HDD Market Forecast

Diversity Is in the Air in 2006
Sharon M. Bueno — Nov 01, 2007

When asking manufacturers and contractors how things are progressing in the HDD market over the past several years, it hasn’t been a fun topic. Sales were slow, work was scarce and spirits were low.

That mood has slowly changed over the last two years. In 2005, the consensus seemed to be that the market had stabilized and the industry was cautiously optimistic about the upward turn in work and sales seemed to be taking. Numerous manufacturers within the HDD industry pointed to several areas in which helped HDD regain its fragile footing such as a growing economy, utility relocation and the renewed emphasis by cities to upgrade their deteriorating infrastructure.

The key to the brighter outlook in 2005, however, seemed to come from the resurgence of the fiber-optic installations and the positive effect it had on the compact rig market.

When posing the question to HDD industry leaders on what kind of year they are expecting in 2006, they cannot talk enough about the strength and overall diversity that the HDD market appears to be producing — for manufacturers and contractors alike. Stronger years appear to be on the horizon for both segments of the market.
The return to fiber installations got the compact rig market off and running about two years ago, with a continuation of those positive vibes expected for the foreseeable future. Companies realized this and began introducing new compact rigs to the market — smaller and more powerful than their predecessors — to meet this growing niche.

While the fiber market generated the most talk and work in 2005, the diversity of jobs available in 2006 is what has HDD leaders excited. Work to install gas, water, sewer and underground electric cables are being awarded, ranging from the smallest diameters and lengths to the largest. An indicator of sorts for the expanding HDD market could be seen through the actions of the HDD rig manufacturers. In 2005, the industry trade shows were abuzz with new rigs — from compact to maxi size — unveiled throughout the year from nearly all the leading rig manufacturers. New tooling was introduced as well.

With the larger drilling contractors working steadily, there has been a ripple effect for some of the smaller, mom-and-pop type contractors as more subcontracting opportunities have opened up. More talk about HDD has also brought about another popular competition for directional drillers — the first Ohio HDD Rodeo is set for May 11-13 at the Cuyahoga County Fairgrounds in Berea, Ohio, sponsored by the Ohio HDD Association. An HDD committee has been established with DCA.

Trenchless Technology wanted the perspective of both the manufacturers and contractors on what they believe will unfold over the next year — the good and bad — and what that will mean for their businesses and the industry as a whole.

“As a whole, 2005 was a banner year for HDD,” says Richard Levings, senior product manager of trenchless products for Ditch Witch, a leading manufacturer of directional drilling rigs and equipment, based in Perry, Okla. “There was a lot of expansion in the market from the standpoint of people utilizing HDD to install fiber and electric. The water installations have increased and the sewer installations are becoming more commonplace. A lot of that began to take place in 2005 and is now really beginning to be accepted in 2006.”

“It was a good year [in 2005],” says Ed Savage, underground market segment manager with Vermeer Mfg., a leading drill rig and equipment manufacturer, based in Pella, Iowa. “Obviously we had a lot of fiber work last year that kept a lot of people busy but there is just a diversity of projects going on into 2006 and that’s a positive for the HDD industry. There’s a lot of water and sewer work going on, a lot of gas projects, electrical rebuilds and obviously the communications stuff is still going on, which definitely helps the stability of our market.”

“I would say that [2005] was the best year we have had in the last three to four years,” says Phil Andrus, president of Environmental Crossings, a leading HDD contractor based in Traverse City, Mich., with its operations office in Conroe, Texas. “It was nothing like it was in the late 1990s and early 2000s era but I have no complaints.”

Environmental Crossings works primarily in the United States and Canada but does maintain an office in Puerto Rico. Andrus, who had a background in the oil and gas industry before concentrating on directional drilling, started the company in 1993 and does all types of HDD applications — fiber, gas and underground electric. Environmental Crossings has six rigs in its fleet, ranging from 90,000 to 1.2 millions lbs.

“We started to see some [of the diversity in work] last year,” Andrus says. “And it looks like it’s going to continue into this year. Some of it’s regionalized so it sounds like there may be some areas that are still kind of slow for drilling.”

Savage notes that the South and Southeast United States are hot spots for HDD right now with the Northwest United States showing potential. “Even in other parts of the world, it’s looking good,” he says. “China is still a pretty good place for us with HDD, as well as Australia. [Australia’s] general economy is improving and that is definitely showing up in the HDD business down there.”

What About 2006?
“For us, things were good in 2005 and I think that it’s going to be as good a year, if not better than 2005, primarily because Verizon, in building the fiber-to-the-home, has met or exceeded the goals it set for Wall Street,” says Mike Jordan, regional vice president for the central region of Henkels & McCoy, a leading HDD contractor. Jordan is an experienced driller and has been involved in the HDD market for 20 years so he has seen his share of ups and downs in the market and understands its cyclical nature.

