeline comes through, and there are some contractors poising themselves totake that, it will have a dual effect,” he says. “It will get these contractorsa lot of work but it will also pull a lot of rigs out of the markets availableto the remaining contractors, which will also help them. Ultimately, the priceswould return to a respectable level.”

In terms of technology, therehasn’t been a whole lot of new entries, contractors and manufacturers say,although there continues to be some improvements in the rigs and tooling andother accessories, such as the guidance systems. Sadler points to a trend thathe has seen develop over the last few years that has some contractors enhancingthe performance of their big rigs by buying bigger mud pumps and cleaningsystems for bigger jobs.

“In the past, they could rely on pullback,” he explains. “They thought ifthey got a bigger rig with more pullback, they could do bigger jobs… Withpullback, you only move the weight of the product line. It’s the torque and themud pump that actually makes the hole. If you want to go out farther, you’ve gotto have a bigger pump to bring all the spoils back to the exit hole.”

Bell notes that a new condition being found in bid specs involves large rigwork, requiring contractors to use downhole mud pressure monitoring systems tobe placed inside and outside the pipe to try to head off potentialfrac-outs.
The addition of these monitoring systems add money to the bid butBell has a different concern about this requirement: “It is producing data that,to this point, is still unproven,” Bell says. “It’s not definitive that you aregoing to frac out if you lose pressure or when you gain pressure.”

Sharon M. Bueno is managing editor of TrenchlessTechnology.

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