Energy Excellence Award champion Citadel Drilling’s reluctant transition from Canada to the Permian Basin is a sign of the times

The Daily Oil Bulletin’s first annual Energy Excellence Awards were held in Calgary on Thursday, May 2.

Awards were handed out in 12 categories under the banners of: Operational and Project Excellence, Innovation and Researching Excellence, and Exporting Excellence.

Today we are profiling the Exporting Excellence champion in the category Exporting Excellence: Oilfield Services and Manufacturing.

Click here to read about all of the champions and finalists.

Energy Excellence Award champion Citadel Drilling’s reluctant transition from Canada to the Permian Basin is a sign of the times

Citadel Drilling Ltd. initially built its “super-spec” rigs for the western Canadian market but, by the end of this year, 90 per cent of company revenues are expected to come from the U.S.

“We enjoyed working in Canada, but it’s been a tough run here. It started off as a necessary requirement to export our services to the U.S. [The U.S.] ended up as a really nice place for us to operate,” says. Dan Hoffarth, Citadel’s chief executive officer.

Citadel’s transition to the Texas Permian basin was quick and seemingly painless. In 2017, it made the decision. In 2018, it pulled 40 per cent of its revenue from the States. Currently, five of Citadel’s six-rig fleet are already in the Texas Permian basin.

What expedited the shift to the U.S. was Citadel’s work for Apache Canada Ltd. before Apache sold its Canadian assets to Paramount Resources Ltd. That track record got Citadel into the Permian, working for Apache which, today, is its biggest customer.

Apart from that, however, Citadel’s success south of the border involved a lot of sales grunt work.

“Five hundred cold calls narrowed down to 10 call-backs. Then 500 more cold calls,” Hoffarth recalls. “We got really good at being able to discuss who we are openly and quickly, and what differentiates our company from the companies they were using.”

Export success is always easier if you have something to offer that differentiates your company. In Citadel’s case, it’s a combination of powerful, technically-advanced rigs run by disciplined and efficient crews.

Founded in 2013, Hoffarth and his team understood how the horizontal drilling market was evolving and assessed the gaps. The company’s “super-spec” rigs were designed to fill the high-performance rig niche.

Here’s what a $25 million Citadel super-spec rig gets you: 7500 psi circulating system, extremely large capacity high-pressure and high-volume pumps, top drive, significant racking capacity to keep all of the pipe on the derrick, a moving system for logistical efficiency, a high-spec mud circulating system with an updated and robust ability to handle different circulating fluids (invert base, saltwater base, freshwater base).

“And it has be AC so that it is fully controllable, highly programmable, and allows that program to be adapted and updated to the operators’ needs,” Hoffarth says.

The competition has rigs like this too, but they also have big-company momentum, an established production line and potential commitments to specific types of equipment. Citadel is focussed, agile and has some very well-defined ideas about how to achieve competitive advantage in today’s drilling market.

“We developed a lot of our own technology in-house. The technology we didn’t develop, we were able to identify as top-of-market already. Why spend time reinventing the wheel?” Hoffarth says.

Environmental concerns may be taking a back seat to full-on oil and gas development in the United States under the Trump administration, but outstanding environmental stewardship is a key ingredient to Citadel‘s success.

Citadel rigs carry spill containment and their own vacuums to keep oil from contaminating the ground. They are powered by a 70/30 blend of natural gas and diesel to reduce carbon dioxide and particulate emissions, while cutting costs and improving safety through reduced diesel deliveries by road.

Beyond equipment, Citadel rigs are run by disciplined, reliable crews. Many of its employees are actually Canadian.

“We were able to take our Canadian employees with us. We are able to access NAFTA visas for them because of the high-spec nature of the drilling rigs and because of how unique it is to the industry,” Hoffarth explains.

Initially he wasn’t sure how a Texas patriot would take to Canadian rigs operated by Canadians, but it turned out to be an advantage in every way.

“Unemployment rates in West Texas are less than two per cent. Their view down there is that what is unemployed is unemployable. So you’d better make sure you have your labour scenario figured out,” Hoffarth says.

Canadian employees versed in Citadel company culture help maintain a record of zero turnover and zero-TRIF (Total Recordable Incident Frequency) in safety. Strategic hiring in the U.S. minimizes dilution of those employee efficiencies.

“When we hire Americans, we look to vets who have just been discharged from the military because they understand rank-and-file, which is what our rig employment structure looks like,” Hoffarth says.

“These guys are generally fairly technical, they’re disciplined, so you get a 24-year-old with a wife and kid who sees this as a great opportunity.”

As for Citadel’s future growth plans, Hoffarth recognizes that, right now, the Permian is the “crown jewel” of the global oilpatch.

“Every other basin in North America pales to the Permian’s output. For our style of rigs, the basin could cut half its rigs and we would still be 100 per cent utilized,” he says. “So as a company, we’re now in the process of deciding what ‘next’ looks like for us.”

Click here to read about all of the champions and finalists.

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