“Verizon is our number one customer and most of that work is fiber-to-the-home, which means directional drilling in a lot of cases,” Jordan says. “[While other areas such as water and sewer are opening up] the fiber market is still pushing everything.”

Henkels & McCoy has been in business since 1923 and has 90 offices throughout the United States. The majority of the projects that Henkels & McCoy handles involve distribution lines to install and upgrade systems. The contractor also does a great deal of work for Verizon, putting in its FTTH services, as well as gas work for Cinergy Gas and power work for a number of utilities throughout the United States that involves putting in direct buried cable or multiple conduits. Jordan estimates that the company has approximately 60 rigs nationwide, 20 of those in the central region.

“Water has been real busy for a couple of years in the high population growth rate areas,” says Andrus. “I’d say the biggest up and comer for us has been underground electric.”

He attributes the move for more underground electric and cable to the technological changes that cable manufacturers have made where they can now make cables with a new drilling and grouting designs that prevent them from overheating underground. “They couldn’t do that before. They just became too hot in a closed environment…This lends itself to HDD.”

Andrus has optimistic goals for his company in 2006, based on the upturn in the market over the last two years. “The overall outlook for us in 2006 is a 30 to 40 percent increase in business over 2005,” he says. “That’s water, gas, electric, fiber…those would be the prime sectors.”

Savage also notes how contractors are looking how to use their HDD rigs in different markets to keep their rigs busy during any slow period. One example is using rigs for culvert cleaning as Vermeer partnered with Harr Technologies to distribute this technology.

“We hear and see more and more that the contractors just want to be able to diversify their market offerings with their drills to keep the drills busy,” Savages says. “They don’t want to put all of their eggs in the fiber-optic basket or all in the electrical basket. They want to have a diverse set of markets they can go after to keep those drills out on the job.”

Jordan says that the increase in the workload for larger contractors that take jobs as the prime contractor, such as Henkels & McCoy, is a positive development for the smaller contractors that take on subcontracting work. The direct beneficiary of this type of work is the mom-and-pop type firms.

“If we have a good year, then they’ll have a good year,” Jordan says. “The philosophy of bigger contractors is to subcontract work and the mom-and-pops play a big part in that. We wouldn’t be able to do the work that we do without them and we rely on them.”

From the manufacturers’ viewpoint, what they unveiled throughout 2005 speaks volumes of what they believe would be happening in 2006. At the major industry trade shows in 2005, such as ICUEE, the HDD manufacturers unleashed several new rigs to meet the expanding HDD market. Manufacturers such as Astec Underground and Vermeer introduced multiple rigs to their lines to meet the needs of the contractor.

As 2006 begins, more technology will be announced.

“Is it a tip off [about the health of the market]? It’s definitely a sign that everyone thinks the market is improving,” says Savage, noting that in 2006 that Vermeer will be introducing a new rock tool called the RAT (Rock or Any Terrain), as well as the AutoDrill for its D36x52, an automated drilling function.

“There is a great need for HDD equipment right now,” Levings says. “The pipelines, sewer and water are driving the big end and the day-to-day utilities are driving the need for everything below that. Any time that utilization of the equipment goes up, people are going to wear things out.” Levings declined to discuss what plans Ditch Witch has for the year with regard to new equipment.

Savage says the customers Vermeer has been dealing with have either been expanding their fleets with new rigs or retiring high hour machines with new ones.

Strength of Market
When asked what the strengths of today’s market are, there is a plethora of responses. Most point to the qualified and experienced drillers who were able to stick around through the hard times as key to the future. The flip side of that is the number of quality contractors that were lost to the industry in the early 2000s and those who buy a drill and call themselves an HDD contractor. Industry leaders speak of the shortage of good, trained HDD contractors.

“You have a lot of guys who have been in business for a while and there’s a lot of history with them,” Jordan says. “They understand what they have to do and they are starting to understand the costs associated with HDD… [Conversely], everybody’s got a drill now and everybody thinks they are a driller. People go out and do a lot of damage…There are a lot of training courses out there but I don’t think a whole lot of people take advantage of them or care to. They just go and start drilling.”

Levings concurs that the contractors who stuck out the hard times have an advantage over other drillers. “People are just smarter and wiser in how to grow and expand,” he says. “I think what’s going to help things is one, people have the money to pay those who do the work and two, we’re in a situation where people know how to charge for their service. The worst thing we can get into at this point is to work so cheap that people can’t make any money.”

Andrus agrees that finding trained labor is a problem but he also cites a different challenge involving the engineering firms and HDD specifications. “Over the last few years as more engineering companies are getting involved with HDD, they are bringing with them much tighter constraints and requirements on the HDD specifications, which are making our job a bit more challenging and it’s making [getting] permits more difficult.”

Andrus also noted that there is an increasing push for design-build contracts than before. “What we’re doing in Puerto Rico is all design-build,” he says. “Every drill is design-build and it puts more onus on the drilling contractor.”

Sharon M. Bueno is managing editor of Trenchless Technology.

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