Maximizing The Value, Marketability Of Used Rigs

By Jeff Griffin, Senior Editor | June 2009 Vol. 64 No. 6

Along with most segments of the economy, the horizontal directional drilling (HDD) industry is seriously affected by a worldwide recession.

Some underground utility projects have been halted, others delayed or canceled. Financing for planned construction is sometimes difficult to obtain, leaving the status of necessary projects in doubt. Slumping HDD sales have forced manufacturers to reduce employee hours and trim workforces. Suppliers of drill pipe, downhole tools, drilling fluids and other HDD support equipment and services also are suffering.

The current recession is the second in less than a decade to hurt the HDD market.

In 2000, the sudden drop in demand for directional drilling services was driven by the crash of the telecommunications industry. Contractors who depended solely on the telecom market suddenly and unexpectedly found themselves without work. Many HDD specialists – including many small subcontractors – failed. Contractors who had developed other markets were in a better position to maintain and survive.

One result of the 2000-2001 recession was a glut of good, low hour directional drills at exceptionally low prices. Used machines traditionally are an important element in buying and selling construction equipment – including directional drills – but the flood of used machines suddenly available impacted sales of new models long after recovery.

The current recession is different – it is global in scope and not restricted to one or a few markets. As drill rig makers struggle waiting for the economy to rebound, one bright spot is that when work does resume and demand for new product returns, there will not be hundreds of used drill rigs available at prices so low they kill demand for new models.

Current conditions

A recent, unscientific telephone poll of equipment dealers found inventories of used drilling equipment limited, and representatives of major brokers and auction companies say availability of used equipment today in no way compares to 2000 and 2001. Dealers contacted say their used drill equipment inventory is down; a major broker finds internationally, availability is up slightly; and a large auction company finds used equipment is limited with smaller models more plentiful than large models.

"Sales are down, so we're taking fewer trade-ins and have a lower inventory of used equipment," says Chad Van Soelen, sales manager, Vermeer Midwest, Chicago. "On the flip side, demand for used drill rigs is strong, and with a limited number of good used machines, their value is much higher than eight years ago."