INTERVIEW New type of storage for well-site chemicals prevents spills Seth Martin, President/CEO, Appalachian Drilling Services In the second of our weekly interview features we are talking to Seth Martin, President and CEO of Appalachian Drilling Services. One of the winners of the Ben Franklin Shale Innovation Awards for their innovative spill-proof containment solutions, Appalachian Drilling Services is a pure play oil and gas services company supplying chemicals and lubricants to the oil and gas industry. Monica Thomas (Shale Gas International): We know from the contest that you provide rig friendly waste storage units specifically built to mitigate the chances of any type of spill, but can you tell us a bit more about yourselves? Seth Martin (President/CEO, Appalachian Drilling Services): Well, Appalachian Drilling Services is a pure play oil and gas services company. Our breadth of services - we service currently Ohio, West Virginia, Pennsylvania, Kentucky, with obviously an appetite for expansion. But we are first and foremost an environmental company, we take environmental storage very seriously, that’s why we offer some of our patent-pending equipment. That’s all about mitigating opportunities for spills, and any type of reportable incidents with the DEP, but as far as our services go, we’re really a chemicals and lubricants supplier, we sell drilling chemicals, soap defoamer, inhibitors, lubricants, that type of stuff, and we also have a full breadth of lubricants as well; motor oils, hydraulic oils, and that type of thing. MT: When it comes to the shale innovation contest, you were particularly recognised for the containment solutions, if I understand correctly? SM: That’s correct. So we threw our hat in the ring this year for the event and particularly we were focused on our patent-pending spill-proof containment which is for chemicals, lubricants and waste storage and management. MT: Okay. So can I just maybe ask you a bit more about those containment solutions?
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According to your website you provide separate solutions for storing drilling chemicals and drilling lubricants and waste storage. Can you maybe tell us a little bit more – are these all different solutions for different substances? SM: Sure. The chemicals and lubricants containers are essentially the same units – they come in different configurations depending on the need of the customer; there’s 4-compartment, 2-compartment, single-compartment; fluids and / or lubricant containment, and those are all heavygage steel, double-walled, spill-proof, epoxy-lined, and they’re built specifically for the purpose of being on active drilling rigs or frack-sites. They’re very durable and heavy-grade, and 100% spill-proof and puncture-proof. As it relates to our services, we typically provide those pieces of equipment at no charge with the commitment from the customer to purchase the chemicals or lubricants from us. MT: So you basically provide the chemicals and the lubricants and then the containers are added as a part of the service. SM: Correct. We provide our equipment at no cost. The only cost incurred by the customers is the purchase of the chemicals, housed in our containment. Does that make sense? MT: So, when it comes to storage, do you also provide storage for water for hydraulic fracturing operations or for flowback and produced water, or is it just for the chemicals that are used in the process? SM: Just for the chemicals and the lubricants used in the drilling and / or fracturing process. We do have manufacturing facilities so we customise containers specifically for customers that are a little out of the norm when it comes to the scope of our services but we don’t really build anything on that scale – not that we wouldn’t – we just haven’t seen any demand for some of that stuff yet. MT: The containment solutions are obviously an innovative product. Could you tell me a little bit more about what would be the outdated solutions that your company’s products replace? SM: The standard mode of transporting and delivering chemicals and lubricants to drilling-related facilities – whether its and active drilling rig, frack-site or a pipeline company – are 275 gallon IBC totes; plastic wrapped in metal, and 55 gallon steel drums. We weren’t always in the containment business, we were in the chemicals and lubricants business,
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but we figured there had to be a better mouse-trap and some of the stuff that we got into was at the behest of our customers. Plastic totes get punctured and spill, or the tops go missing, they fill with rain water contaminating the contents and they’re repurposed on the rig-site very frequently; they cut the tops off and reuse them for solid waste. Same thing with the 55-gallon drums. They call them Envirodrums and they’re using them for waste. There’s really nothing “enviro” about them; they’re just steel drums and the same scenario repeats itself with those – they tip over, the tops go missing, they’re not spill-proof, and the operator or the driller has to dispose of those at the end of the day when they’re empty, so we skirt the whole IBC tote and drum issue with our service.
