Magnolia R&D

Welcome to the official Erdos Miller Podcast, where we spend our nonproductive time talking about everything drilling tech and capture the latest insights from industry leaders on our show. I'm your host, Ken Miller.

And I'm your co-host David Erdos.

And today we brought an industry leader and a good friend, Mr. Stuart McLaughlin, from Magnolia R&D.

Good morning everybody.

Good morning.

Morning, Stuart.

I did say your last name correctly, right?

You nailed it. Yes, sir.

Perfect. I've never been to Scotland. I've really still got to go. Hopefully we can go together. But just wanted to make sure I'm getting it correct.

Just get your golf game up to par. We'll be good to go.

Oh, okay. Okay. See? All right, yeah. It may take a little bit of investment on my part. I'm not sure.

I hear you. I hear you.

So Stuart, tell us a little bit about your background in the industry. How did you get started? Where'd you come from?

So I'm from a small fishing town in Scotland called Arbroath, on the East coast. It's between basically Edinburgh and Dundee. Sorry, Edinburgh and Aberdeen. I started my life out as a mechanical engineer, I was actually manufacturing equipment. I remember one day manufacturing all the stuff for the rigs. And I asked my boss what it was, and he told me it was slickline tools. I had no clue. So not long after that, there was a job I applied for that I saw for slickline operative on the rigs. So I'm like, "Oh, I build the tools. I mean, I machine them. I may as well go find out what they're all about." So I applied for a job with a company called Expro North Sea. They did slicklining and well testing. And I got the job, was shocked. So that started my career in the oil and gas industry. That was back 32 years ago, thereabouts.

And so I went from slickline, running tools, to learning about [inaudible 00:01:45] and stuff like that. So I ended up with a company called Petroleum Engineering Services back in about 1990, I think it was. And I started on completion systems, and then got into Petroleum Engineering Services, we changed our name to Well Dynamics, which is now widely known across the planet as [inaudible 00:02:08]. I was a part of the team that helped develop and deploy and then eventually business development for selling the systems across South America, North America, UK. And then ultimately the company was acquired by the Big Red, Halliburton. By that time I was asked to transfer to the US to the Houston office, because I was traveling overseas all the time from Scotland. I was never home. So 25 years ago, I traveled to the US and moved my family here. And here we stay. I was going to give it five years and I'm 25 years in. Yeah, here I am. The weather and the people keep me in Texas. I love it here.

Okay. Well, that's good to hear. I can't say that too many people say that about Texas weather, but it's home for me and I certainly appreciate it.

Yeah. Four months of the year's pretty bad in the summertime, but then we've got eight months of just gorgeous weather.

Yeah. I mean, I guess some proximity to the equator helps a little bit, right?

Yeah, definitely.

What really makes you passionate about our industry? What really appeals to you?

I mean, I've had such vast experience. I've been so fortunate. I worked 10 years in the North Sea, I've worked in the Colombian jungles, the Brazilian rainforest. I've worked in the Arctic, the deserts of the Middle East, and I've been exposed to so much. It just, our industry is amazing that the technology that's out there, folks don't comprehend how to get our stuff into their car's gas tank. So it drives me. So I see things when I'm on rigs or I'm off-shore, deep water, above some sea, I see things I'm like, "why are we doing it that way'? And I come to find out that because we always have.

And so there're innovators out there, of course, but it just starts, I start to see problems, I think like, why didn't somebody fix that? So what drives me is, nowadays of course the digital age, I'll be out in a job and I'll see somebody making up tools by hand and I'm like, can't we do it digitally? Or, can't we stick a sensor on there to make smarter or a hydraulic actuator to make it so you don't have to use hand tools? Just all that sort of innovation in them and new technology and measuring different things together, the electronics, digital hydraulics, smart mechanics, is what I love to do.

Yeah. And that's, that's fantastic. Challenging the status quo is a lot of what drives us as well. And I mean, I do think you'd be pretty hard pressed to find another industry where you'd have the chance to go to all these just really edge of the world places. Right?

No, not unless you're a soldier.

Yeah. I mean it's like soldier, or oil and gas, right?

Right, right. And I feel all of us in the industry we are soldiers. I mean, we battle throughout the years to build our companies up and our bank accounts and then boom, along comes someone drops a big bomb on us and it takes away the oil price so we have to suffer for a few years. So these ups and downs of the oil industry, you've got to be a real soldier to make your way through it. I've done it for 32 years. I have seen several rough downturns and they are painful for everyone.

Yeah. No, I mean, not sure I've met anybody who enjoys them just yet. I know people get into a buying mode or an aggressive mode during the downturns, but I mean, fun or enjoying it? Not so much. Right?

Yeah, we don't enjoy it. One of the things we really do excel at, is in the downturn, people always focus right on technology. A downturn comes along and actually gives you time, although the money's tight, to sit back and go, "what should we do differently? What do we need to build so the when uptick comes back we've got an edge"? Which is why we've got... On our website we've got half a dozen products but in our portfolio we've probably got 15 to 20 different products that we've developed over the years we just haven't marketed. And a lot of those come from the downturns, trying to think outside the box and become more innovative.

I totally agree. I think downturns are one of the most interesting times to work on something new because you have a moment to breathe. You talk about that with anybody in the industry and they'll say, "Oh yeah, you should totally keep on engineering during the downturn". Never stop, right? It's really difficult to find groups that live that and not actually just talk it, right?

Right.

And especially because a lot of people get this kind of feeling like, "Oh, you're just trying to justify an unnecessary job during the downturn or whatever". And that's really not true. I've lived at myself where like we were really kept fighting through the downturn and were just perfectly timed with the next upturn. So it's really important to keep that going however you can through these tough times.

