Investments in innovation, people,

technology must go on, even as

market realities set in
in 2016, January/February Jan 26, 2016 0

Downturn could push advancements such

as closed-loop automated drilling and
configurable drill floors to the forefront
By Linda Hsieh, Managing Editor, and Alex Endress, Editorial
Coordinator
Clay Williams is Chairman, President and CEO of National Oilwell
Varco (NOV).

Clay Williams, Chairman, President and CEO, National Oilwell Varco

From your perspective, what are the most critical challenges facing the
upstream oil and gas industry in the midst of the market slowdown?
These challenges are twofold. The first challenge is continuing to reduce
our cost of operations. The second challenge is operational. This is an
industry that requires experience and concentration to operate efficiently
and safely, and I think the challenge for our leadership is to make sure
that our teams arent distracted by the downsizing and the downturn.
Our leaders must help workers understand that they are part of a great
industry that has seen downturns before. We are going to move through
this one and be fine on the other side of it. The work that they do is
critical, and we need to make sure leadership across the industry
understands the stress that our teams are under.
As drilling contractors delay or cut back on equipment maintenance due
to the drop in rig activity, what potential impacts do you foresee on
equipment reliability and downtime?
Theres always a cost when you cut corners on maintenance. While we
understand that a lot of drilling contractors are under an immense amount
of stress, the companies that cut back the most will potentially face much
bigger challenges with regards to maintaining uptime and efficiency. The
other challenge that some drilling contractors will have is revitalizing idled
equipment that is called upon to go back to work.
Drilling contractors are looking at all opportunities to reduce their cash
outflow. Many, especially onshore, are cannibalizing equipment as they
look across the board to reduce expenditure wherever they can. If a piece

of equipment wears out, some contractors will go and remove that off an
idled rig rather than order something new. This industry is pretty good at
reducing expenditures quickly in a downturn like this, but theres a limit to
how far that can go. Theres going to be a cost to getting these machines
back up and running again once drilling contractors have been called
upon to go back to work.
Further, the costs associated with going back to work are not just with
equipment but also with crews and training. Its important that drilling
contractors continue to invest in and maintain their equipment, as well as
maintain their core capabilities their core crews that have the most
experience in drilling operations.
My main concern is making sure that we dont lose the core capabilities of
the industry. Were already facing a lot of workforce challenges with the
Big Crew Change, and this downturn may be accelerating that process.
This industry requires a high level of attention and focus on safety. I really
hope that were able to keep the people in the industry focused on the
right thing to make sure theyre executing safely.

The IntelliServ wired drill pipe plays a critical role in the closed-loop
automated drilling process being developed at NOV. By transmitting
data on a microsecond basis, the pipe will be used in conjunction with
the NOVOS control system to let software control operations of surface
equipment. NOV is reporting an increased level of interest in closedloop automated drilling.
What can companies to do to maintain workforce competency through
these challenging economic times?
NOV is promoting stable workforce competency amidst the downturn by
continuing efforts with the NOV Technical College, an initiative we
launched in 2007 to train our industrys experts. These colleges train
workers to repair and maintain a lot of the new and high-tech equipment
thats going into the industry. Along the way, weve opened colleges in
Houston, Singapore, the UK, South Africa, South Korea, Brazil and other
markets that we serve.
NOV sends new-hires into the program for either six months, nine months
or 12 months to prepare them to go out and take care of our equipment.
Since the downturn, weve started an extension to the program where
technicians are brought back to the colleges after theyve worked in the
field. This helps to lift their overall level of training and to develop new
skill sets.

This downturn has already lasted longer and has become more severe
than some predicted. Do you believe the industry is in a bust similar to
the 1980s?
First, this is a cyclical industry, and it always cycles down from time to
time. While this is a very severe downturn, I dont think it will ultimately
be as severe as the 1980s because there are some key differences. One is
that OPEC was holding 10 million barrels a day off of the worldwide market
as we entered 1986, which was about 16% of global demand. That was
partly caused by the fact that global demand actually fell in the early
1980s due to the recession and a lot of initiatives around conservation.
The supply and demand picture was much more out of balance than it is
today, wherein we have very little excess capacity less than 2% of global
demand and maybe even less than 1%.
The other key distinction is that more of the global supply is coming from
lower-quality reservoirs like unconventional shales that decline at a faster
rate than conventional reservoirs. Once the slowdown in activity
translates to declining supply, we should see a steeper decline curve.
In this industry, you have to be optimistic. I think the fundamentals point
to a recovery, but I cant tell you exactly when it will come. Nevertheless,
we certainly have significant challenges ahead of us.
What lessons can be learned from previous downturns that can be put to
use in this downturn?
First, I think all of us in the industry share the view that we have to reduce
cost and respond to the market realities that were in. Beyond that, we
need to continue to invest in technology and improve the efficiency of our
operations. If you look back at the history of this industry, necessity has
always been the mother of invention. A lot of great advancements came
out of downturns. Reduced margins really underscored the requirement to
try new technologies and improve operations. The result is we all got
better. I think downturns are the places where the industry gets better
technically.

