Peter Hall

 

Words by Peter Hall
CEO, Australian Industry Drilling Association

 

Where we are right now in 2019, I can report most drilling contractors have full order books for the foreseeable future, which is pretty good news. Everyone the Australian Industry Drilling Association has spoken to has seen a fairly good uptick in the level of work over the past 12 months – and it’s the first time we’ve had that for quite a number of years.

A member survey we conducted in late 2018 also confirms the increase of about 25 per cent that was in the ABS September quarter report on exploration dollar spend, providing us with a high level of confidence in the numbers.

Where it goes next, of course, nobody quite knows. But if it keeps increasing then I have no doubt the industry will be able to cope with the demand, just as we’ve seen previously through the ups and downs. They always find the means to adapt.

Addressing the employee skills gap

The current battle in the industry is getting skilled people on to the equipment – people who can operate the machinery efficiently, productively and safely. That’s been the difficult part of the past probably one to two years following the exodus of skilled workers in the downturn.

Up until about two years ago, contractors extensively used skilled drillers from overseas to meet fluctuating demands and short-term needs. But in 2017, the Federal Government removed drillers from the skilled migration program, so that’s certainly made it harder. This decision has been campaigned on for the past two years by us and other organisations, but whether or not the government will put drillers back on the program is yet to be seen.

So the only other option, if previous workers aren’t interested in returning to the industry, is training new people up. It’s physically demanding work, so they must be prepared for that, and it’s also imperative to have a clean record with drug and alcohol testing and police clearances a regular practice for safety.

Mining exploration

What most people are looking for when they move into the industry is that lifestyle balance, and the rosters now are much more flexible to cater to that. It might be four weeks on and two weeks off, or more typically two weeks on, one week off. In the short term at least, I don’t know if it can get much more family-friendly than that. Once upon a time, the job entailed three-month long stints out in the bush.

I do believe however that there’s something to be said for formal qualifications to keep attraction high. Previously, a driller learned on the job, their proficiency was recognised by industry peers and proven if they moved on to another employer. But now there’s a set of national qualifications, which are getting reviewed this year. And what we’re hearing now is employees want this more and more.

The aim is to make the qualifications as transferable as possible. Drilling is one of the first areas to get cut when budgets are tightened, leaving employees to have to go and find another job. So if we can make the qualifications recognised across industries, whether that’s construction or similar, then a career in drilling will be far more attractive if the skills workers gain can be recognised and applied in other industries too. Once upon a time drillers had the reputation of being the rough and tumble cowboys of the industry but this has since changed.

As an extension of that, if we could get a proper apprenticeship program for young people coming into the industry – say, a three- or four-year structured trade apprenticeship – that would offer even further qualification opportunities and possibly even see the skill elevated on the Federal Government’s skilled occupations list. It’s a win-win.

Rates and customer relationships a matter of priority

Another thing we’re seeing at the moment is that drilling contractors are still finding it hard to get a good return on their investment. There was a massive reduction in drilling at the end of the previous boom in 2012/13. And that really hurt the drilling sector – particularly the drilling contractors. A lot of companies went out of business. And while activity has picked up quite a bit, contract rates are still comparatively low.

There’s been a little bit of recovery, but it’s certainly not back to where it was. It seems any request for price increases are not being accepted very well. I’ve heard a lot that some exploration and mining companies don’t hold value on longer term relationships with their drilling contractor anymore. It’s all about who gives you the best price, and if you cannot give them the better price they will look for somebody else who will.

The industry is also finding that their customers are trying to push the payment terms out further as well. But a lot of businesses are smaller operations – they have to pay staff, pay their people, and pay their suppliers or they get cut off. Then they’ve got the bigger mining exploration companies wanting to pay them in 90 days, or 60 days. So that’s a bone of contention at the moment.

Somewhere down the track, if effective drilling utilisation goes higher, it will just become a supply and a demand situation. Once the mining companies can’t get enough drill rigs then they have to end up paying more, because the drilling contractors are getting more choosy too. They will go to the higher paying jobs. But at the moment it’s a bit of a midway point where the drilling contractors’ customers still have the upper hand.

Drilling in Australia is largely governed by global events, so it will be interesting to see what happens with the trade issues going on with the US and China, which is having a really big bearing on mineral prices and commodity prices.

If that resolves itself favourably for everybody, then I think we’ll see drilling run pretty positively for the next 12 months, maybe two years. But if it doesn’t go so well, a downturn could be just around the corner. There’s certainly been a bit of a levelling off in activity levels over the past three to six months but, as always, it’s a wait and see game.

It will certainly be interesting to see the ABS quarter report for December, which is due out the in the next six weeks or so.