Drilling Pros Outperform Under Tough Conditions,Wed, 10/21/2015 - 16:07
Q: Despite a drop in exploration expenditure, Globexplore Drilling had up to 95% of its rigs in action in 2014, against a 35% market average. How was this achieved?
A: We feel very fortunate to have ranged from having 65% of our fleet on contract, at our lowest point, up to 95% during 2014. We spent most of the year at 80% or better. Our 2014 rig on contract percentages are even more positive when we account for the fact that, due to client demand, we purchased two new deep hole core rigs capable of reaching 2,500m depths. We have over 250,000m on contracts for 2015 so we look forward to another strong year. Delivering value and results to our clients has always been our top priority and this year’s increased market share is a nice reward for that.
Q: What steps did the company take when faced with these adverse market conditions?
A: We reacted quickly and early as the market began to weaken by reviewing all our systems, procedures and overheads. We found many areas that we could improve on by becoming leaner and more efficient. We raised our productivity while cutting our costs. We passed these savings onto our clients and remained profitable yet competitive. There is always a contractor that is willing to take the risk of being the lowest price but we find that most often, unrealistic prices are unsustainable and end up hurting both the contractor and the client. All contractors share common costs for genuine quality and safety. If the client wants results provided to them on time with a priority on safety and accuracy, then prices can only go so low. Often, the contractor with the lowest price has higher accident rates and decreased sample accuracy and production.
Q: Prior to the downturn, some companies had been careless about their capital expenditure. How have drilling companies compared in terms of capital discipline?
A: We cannot speak for other drilling contractors but we certainly found some fat to trim. We have always operated under the default of providing the company with the highest quality equipment available and our salary packages tend to be above the industry average. We will not sacrifice quality in those important areas. However, we did cut back on marketing and made many small tweaks in our operations that added up to substantial savings. These were largely passed onto our clients in the way of more competitive prices. Nevertheless, due to client demand, our capital expenditures actually went up in 2014 by over US$1.5 million by purchasing the two new rigs and tooling required to hit our clients’ deeper targets. We also modernized our support truck fleet. Since driving is still one of the most dangerous activities around, we want our team to have the increased safety of newer trucks. In addition, we upgraded the majority of our rigs with new components that make them safer to operate.
Q: Since many drilling companies offer diamond core and RC drilling, what is the benefit of acquiring these services from Globexplore rather than from its competitors?
A: Earning a positive reputation and solid track record is always our number one goal. We are proud to state that every client we have worked with would hire us again and recommend our services. This is the evidence to the fact that 85% of our fleet is currently on contract. There have been many challenging projects that caused us to lose money but we always completed the contract as promised to make sure the client was happy with our work and would hire us again. A drill campaign is complicated enough and we work hard to give our clients solutions, not additional problems. This may sounds simple but a common complaint is that drilling contractors act as if they are the only contractor around and expect the client to hold their hand through the process.
Another complaint is that such contractors add excessive additional costs during the campaign. We take ownership of our work and the risks associated so that the client can stay on budget. We understand that we are here to meet or exceed our clients’ expectations in every way. We consistently accomplish this with a team of experienced, professional experts supporting and operating the most modern fleet of drills in Mexico.
Q: How is Globexplore able to reach depths of up to 2,400m, and what are the most geologically challenging settings where you have worked?
A: We are currently drilling deep holes at a mine in northwestern Sonora that has a reputation for having the most difficult ground in Mexico. It is extremely fractured yet we recently completed the straightest and deepest hole of over 1,300m in HQ diameter. We could have continued but the client stopped the hole. We also had the highest production rates compared to two of the largest drilling contractors in the world drilling next to us. We have a boutique rig builder in Canada that we worked with to build what we believe to be the most modern, high-tech core rig ever built. We have an agreement of exclusivity on this design and plan to purchase additional such rigs in the near future.
Q: Which measures has Globexplore taken in order to reduce operating costs?
A: Several years ago, we designed and built a custom software platform named the Globexplore Management System (GMS). It was a very large investment of both time and money but it now helps us manage the important aspects of our business in real time, allowing us to react immediately and make better decisions. Mistakes cost money, so GMS helps reduce human error and standardizes most important processes. Mistakes cost money, so GMS controls our inventory levels to ensure the proper amount of drilling consumables and spare parts are always available. This reduces our downtime and increases our production, which cuts costs. When a contractor suffers from mechanical downtime, when a hole is deviated, or when a drill gets stuck, costs begin to soar. We lead the industry when it comes to avoiding all of these pitfalls. Finally, we are here to build lasting value with our clients by not being greedy and by keeping our profit margins competitive. It is a better business model to make less over more meters than to make more over less meters. This represents more work and more risk but it is a smarter way to increase our reach.
Q: What has the Globexplore Foundation for charitable programs achieved in 2014?
A: In 2014, we remodeled and upgraded two schools in local communities where we operate. We did our annual posada for a local orphanage among several other initiatives. In 2015, we are working on a public service campaign on highway billboards about wearing seatbelts, driving below the speed limit, not texting at the wheel, and other driving safety reminders. We are also the principal sponsor for an NGO named The Mexican Round Up, which was founded by geologist Jackie Stephens. This organization holds a major annual event in Hermosillo plus other events throughout the year that raises money for students aiming to enter the mining industry. The funds go towards scholarships, field trips, laboratory equipment, and helping students network with the industry to secure internships and future employment.
Q: Many junior and drilling companies are going out of business in Mexico and around the world. Do you expect the situation to get worse in 2015?
A: Unfortunately we feel it will get worse before it gets better. Thankfully, we were acutely aware of the industry’s cyclical nature and prepared for this downturn several years ago. We have cash reserves that can maintain our expenses, including payroll, for several years even without a single drill turning. We have not had to tap into this reserve yet and are working hard not to. Fortunately, we have won several major contracts for 2015 and will have 85% of our fleet working for the rest of the year and into 2016.
Q: What are Globexplore’s objectives for 2015, and how will it reach them?
A: We plan to continue polishing our operational efficiencies by dissecting every detail of our work in search of continuous improvement. We will purchase additional man-portable rigs with deeper hole technologies and continue our policy of replacing any rig that is older than four years. We will upgrade our camps so our people feel as comfortable as they do at home. We will run another company-wide safety audit to search for ways to increase our industry leading safety record. Finally, we will complete our new logistics center in central Mexico which is already underway. When completed, it will have an administrative office, deep inventory, mechanics shop, and other logistical support needed to back up our field operations as quickly as our modern headquarters in Hermosillo currently does for northern Mexico.