June 12, 2018
Ten considerations when purchasing a new drill rig
In the mineral exploration drilling business, drill rigs and equipment are critical to winning bids, completing contracts, and making money. Buying a new drill rig is a big decision and many variables and factors affect that decision. The biggest question one has to answer is, “Will this drill rig make money? Or cost more to own than some other option that can accomplish the same for less?”
During the recent market downturn, many drill rigs had been sitting idle, which made it easier to cannibalize components and parts to keep actively drilling rigs running. Most drillers were repairing the rigs they had to keep them drilling without investing capital in new drill rigs and technology. Now that the market is slowly increasing, many drilling contractors are making decisions on their fleet as to whether they should rebuild the idle rigs or buy new rigs.
Operations managers know which components (engines, valves, assemblies, etc.) need to be replaced and they typically have a fairly accurate idea of the cost to rebuild idol drill rigs in the fleet. If the rebuilding costs are close to what it would cost to buy a new drill rig, they may choose to do a full-blown audit, inspecting each of the drill rigs, evaluating spare parts in stock, and checking maintenance records for a more accurate comparison of the costs to get a drill rig ready to work again.
Besides just costs, other factors include whether the drilling company has the time, talent, and capabilities to do an overhaul on a drill rig that has been idle and needs work. An overhaul can take three to four months and requires the facilities, tooling, a labor pool of mechanics with the time (they may already be working on other rigs to keep them running), and the knowledge to get drill rigs ready to mobilize for drilling contracts.
With the improving market, everyone can expect longer lead times – whether you’re rebuilding or buying new. When the market is in a decline or really low, inventory is higher, plants aren’t as busy building new rigs, and lead times are reduced. As the market improves and contracts increase, inventory is lower, plants are busier building more rigs and lead times tend to be increased. Ultimately, lead times vary based on the manufacturer.
3. New Technology
If you have an older drill rig fleet, buying a new drill rig provides an opportunity to drill more productively for more meters. Newer rigs are generally more productive, provide more reliable uptime, and have a lot more built-in safety features than older rigs. With increased mine site safety requirements, a new rig can meet those new safety requirements where an older rig might not make the grade and cost a drilling contractor a contract award.
4. Rod handling equipment pays for itself
Drill rigs with rod handling equipment generally have crews with fewer hand and back injuries, and less overall stress and strain. Mechanized rod handling also saves on labor costs and staffing as an extra crew member is not needed to manually handle rods. Plus, becoming known in the market as the drilling service provider that has updated equipment with rod handling capabilities will likely get you invited to more bids. When rod handling was first introduced, productivity suffered as the machine rod handling was not as fast as manual rod handling. However, with the newer technology, productivity can be maintained.
Used drill rigs typically break down more often than new rigs and that down time can affect hard-earned drilling contracts. The costs can quickly start piling up from loss of productivity, rig uptime contractual obligations, and repairing the drill rig. Not only does the well-maintained operating condition of a drilling fleet help productivity, but it can keep a contractor from getting kicked off a contract or site.
6. New vs. Used Drill Rigs
When one finds themselves in the market for another drill rig, the first question is whether to buy a new or used drill rig. It tends to be harder to find gently used equipment, and when in the market for used drill rigs, it’s difficult to be sure how well or harsh the rigs were treated and used in the field. Hydraulic systems, for example, are very delicate and if they’ve been mistreated or there is contamination in the hydraulic system, it can be extremely expensive to replace pumps, motors, or valves. It can be a risky purchase if the history and maintenance of the drill rig aren’t known.
There were a lot of great buys in the market downturn, but as the market continues to improve, price points are going to increase and availability decreases.
When purchasing a new exploration or production drill rig, it can be tempting to shop on price because there are a lot of low-cost options out there. However, just like any other major purchase, it is important to evaluate the total cost of ownership. Lower priced drill rigs can actually have a higher total cost of ownership. Taking the time to price out important replacement parts and spare parts can prove to save money in the long run.
The other thing to consider is the availability of those components. When buying a low-cost drill rig from a company that doesn’t have a global footprint, the local availability of spare parts and the lead times to get replacement components can impact your bottom line. Many smaller manufacturers only support customers on a regional basis.
The reliability gained by purchasing high-quality components means not having to replace components as often, which means more uptime and spending less money to operate that rig than if you buy something at a lower price point.
Which comes first, the new drill rig or the contract win to put it to work? This is a good question and it really depends on lead times. Talking in context of the current market where there is a bit of growth, the competition to win a bid depends on when you can mobilize and get to site to start drilling. Lead time to get onsite to start drilling can be extended if you wait for the contract win to purchase a new rig versus having the rig ready to dill – contractors may want to pre-purchase equipment and go to bid with a drill-ready fleet. This is more important now than it was, say, last year or the year before.
9. Lining up scope and budget
Major mining companies can mandate technology and safety upgrades and are always in discussions about improving safety, taking advantage of innovations, and implementing technology. You need to have a competitive advantage that meets all of the operating requirements, but anything above and beyond can make you stand out from other drilling contractors. For example, having rigs equipped with rod handling can provide the competitive advantage that wins the project.
10. Why buy new
Take time to consider your options. Evaluate your current drill rig fleet and consider what it will take to get everything maintained and updated to be competitive. Does your drilling rig take advantage of recent innovations and meet the latest safety standards? If repairs and available parts outweigh returns, look at updating your fleet. The number one reason to buy new equipment versus used equipment is to enhance productivity, improve safety, and enjoy long-term reliability.
If all the gains from purchasing a new rig makes sense, talk to an expert to see what is available that meets your needs both now and in the near future.
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