As onshore activity heats up, US operators are facing a critical safety issue with a service rig fleet averaging over 20 years old and a serious shortage of trained personnel. One contractor has come up with two solutions.

In many ways, well servicing companies have been the stepchild of the energy industry. Twenty years ago, the market was dominated by a host of small companies that were both regionally oriented and undercapitalized. In boom times, these companies prospered as a result of strong cash flow. In bust times, they either "hung on" or "sold out" to a larger competitor that had more staying power. In this survival game, reinvestment in equipment was virtually non-existent. As a result, there has been a significant deterioration, both quantitatively and qualitatively, in the physical assets of the business. This phenomenon is particularly true of the rig-based segment of the production services sector.

Mobile workover rigs or "pulling units" are arguably the most flexible of the maintenance alternatives available to producers. Unlike competing technologies, the rigs offer a wide variety of maintenance solutions. They can "pull pipe," perform major recompletions, and execute horizontal drilling activities, to cite a few. Further, they are typically the low cost solution to an E&P company's problem. With nearly 900,000 active wells in the United States, the well services industry is critical to the future of the country's reduced reliance on foreign sources of energy.

Much has been written about the state of the US well-servicing industry. Consider the following:

• Fifteen years ago, there were more than 8,000 rigs in service. Today, there are fewer than 3,200.
• The average age of a rig is 20 years old.
• Over the past 20 years, about 3 new rigs a year were manufactured, and most of those were shipped overseas.
• Given the current pricing structure, the payback period for a new rig (cost: US $750,000 - $1 million) is over 10 years.

If all restrictions on the US market were removed and new exploration areas opened, there simply would not be enough well servicing rigs available to meet the demand.

So, what is the answer? A few of the larger companies, like Key Energy Services (Midland, Texas), are initiating aggressive "remanufacturing" programs to restore the integrity of the fleet. In Key's case, these programs go well beyond normal maintenance. Essentially, rigs are taken out of service, transported to a central refurbishment center, and rebuilt from the frame rails up. In many ways, the final product is better than the existing unit was when new. Newer, more efficient components are used, such as, electronically-controlled diesel engines to replace older, less reliable motors.

Jeff Moore, Manager of Key's Centralized Remanufacturing Center in Odessa, Texas, comments, "Several years ago, we found ourselves on a very frustrating 'treadmill.' We would correct mechanical problems on an 'as encountered' basis. That is, if we had a draw works problem on a rig, we dispatched a maintenance crew, fixed the problem, and waited for another failure. It did not make a lot of sense. We found ourselves making repeat visits to the same rig for different problems. Now, each rig is scheduled for a full overhaul at which time we basically rebuild it. We call our three national centers Centralized Remanufacturing Centers, because that is what we do . . . we 'remanufacture the rig.'"

Key's managers see three important benefits to the significant investment that they are making. In a telephone interview, Jim Byerlotzer, executive vice president and chief operating officer, noted, "First, remanufactured rigs help us meet our most important goal: assuring the safety of our people and the employees of our customers. A fully certified rebuilt unit minimizes the prospects of mechanical failures. Second, the units operate more efficiently, which enables us to complete projects faster for the benefit of our clients. And, third, the process provides a more rational use of our capital dollars, while at the same time giving us a competitive edge in recruiting."

To date, Key has remanufactured over 300 rigs and has a plan in place to extend the program to its total base of 1500 rigs.

While the lamentable state of the physical assets has attracted a lot of attention, there is an even bigger problem confronting the industry: a serious shortage of qualified employees. In June 2001, The New York Times reported on the energy industry facing a dilemma caused by high attrition. Between 1983-1995, the work force was reduced by 390,000 employees on a base of just over 600,000 workers. No other segment of the industry felt this phenomenon more than well servicing. Although "turnover rates" are difficult to determine, one major company reported a 91% turnover rate in 2002. The reasons for this are as much perception as they are reality.

Recently, a Department of Labor publication, College Campus, described well servicing jobs as strenuous. It went on to point out there were a number of hazards including falls from derricks, injuries from falling objects, and abrasions from various tools. Work Futures, a publication of British Columbia Occupational Outlooks, was more succinct; it called the jobs "noisy, dirty and dangerous." A common thread in the criticism of the industry is that few companies invest in the training and development of their people, because of high turnover rates. In some ways, entry-level positions have become the domain of marginally employable candidates who view the jobs as a short term, easy-entry path into the job market. Steps must be taken to slow down this revolving door staffing or the country faces the prospects of its energy future being in the hands of poorly trained, ill-equipped production workers.

The Department of Labor is keenly aware of the problem. In February, 2003, Secretary of Labor Elaine Chao announced an $8 million government grant program designed to alleviate the energy staffing shortfall. It provides funds to support a broad range of training initiatives across all major US oil and gas producing regions. The program targets specifically the Hispanic and Native American communities that comprise a large part of the energy services work force. Senator Pete Domenici (R-NM) noted: "The workforce in the (energy) industry has contracted 50% in a 10 year period. I believe this training program stands to have a real impact in terms of harnessing federal, state and private resources to create new job opportunities." The curriculum will consist of industrial safety, well service and drilling, gas compression technician skills, plant operations, commercial driving skills and heavy equipment operation. The package will also offer 1-year certification programs and employment assistance.

While grant programs address the hiring process, additional work needs to be done on the turnover crisis. Key Energy has developed a retention and development program, which it calls "Rising Star, "designed to identify employees who demonstrate potential for advancement within the business. Selected personnel participate in a year-long training program (2 days per month); the subjects covered range from the principles of supervision to information technology. Of the 114 participants that have participated in the program, all now serve in a management position. Belinda McAnear, vice president-human resources, said, "If we invest in the development of our employees, we can expect that they will invest in us. Our goal is to provide careers rather than just jobs for individuals with the requisite skills and interest in advancement. This investment is paying off. Since Rising Star's inception (2002), all of its participants are still with us."

Editor's Note: Author Onofre Murguia is a graduate of the Rising Star Program. Born in Guadalajara, Mexico, he is the youngest of 16 children; he began his career with Key as a rig hand. Following graduation from the inaugural Rising Star class, he was appointed Yard Manager of the Company's Crane, Texas facility where he manages 130 employees.