The skills shortage in the drilling industry has been caused by a rise in drill rig utilisation levels of about 45 per cent over the last two years.

The low point for rig utilisation was in late 2015 when it was around the 35 per cent level, having been on a steady decline since the end of the boom in 2012. The number of rigs working in the mining exploration sector, both greenfield and brownfield, is around 700 and, as a rule of thumb, each rig needs 10 workers to cover a 24-hour shift operation and a rotational roster of two weeks on and one week off.

Many skilled drillers and o siders were forced to exit the industry in the downturn, with many not interested in returning as they now have different personal circumstances. Also the salary levels are still not what they were previously, so this is not an incentive.

The sector is responding in the only way it can, which is to train and promote less experienced workers into more senior positions. This comes at quite a high cost to drilling companies, and there is also quite a high turnover of new recruits in the first 12 months of employment. Younger people come into the industry attracted by the salary and the prospect of working a roster system which will give them some time off. Many do find that they struggle with this lifestyle and the fact that they have to work long, continuous shifts in quite demanding environmental conditions.

The Australian Drilling Industry Association (ADIA) takes training very seriously and is actively involved in ensuring training qualifications are effective and provide the sector with a set of outcomes that are competency based. This is an ongoing task, and we also work closely with several Registered Training Organisation’s (RTOs) that deliver the training.

The 457 visa scheme was also widely used in previous times by drilling companies needing to fulfil short-term employment needs. Unfortunately, the Federal Government removed drillers from the eligibility list about 18 months ago. ADIA has been working hard to get this decision overturned, but so far to little avail. The classification of a driller by the Federal Government is very wide and covers a multitude of occupations, including mineral exploration, blast-hole, shot  firer, construction, waterwell and oil and gas. All of these divisions have skills shortages – it is not just limited to mining sector – which exasperates the situation.

The technology drawcard

Technological advancements have continued over the last five years, with a lot of this directed into in-hole tools to increase productivity and get more drilling done for the same financial outlay. There have been some fairly rapid innovations in the in-hole surveying techniques which provide more data and in quicker time. Recording and transmitting of data from the drill site to where it needs to go for decision making has also seen rapid advancements.

Technology on the rig itself over recent years has been more around safety and automation. More automation definitely improves the safety situation for the drill crew by limiting the amount of manual intervention needed to perform repetitive tasks. Fully remote-controlled rigs are for the time being limited to the drill and blast sector because the nature of this sort of drilling is more suitable for it. Other rigs, such as those in the exploration sector, are still going to need to be manned by a capable drill crew for several years to come.

Drill rigs are also expensive, often running into a cost of several million dollars by the time a package is assembled, and the industry environment is not yet conducive to large numbers of rig sales. Contractors need to see a return to higher rates for their work and more certainty in contracts before this happens. Once rig utilisation tracks another 10-15 per cent higher, we will likely see more new rigs enter the market, providing of course that we can get the skilled people to operate them.

Contract rates are still down by an average of about 20 per cent from where they have been in recent times. In this time many other costs have risen, which drilling contractors have had to absorb. This is why labour rates have not yet risen, which is in turn why skilled people are reluctant to return to drilling. Several mining companies also continue to punish drilling contractors with extended payment terms of 60 and 90 days. This may serve to make their own financial reporting look good, but it strains the ability of a contractor to fund cashflow through their own organisation. It was pleasing to see that two of the majors in the Queensland coal sector have recently announced they are reverting to 30-day payment terms for all locally based contractors. We would hope that companies elsewhere will adopt this pragmatic approach, which also helps to improve goodwill within the industry.

2018 and beyond

The recent ABS statistics on exploration spend and metres drilled were released in December and confirmed a year-on-year increase of 25 per cent, which aligns directly with what we determined in our most recent member survey. There has been a little flattening off in some areas, which is likely a result of the ‘trade war’ currently between the US and China and an accompanying fall in some commodity prices. We will need to see how that plays out into 2019, as it will have an affect on how the drilling industry fares and whether or not it is ready to invest further in new equipment and technology.

There would not be too many other industries out there that can record an annual increase in activity as large as 25 per cent, and this is what puts so much strain on the drilling industry as it attempts to cope. The drilling companies that have been around for a while are a fairly resourceful lot and somehow find ways to make it happen. These are reputable companies that run safe operations, remunerate fairly and have well-maintained equipment, which is what makes them attractive to new employees. They also do a good job of retaining their key workers through the ups and downs of the cycle.

When the drilling industry hits reverse gear, the magnitude of the fall can be even more rapid than when it is on the upside, but the outlook for the moment is that things are likely to continue an upward trend for the next 12 months at least. With many drilling contractors only getting back on their feet in the last 24 months, we hope this is the outcome, and if utilisation notches further upwards, we are likely to see contract rates move higher as drillers get more selective on where they commit their equipment to.

Image: An Austral Drilling Services Rig.