As onshore operators transition to more pad drilling, NOV Chairman,

President and CEO Clay Williams said that he believes land rigs will

begin to experience another round of fit-for-purpose evolution. He sees

land rigs implementing more data monitoring, predictive maintenance
and more flexible configurations.
For our organization, it means that we want to invest in new technology
and new products. We have seen lot of interest in these technologies
despite the downturn. In fact, we see more interest for some of the things
that were doing than we saw a couple of years ago when oil was trading
north of $100 a barrel. When commodity prices are very high, its all about
execution making sure that the rig gets the well drilled. When you move
into a market like this, with a lower commodity price and more economic
pressure, oil companies realize they have to do things differently. They
become a little more creative and a little more expansive in their thinking.
For instance, weve received a lot more interest in closed-loop automated
drilling something were pioneering at NOV. Its used in conjunction with
our NOVOS control system, where sensors are placed at the bottom of the
hole that utilize our IntelliServ wired drill pipe to transmit data on a
microsecond basis to the rig, and we let software control the operations of
the surface equipment.
What we find is the software can see more accurately whats happening
downhole and make microsecond adjustments based on that. This results
in drilling the well at a much faster rate. The oil companies that are
drilling with NOVOS see closed-loop automated drilling as an opportunity
to learn to drill a particular stratigraphic column faster and more
efficiently.
More and more were seeing that oil and gas companies are looking to this
closed-loop technology to speed up the learning curve in some of the
shales that are being developed to make those drilling operations more
efficient.
Will the changes that result from this downturn be sustainable in the long
term?
As long as we continue to work with our customers to advance these
changes, I think its possible. Both onshore and offshore, the industry is
learning the potential of standardization and the industrialization of the
drilling process. Over the past decade, the industry has migrated toward
standardization of operations and of rig equipment. That has brought
about many benefits. In the area of training, for instance, rig crews see
basically the same rig layout while traveling from rig to rig, and they can
learn from other crews how to perform more efficient operations on the
standardized layouts. By applying more fit-for-purpose assets and more
modern industrial techniques, I think those sorts of improvements are
likely to be permanent.
When do you see the newbuild market coming back, and what will
contractors focus on when the next build cycle begins?
It will be a while before drillers get back to building. In the short term,
theres still interest in specialized rigs for the harsh-environment offshore,
such as 20,000-psi rigs. Longer term, were more focused on introducing
the next generation of offshore drilling assets that will include things like
configurable drill floors, which will provide a way to bring all the different

types of tools that may be required to work at a well center in and out of
the drilling operation on an as-needed basis.
NOV is also using big data to help with preventive maintenance and
remote monitoring of equipment to reduce downtime. I think industry
interest in that will increase.
For onshore specifically, I think we still have a long way to go in terms of
bringing high levels of automation that were pioneered offshore. Were
likely to continue to see evolution amongst the land fleet in terms of
automation. Since 2014, weve been working on our land rig of the future,
which incorporates higher levels of automation and brings together
technologies such as big data and closed-loop drilling.
Likewise, weve been working on our drillship of the future with a
configurable drill floor and, with semisubmersibles, were looking at new
ways of construction to reduce costs. These are all part of a 10-year
strategy we launched in 2014 across our business units.
The main thing for NOV is to continue to be innovative. We recognize
were in a downturn, and theres a lot of pressure to reduce costs, but we
also need to continue to invest for the future and the eventual recovery of
the industry. We will be there when the industry does come back to
upgrading its equipment and ordering new rigs again.
Five or 10 years from now, how do you envision rigs and equipment will
be different from the way they are today?
There will definitely be higher levels of automation. As we evolve to more
pad drilling onshore, I think land rigs will likely undergo another round of
fit-for-purpose evolution. There will be a lot more data monitoring,
predictive maintenance and more flexible configurations.
How is equipment changing to provide better well control?
Were specifically focused on advancing our retrievable pod for subsea
BOPs, with new pipe-centering technology, as well as ram designs that
can cut thicker and heavier pipe. Were looking at more data monitoring of
BOP operations. Theres a lot of focus on improving BOP reliability and
effectiveness.
Youve mentioned big data a couple of times. What opportunities do you
see for NOV to support better data management at the wellsite?
There are quite a few challenges in regards to bandwidth and transmitting
data off of rigs. There are a lot of data collected on rigs that arent
necessarily transmitted elsewhere for analysis. I think both onsite
processing on the rig, as well as expanding the bandwidth of data
transmission capabilities of the global rig fleet, can offer a potential for
using the data more effectively and driving more insight from the data.
A lot of offshore rigs have a limited bandwidth, and there are many
vendors vying to transmit that data. Its a finite resource, so I think
continuing to expand data transmission bandwidths on rigs will help a lot.
With our eHawk monitoring service, for example, we frequently find
limitations in terms of ability to send data off of the rig.
For younger people who have joined the industry within the past decade
and havent lived through a downturn like this one yet, what advice would
you give to encourage them to stick with it?

It will get better. Although this is a hard time, it will make you better. If
business only ever goes up, none of us would ever learn how to make
difficult decisions and shepherd our businesses through downturns. The
adversity brought on by this sort of downturn has made great managers in
this industry.
By my count, this is my sixth downturn. Weve learned over the years and
through the cycles that you have to act swiftly. It can be very painful and
difficult, but it is the time to learn good leadership and management skills.
The folks that see this through and emerge in the prosperity thats waiting
for us on the other side will emerge as better leaders and better
managers.
Its a wonderful industry, and its a tough industry. Very few industries see
downturns like this. Its breathtaking how quickly the floor can drop out,
and it always feels terrible when youre going through these downturns.
However, youve got to look at the fundamentals. Youve got to look at
supply and demand for oil and recognize that it has to get better. This is
not sustainable, and it will get better. I tell our folks that every week that
goes by means that were a week closer to recovery.DC
NOVOS, IntelliServ and eHawk are trademarked terms of NOV.