MT: So after the operation is complete, you just take the containers back? SM: Yes, so typically, we service our containment on the rig-site and our services are built around our containment so we fill up our containment, whether it’s chemicals or lubricants, with custombuilt trailers that have air-compressors and retractable hose-reels. It’s important for us when we are servicing our equipment that we are not interrupting the rig-operations to borrow any equipment or man-power; so we’re self-sufficient on the rig-site and we also pick up our equipment when they’re moving – typically what happens is that they’ll drill a hole or two or six on a pad – we’ll pick our equipment We’re the only company in the up and bring it back to our facility; Appalachian region that is permitted inspect it, top it off and clean it and by the DEP as a residual waste oil re-deliver to their new pad once they treatment transfer facility. set the rig down at a new location.
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MT: I understand that there seems to be a transition towards higher standards when it comes to environmental safety during drilling operations. In your presentation you mentioned the requirement of Chapter 78 of the Pennsylvania Code – can you, maybe, tell us a bit more about that? How does that change the containment solutions within the industry? SM: Sure. Waste is a hot-button-issue with the DEP and the citizens of the counties that have active drilling rigs – it’s always been a hot-button-issue. Regulatory change is not something that is particularly news-worthy in and of itself because regulatory change is always coming in the drilling industry. It’s note-worthy where we operate because they’re paying specific attention to how waste is transported and stored and what people are doing with their waste once it leaves the rig-site. Our equipment, our way-side solutions, speak directly to those issues. We are the only oil and gas company in the entire Appalachian region that is permitted by the DEP to transport stuff off rigs, what is called a “transport permit” – we bring our containment back to our facility and we recycle all
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the recyclables – typically spent filters, waste oil – the non-recyclables which are just what they call oily rags and diapers are squeezed for oil and go to a licenced landfill. And it’s the same with the waste oil – we’re the only company in the Appalachian region that is permitted by the DEP as a residual waste oil treatment transfer facility. So we use it for beneficial re-use. MT: But that would not include things like flowback water or produced water or NORM? SM: Correct. We’re looking at that actively because that’s a big issue – safe and legal disposal of the incredible amount of flowback water and drill-cuttings that are produced, and that’s something that is in our hopper, but today we’re pretty laser-focused on our solid waste and waste oil containment units and the services associated with that. MT: Obviously winning the Ben Franklin Shale Innovation Contest must have boosted your company’s profile, so I would like to know where you see your company going from now on. Where do you see your company going in, say, 3 to 5 years? What is the next frontier? SM: Well we’re still in start-up mode and we’re a relatively small, independently-owned company. We’ve been in business since 2011 so we’re somewhat new at this but we’re adamant that our services really do resonate with our customers and are meaningful. The reason that I got involved in the Shale Gas Innovation Contest, was because of who was sponsoring it; Shell, Chevron, XTO – which is a division of ExxonMobile – and some local companies like Consol Energy, EQT, Williams (Partners), Range Resources – some of whom we’d worked with, some we hadn’t, and it was important for me to be able to tell our story to a captive audience. So, moving forward, I expect we’ll start engaging some of those bigger E&P companies and – as I stated – we are all living in the same downturn currently but our business is growing, mostly because our containment really does provide operational efficiency, some cost-saving benefits, and we do provide meaningful services. But I see us expanding west. Typically oil and gas services companies are based out west and they are moving east, as business dictates, we’re kind of flipping that script a little bit. We started on the east coast – in the Appalachian region – and we are going to gradually chip away out west. It’s easier when you’re being invited by the customers you’re working with, that respond to your services, than just go out and start making cold sales calls.
