That is the question facing all managers of businesses that require major capital equipment. Equipment’s usefulness is finite; that is, it has a given useable lifespan, and beyond that point, it becomes no longer cost-effective to operate. Water-well drilling-rigs are no exception to this verity.
There are two questions that arise, however:
- When is a rig no longer cost-effective to operate?
- Should the company replace the existing rig with one in-kind, or should it be traded up to a rig featuring dramatically improved technology?
One company that recently has traded up is Edward Powell Pump & Well Drilling Inc. The Aston, Pa., company has been a family-owned business for 40 years with family members continually managing it. Founded by Edward Powell, who is retired, the company is presently under the leadership of his son, David, the company president.
A graduate in business from Penn State University, Powell is a businessman first, who happens to be in the water-well business. He portrays the company as a full-service company, where the customer can get a water well drilled, the pump and tank installed, and if necessary, have a water conditioner installed. Other services offered by Powell include making 24/7 emergency calls, periodic well inspections, water sampling, and maintenance service contracts. Currently, the company has more than 800 service contracts in force that include taking water samples for testing, making equipment repairs and making preventive maintenance checkups.
Location, Location, Location
Aston is a relatively densely populated area in southeastern Pennsylvania – about 25 miles west of Philadelphia – where most homes are owned by the middle- to upper-middle class. Still, there are plenty of rural areas nearby with active home building continually underway. With a mix of new home building activities and well-established homes all within the company’s service-distance, Powell’s business continues to prosper.Nonetheless, despite the positive demographics, there is one downside for the water-well drilling market. Increasingly, the townships are opting to have centralized water supplies piped in to serve their newly developed communities. Powell explains, “As municipal water supply systems are installed, there obviously is less call for individual water wells to be drilled. In recent years, the demand for new wells has been flat, if not somewhat diminishing. Fortunately, I got involved in the geothermal end of drilling 12 years ago, when it was anything but a popular method for heating and cooling homes. That has changed now. I believe it is partially driven by the higher heating oil prices and environmental concerns.”
Indeed drilling activities are changing for the Powell’s company. Business is looking up this year with 40 percent of the business coming from geothermal activities. “I project we will do 100 drilling projects this year – 40 of them geothermal, and 60 water wells. If the demand grows much greater and continues into next year, I will consider a second drilling rig,” says Powell.
Geothermal drilling likewise is quite profitable for the company. Powell explains that, while water well drilling has become competitive because of the numerous water well drilling contractors in his market area, the same contractors are not qualified to carry out turnkey geothermal installations. “We are certified by the International Ground Source Heat Pump Association (IGSHPA), so we are qualified to install a geothermal system turnkey. Anyone who is contemplating having a system installed should use a certified company to do so. Even though it required intensive training to become certified, it finally is becoming beneficial for our business,” he says. Powell is a member of IGSHPA, which is a non-profit, member-driven organization established in 1987 to advance ground source heat pump (GSHP) technology on local, state, national and international levels. It is headquartered at Oklahoma State University. Additionally, Powell also is very active in the ground water industry, including serving on the board of directors of the Pennsylvania Ground Water Association.
Future Expansion?
As Powell points out, depending on how much the geothermal drilling increases, and if the water well drilling business at least holds it position, he will add a second drilling rig to meet the increased drilling requirements. As with any business decision, especially one that demands an additional one-half-million dollar capital investment, there are many factors to consider. A major factor considered by Powell is the required time and training cost associated with adding the second operator. “Finding an experienced operator in the area is not probable, so it means training one from scratch. And it is hard to find young people who would both qualify and have an interest in becoming an operator,” he explains.
Meanwhile, the time recently came when Powell decided to replace the existing drilling rig. A main reason was the number of operating hours on the rig. There still were many hours remaining on the rig before considering it unreliable, but Powell typically does not wait until that time arrives. “I prefer to replace a drilling rig long before it should be retired – for two reasons. First, when there is just one rig available to operate, it is important it is reliable and works every day. If and when the rig goes down, all drilling activities halt because there is not a backup rig to replace it on the job. We lose time and income, which are not retrievable. The other reason is, with plenty of life still left, the drilling rig is resalable as a better-priced operable machine, and not as scrap,” he says.
Powell had the option of trading in or trading up the drilling rig. He decided to trade up. At the beginning of the year, he bought a new model Schramm Rotadrill T455i rotary tophead drilling rig that replaces the company’s reliable but aging Schramm T660WS rotary tophead rig. The T660WS rig has been in use by the company for seven years, so it still has useable life in it. “I could have traded the old rig in on a Schramm T555, but there are numerous advantages to having the upgraded T455i rig,” reasons Powell.
The new i-Control center eliminates all the hydraulic-actuated levers that traditionally have enabled the operator to control the drilling process. With the i-Control center, the learning-curve time is short even for a novice operator, because most of the controlling of the drilling process is accomplished by actuating only two joysticks. Powell has an outstanding drilling operator, but in the not-too-distant future, he might need a second drilling rig, and training a new operator to be competent will be easier on his new rig. Concisely, the T455i is enabling Powell to increase drilling profitability, yet maintain the same quality of workmanship. When necessary, Powell can become more competitive than his competitors, yet hold the profit margins. This would not have been possible by swapping drilling-rigs with virtually the same technology.
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Meanwhile, the time recently came when Powell decided to replace the existing drilling rig. A main reason was the number of operating hours on the rig. There still were many hours remaining on the rig before considering it unreliable, but Powell typically does not wait until that time arrives. “I prefer to replace a drilling rig long before it should be retired – for two reasons. First, when there is just one rig available to operate, it is important it is reliable and works every day. If and when the rig goes down, all drilling activities halt because there is not a backup rig to replace it on the job. We lose time and income, which are not retrievable. The other reason is, with plenty of life still left, the drilling rig is resalable as a better-priced operable machine, and not as scrap,” he says.
Powell had the option of trading in or trading up the drilling rig. He decided to trade up. At the beginning of the year, he bought a new model Schramm Rotadrill T455i rotary tophead drilling rig that replaces the company’s reliable but aging Schramm T660WS rotary tophead rig. The T660WS rig has been in use by the company for seven years, so it still has useable life in it. “I could have traded the old rig in on a Schramm T555, but there are numerous advantages to having the upgraded T455i rig,” reasons Powell.
The new i-Control center eliminates all the hydraulic-actuated levers that traditionally have enabled the operator to control the drilling process. With the i-Control center, the learning-curve time is short even for a novice operator, because most of the controlling of the drilling process is accomplished by actuating only two joysticks. Powell has an outstanding drilling operator, but in the not-too-distant future, he might need a second drilling rig, and training a new operator to be competent will be easier on his new rig. Concisely, the T455i is enabling Powell to increase drilling profitability, yet maintain the same quality of workmanship. When necessary, Powell can become more competitive than his competitors, yet hold the profit margins. This would not have been possible by swapping drilling-rigs with virtually the same technology.
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