Drilling in Africa with Energold: Trends, hot-spots and forecasts

Alec Hogg spoke with Richard Thomas at the Mining Indaba in Cape Town. Thomas is the Vice President for Operations of Energold, a company that focuses on drilling in the African Continent. 

Energold actually operates in 25 countries.

Yes, it’s an interesting story.  The Energold Group started about 15 years ago.  It started with the current CO, Fred Davidson.  He had a mine in Mexico and he had a drilling contractor on, who he wasn’t too happy with, and he decided he could do it better himself and put a couple of drilling rigs on to his own property, and that’s how the Energold drilling contracting story started really.

In Mexico, was it gold?

It was a silver mine.  I believe they still have shares in the mine now but that was how the drilling contracting story started there.  He focused on the mine portability aspect of drilling, so low impact, environmentally sensitive type of operations, so he grew the operation from that time, 15 years ago, up until 2009.  He had 42 of these portable style-drilling rigs.  Predominantly in South America but he also had interest in moving elsewhere, into different parts of the globe and Africa was one of his targets.  That is where I came on board, we were a private company and we got acquired in 2010, and we added about ten rigs to the Energold pot of rigs, but it was the management he really wanted.  We could develop into Africa, West Africa predominantly at the time.

What was your peak?  How many rigs did you have at the absolute top of the cycle? 

The group has 150 exploration style drilling rigs.  It also has a 100 drilling rigs on the energy side, which is mainly, sized style rigs.  We always think that we’re never going to have a 100 percent utilisation with one thing or another, so there’s always going to be rigs moving, mobilising and demobilising.  We probably, at the high, would like to think we’re operating at about 65 to 70 percent of our rigs.  Obviously, through the good times that was a nice amount of rigs to have working.  Obviously, it’s been lean but the diversification strategy that they came up with in 2009, to move into less focus on mineral exploration, into energy and into manufacturing as well.  That’s helped us through this latest downturn in the cycle.

Oil and gas is, of course, the big story of 2014, with the collapse in the oil price.  Are you still finding that demand for the rigs in Africa continuing or has that dropped off in the same way as it has in the U.S.? 

The energy operation is predominantly in North America.  In Africa, we are mainly focused on exploration and some water and geo-technical, but on the operations for energy, they have not had an effect from the drop in the oil price.  The contracts are quite long-lead time, so they might be three to five year contracts, so there’s not been a short-term effect of the recent drop.

Is it shale as well as oil?

We are mainly doing all sands.  It’s all the sands exploration and they’re doing geothermal drilling in North America.

I presume there’s no demand for new rigs nowadays, in a way that there might have been a few years ago.

No, we’ve got a nice fleet of rigs to keep us going for the moment.  We’ve got a manufacturing company in the U.K., who has produced some rigs, specialist rigs for the energy operation, which is called Bertram, so they produce some hardy, highly manoeuvrable mixed sized style rigs.  We’re looking to, within the group; we’ve got a good skill set to move across different aspects of the group and different parts of it.

Where’s the demand for your rigs on the African Continent?

Predominantly we’re finding it is still in West Africa.  It is still obviously, being competitive times but we’re very flexible.  We like to tailor operations to the client.  The portable rigs give us a foot into other places, where big rigs can’t go, so we’re the biggest global operator of demand portable.  If there’s a difficult project for example, up in the borders between Liberia and Cote d’Ivoire, or somewhere like that, then we’ll go up there and we can get in there with our rigs.  We don’t make a big mess, quite cheaply, so we’re finding that that element of the operation has been a big selling point.

What are you predominantly looking for?

The bulk of the exploration has still been for gold, some gold exploration, but also base metals.  There is some iron ore going on we’ve drilled for a variety of base and precious minerals, so we don’t close our eyes to any opportunities.  It depends on what the client wants, so we’ve drilled for bauxite.  I’ve drilled for diamonds.

Who are the clients now?  We’re here in the Mining Indaba where juniors are under a lot of pressure.  We hear that the exploration sector has fallen off a bus and yet your rigs are still being used.

Yes, we’re not saying they’re being used on a large scale but there is still some activity, but it is obviously, a lot less than it was at the peak.  I found that the business is a relationship, so we’ve got some clients who we’ve personally known for many years, who are still doing some exploration in Gabon and we’ve just picked a contract up in the Republic of Congo.  That latest contract in the Republic of Congo is interesting because the client actually bought a small Dando drilling rig, which we manufacture ourselves to do their targeting and then we’re following on, later on in the year, with diamond drilling to follow the initial prospecting.  We’re offering a wide-ranging service and I think that is getting us clients, where perhaps other contractors aren’t.

Are you cheaper?

We’re competitive.  I like to think we’re competitive.  Some of the pricing is quite tight, very tight indeed but I think there are other elements.  It’s not just price.  I think there are other elements, in terms of the personal relationships and the client focused operations.

What about South Africa?  There was a lot of talk here about drilling in the Karoo, to find if shale does exist.  Did you have any enquiries? 

No, we’re not doing any energy drilling in Africa at the moment.

Why?

It is something that’s not been developed yet, so at the moment we’re remaining our focus, in Africa, on mineral exploration still, but also geotechnical and water, and it is just an area that we’ve not developed our strategy really, for developing the African energy.  We’ve got a ‘crossover’ in the group for the skills, so we can receive enquiries but it’s an element, which we’ll be pushing through 2015/2016.

It sounds to me like it’s a pretty tough job as well.  That you would go where others maybe wouldn’t.  Do you drop your rigs in the middle of the jungle?  Do you have some interesting places that you’ve drilled? 

Yes, we’ve been all over the place really.  I don’t know if it’s a ‘claim to fame’ but we did the initial drilling in Liberia, in the late 1990’s, which at that time was a very challenging environment to work in, so we like to think that we won’t close our eyes to any operations.  We have to consider all the other aspects of it, in terms of safety, sending our crews into difficult places but.  We’re always looking for an opportunity and that is what our aim is, so some places that we may not be comfortable in going, but we’ll see if we can find a solution to the client’s requirements.

Liberia in the 1990s, that sounds like a warzone. 

It was a warzone.  In 1997/1997/1998/1999, it was interesting.  We were going down for small pieces of work.  They were going to be developing the first gold mine, which will produce in 2015, but we did the initial drilling and the conflict tended to be during the wet season, when there wasn’t any drilling.  They tended to get their conflict sorted out by September/October time, when the dry season came, and we went and did 2.000 metres and got out before the insurrection came again, so it was quite interesting times.

Who are the kinds of people who are drilling, who are exploring in Africa?  Just give us a little bit of an indication of the people or your clients, who would like to go into Africa, to try and find the rich deposits.

They’ve got a wide range really.  There are still junior clients out there but we’re finding it is probably intermediate clients, those who’ve perhaps got some production elsewhere.  They’re keeping their eyes open.  There’s also major clients that are still looking, although they’ve pulled in their horns back in, to focus on their core strategies, but we are seeing some of the major mining companies who are interested in Liberia and elsewhere in West Africa, when the opportunities arise.  They’re just looking for land and they’re waiting for the right moment to perhaps go out and start exploring again.

Do you think the market has bottomed?

We thought it had bottomed in 2013, but I think we missed the boat there.  We’re seeing some chutes, I think.  We’re seeing some positivity.  We are monitoring enquiry flow very carefully and that has definitely taken a boost from late 2014, so the enquiry flow is up.  I’m hoping that there will be contracts coming on the back of this, and some have already converted, but it’s a long gestation period on some of these projects, so we might find something now, which will turn in 2016.

Richard Thomas is the VP of Operations, at Energold.

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