MT: Do you think that tightening of the environmental rules will boost your company, since you offer solutions that are more environmentally safe than current solutions widelyadopted by the industry?
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SM: It’s a very difficult business to crack; it’s very competitive and the difference-maker for us has been our containment. Chemicals and lubricants is a very competitive business and there’s a million people that sell chemicals and/or lubricants so it’s tough to stand there with a straight face and tell a potential customer that we have the best chemicals they’re ever going to try, when in all likelihood some of our competitors are getting their chemicals from the same place we are. But we can sit there with a straight face and say that we do have patent-pending spill-proof containment that we provide free-ofcharge, that is very meaningful at the rig-level. And that’s been able to kick some doors open for us. As regulations continue to tighten, and there will be a day when IBC totes aren’t permitted on drilling rigs; I think some companies are starting to look at that now, although it’s not mandated. Best practices are best practices, whether they are forced on you by the DEP or state or federal agencies, it’s never a bad time to initiate best practices and we certainly believe we’ve got some services that fall into that category. MT: You mentioned that you are currently concentrating on the domestic market in terms of expansion and that your solutions are patent-pending, would that be only in the U.S. or worldwide? SM: Correct, they’re provisional patents and the whole patent process is laborious, capital-intensive, and it’s very time-consuming working with the Federal Government on that stuff. But really, it doesn’t prevent someone from making something very similar to what we’ve got, just maybe tweak it a little bit. So it’s not a really defensible position, but there’s something to be said for being the first, and we do have a provisional patent. For people who get into the business, they have to wrap their whole service around servicing those units which we have, and that in itself is a capital-intensive proposition, you have to be built for it. As far as international expansion, clearly we have an appetite for that, it’s just a matter of aligning ourselves with the right customers. In all likelihood the customers we’re working with now, who see the value and want to carry those services outside of the region we’re in. MT: So in terms of international expansion, is there a particular area that you are interested in? There’s been a little activity in Poland, in the UK not much has happened, but there is hope that in the next 3 to 5 years some exploration will take place. If you were to make an assessment in terms of where, you think, shale is going to take centre stage – apart from the U.S. – what would be your guess?
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SM: Again, to your point exactly, people know that the gas is there and fracturing can release it, it’s just a matter of getting the infrastructure in place and starting to do so. But, you know, Australia, you mentioned Poland, Argentina, the UK – it depends on these big E&P companies; the Chevrons of the world, or some of the international companies – Statoil, Shell – that have an appetite and it depends on where they decide to start exploring. I cannot give you an exact location but I can tell you we have an appetite to partake in it and I think our services are not constrained by the Continental United States and they make sense whenever people are actively drilling.
MT: So you think that it is the majors that will take the lead and be the driving force behind shale development? SM: They have to. They have the resources to do it, and a lot of these small independents don’t have the resources or the Capex to start venturing into those kind of unknown regions, but the Chevrons and the Exxons and the BPs of the world certainly do, and they bake that into their Capex every year. MT: Yes, that’s going to be interesting to see, how that develops. Obviously, they have been playing it quite safe in pulling out of places such as Ukraine or Poland, and there is probably going to be some work done by the independents, so I guess it remains to be seen. SM: I’m an interested observer and I think the future for natural gas is bright; it’s about building the infrastructure to get the gas to the high-density regions – at least in this country. Pipelines need to be built to carry that resource to the New York cities of the world and the high-density eastern seaboard and elsewhere, but that’s happening as we speak and in my estimation natural gas is going to grow exponentially, as infrastructure gets built. MT: Do you think that the LNG exports are going to make a big difference? SM: And I think that at some point the 1970 oil embargo in the United States will get lifted and that will open up a lot of doors and oil exports will certainly offset the cost of the lower oil price. The energy industry is nothing if not volatile but it’s dynamic and it’s a fascinating industry and we love being a part of it. It ebbs and flows a bit but you have to be built to withstand these ebbs and flows.
Published: 8th June, 2015
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