How do you choose drilling projects? I bet many of you said, “Brock, I don’t advertise. The customers call, and I go out and drill.” Yordy and Sons Well Drilling worked that way. We had a solid book of business from a good reputation for quality work. By the time I was working full-time, our business development had shifted from prospecting to answering the phone and scheduling the work. At the time, Michigan had averaged 40,000 new wells a year for many decades. It was common for drilling companies to operate two or more rigs drilling 200 or more wells yearly. It all slowed down amid the impacts of the post-9/11 war on terror. Next, the Big 3 automakers started to falter. Finally, we had the “too big to fail” housing crisis in the late 2000s.
The housing crisis changed the way the water well drilling industry operated. Many family businesses sold equipment and “right-sized” to cut costs. The Ford Motor Company sold Aston Martin, Jaguar, Land Rover and Volvo to maintain their business instead of declaring bankruptcy. Other family drilling companies doubled down by expanding working territory, taking on more challenging water wells and diversifying into industrial drilling. Critics can fault either option. Given the economic conditions at the time, some would have advised selling out or permanently closing the family business.
So why should we discuss what happened 20 years ago when today offers endless opportunities beyond drilling water wells? Because this is Part 3 of my series on keeping your drilling business! Well, at least partially. The reality, however, is that there has never been a better time to be in the industrial drilling industry. The federal incentives to diversify into geothermal, cathodic, environmental and geotechnical investigation are so fruitful, we can fail to see past those high-dollar opportunities to the sometimes problematic work beyond. After all, an easily executable job wouldn’t warrant such a dollar amount, right? Many of these projects have problematic geologies. Projects expect the drilling company to take on risk for their methods and experience in those nasty subsurface areas, with more time required to complete with a sliding profit margin.
Projects with engineering or design flaws can often prove hard to identify as problematic up front. If the goal to completion continues to move due to ignorance or the job turns into a geologic science project, how can you achieve your margins? If you encounter an ever-changing design job, hold the engineers accountable, document every change and stand your ground on your operating cost. You must bill accordingly to maintain your business.
Choosing and Bidding Drilling Projects
In 2023, how do you bid and choose drilling projects? Circle back to a time when the phone rang and a verbal “Yes, please drill our well,” meant scheduled work. The customer on the other end of that landline needed water. Unless located in a water-scarce area that required exploration or a test well, the goal was to provide a water well and move on. Sure, we all had some “well from hell” projects, but a successful business identifies those areas and projects and, in the future, weighs the risk versus the reward. Today my bidding process starts with these five questions:
- What is the degree of difficulty for the project?
- Who are the parties involved in the project and how can they impact my success?
- How much time is required to complete the project?
- What is the project design and how much lead time for the material to complete the project?
- What is the overall risk of the project?
The fifth question is multifactor and you should weigh it heavily when considering whether a project can succeed. Question 5’s considerations include:
- The amount of financial risk
- Environmental restoration
- Whether work happens in a high-population, urban area
- Physical danger
- Distance from shops
I take the five questions and score each one with a 1 (low), 2 (moderate) or 3 (high). Work might be close to the shop (1) but in a dense urban area (3), and so on. Ideally, my company wants to bid mostly on projects that score between 5 and 10. Our goal is to win as many projects as possible with a score of under 10. Any project with a score of 10 or higher requires a team meeting. We need to discuss capabilities, the drilling program and execution. Therefore, it is crucial to discuss Question 5 until you can thoroughly consider all unknowns.
The 5X15 Scoring System in Practice
The 5x15 scoring system works best when operations, sales and project management score projects individually. Generally, you see more risk-averse scoring from operations, with sales usually being the most accepting of risk. Time is the most impactful risk to any project. More time increases daily operating costs and prevents proper equipment utilization on other projects. Consider your year-end goal regarding equipment return on investment and overall profits. Now divide that time by your expected days in operation for one year. If your math requires a 400-day year to achieve your goals, the risk is not worth the reward.
Consider your year-end goal regarding equipment return on investment and overall profits. Now divide that time by your expected days in operation for one year. If your math requires a 400-day year to achieve your goals, the risk is not worth the reward.
In the fall of 1999, working full-time at Yordy and Sons well drilling, the average water well we bid on would have scored three. Wait, what? If the scoring system requires a score of five to be thoroughly investigated, how could I score most jobs a three? We chose simple, profitable projects. We cable-tooled 40- to 80-foot water wells in sand and gravel drifts, utilizing a Sanderson Cyclone rig with a fuel burn of 1.5 gallons. Then we telescoped in 4 to 6 feet of stainless steel 10-slot Johnson Screen that pumped over 100 gallons a minute with a maintained static water level of 15 to 20 feet. Had I scored such a project as a young driller, I would have given zeroes to two of the five questions.
Beyond the easy days of drilling in west Michigan, I have utilized this scoring system worldwide. As experts in our field, we need the ability to score a project’s degree of difficulty. Then we need to use that score to forecast, plan, and execute profitably and effectively. In 2019, I worked in the Southeast as a director of wells, and I never had the opportunity to implement the 5x15 scoring. I was recruited after corporate oversight had halted bidding on new work until all high-risk work was complete. Ironically, all the active projects could have been bid appropriately with this scoring system — or, more importantly, not bid at all. However, the teams bidding on the work were blinded by high-dollar opportunities compounded with a global pandemic.
Success in any business means understanding how to manage risk and execute within your team’s capabilities. Bidding today, like 20 years ago, requires preparation, knowledge of the risks and efficient, expert execution. “Faking it until you make it” never applies to snake handling, explosive ordnance disposal or drilling. Identifying and planning the risk out of a project is the only profitable way to operate in drilling.