Definitely, definitely.

So how does this downturn compare to the other ones you've experienced?

That's a really good question. Being self-employed I, oddly enough, I don't have to worry about as much as being employed by a big company, right? Like one of the major service companies or operators. So I remember when we were clients, and Halliburton had us, and the downturn came, I had to worry about my job every time I went in, right? And they would call a town hall meeting, and you knew folks were getting laid off in your heart stopped like everyone else, and you're worried about yourself. But being an entrepreneur, having your own company, you're prepared for the downturn because you know it's coming. I mean, that's what age does for you. I'm getting old now. I'm 54. So I know there's one coming so I planned for it.

Another thing is, I find that our technology, because we are cutting edge, and we do think outside the box, that first... I'd call us a boutique company. Plus, they don't always want to use this throughout the year on jobs even though we save them a bit of time and money. When the downturns come, they rely on us to help them save the money. So if you're in this particular downturn, as bad as it is, probably the worst I've ever seen. Worse than '86, in my opinion. I think it was '86. It's been good for us. We were quiet for about two months, but then we picked up again. So me and Jamie were quiet, but we're off and running again. We've got work to do like [inaudible 00:08:02] like Texas, West Texas, New Mexico, and Canada. Oh, and Wyoming. So we're just nonstop. So having to cut [inaudible 00:08:11] to go self-employed, as difficult as it is, but I think by myself for after 15 years, and you just have your own control of your destiny when the downturns hit. Of course, you've got great control of your destiny when an uptick happens again.

That's really interesting. Yeah, I've definitely noticed that downturn really forces people to be a lot more efficient and those that survive are usually a lot stronger for it on that outcome.

No doubt. No doubt.

Stuart, is there any moment in your career, or just really specific experiences that you can look back and connect the dots and say, okay, this just really had a profound impact on me?

Aye, aye, aye. Yeah, there's a couple actually. So let me start with how I ended up being self-employed because this had a profound effect on me. I was working for a major service company and I secured a huge deal, tens of millions of dollars for the sale of a system. When I got the deal, I was given this bonus, you can imagine, for the biggest sale ever, right? That was profound a lot in itself. I thought "wait a minute". I had this epiphany. "If I'm a sales guy and I could sell this well for this big service company, why I can't sell it for myself"?

And that's what forced me to move on and leave a comfortable, great, solid, great benefits, nice expense account, traveling the world for them on their dime, to going solo and founding my own companies, was the fact that they'd give me a crappy bonus, and I thought if I can do it for them, I can do it for myself. I maybe can't make a $50 million sale, but if I can make a $2 million sale with my own company, I've hit the jackpot. And so the way I was treated in the organization is what forced me out. I mean, they never forced me to leave or asked me to leave, but it forced me to change my direction in my life. And, for the last maybe 17 years now, actually I forged my own destiny.

That's fantastic. I had a similar moment in my career where I was, I used to work for Texas Instruments and I was hesitant to leave. And the entrepreneur that was trying to recruit me to his organization said, "okay, why don't you want to leave?" And I said, "oh, I've got job security at T.I. I've got a nice salary, and benefits, and some future and all this kind of stuff". And he's like, "well, what's job security?", and I go, "well, you know, like job security, man, right?" And he's like, "Ken, that's all bullshit. The only job security you make is what you make for yourself in this life, right"?

Right.

And I really took that to heart and I left the big company and joined a little startup, and so that was pretty profound on my career. It sounds like you had a really similar experience.

You know what's interesting, in the big companies is when... I see it every time... I worked at Halliburton Alice facility off the Beltway 8 there for a couple of years and when the downturns came and they were starting to lay people off, all their heads were down and their butts were up. They were working but they didn't want to be seen. And when there was no threat of layoffs, everyone was back to normal day-to-day routine. So what I was noticing was 80% of the people were there for the job and maybe 20% were there because they love the job. You know?

Yeah.

So the threat of unemployment spurs people on, but that's not the way it should be. They should be spurred on all the time, day-to-day. But I think us entrepreneurs are spurred on because the threat is if we don't make money for our company, we don't make money for our family. And a big company, not making money for the organization, I'm not doing well, well somebody else will help float you along. You know?

Well, I think at a big company, it's just really easy to be removed from the effects, right? Because like nothing's changed, the scales just bigger, right?

Right.

So if an employee doesn't do that great of a job for a big company, maybe it doesn't feel the effects so much. But if that goes on for a really long time, and leadership of those companies, don't set their employees up to really focus on the future and provide good returns, and even that big company can kind of fall apart, right?

Right, definitely.

So talk to us about coil tubing, completions in coil tubing. This is where you guys are focusing right now. Tell us a bit about basics of that part of the industry and how all that works. That'd be great. Just give us some education there.

All right. So I start my first company called Assay Technology about 17 years ago, and I had a slickline tool. And it was an impact sensor. So when you beat on the jars, it would have caught that force. And one day, a good buddy of mine, my ex-supervisor, actually at Halliburton, said "Stuart, you need to stick a hole through that tool and put it on coil." And I'm like, "uh, what's coil?" He's like, "really?" He's like, "coil tubing. You know, make your sensor have flow-through, so you can flow through it." He says, "because you'll make more money on it." So I investigate it and slickline's a cheap man's business, no doubt. No one pays big dollars for slickline. They'd pay big money back then for coil. So I made my first coil tubing tool. I still didn't know what coil was really, had to read up on it.

And my company just exploded at that point, just because a good buddy of mine told me that put a hole in the tool. So I got to coil tubing... For your listeners, coil tubing is basically a piece of endless pipe, meaning there's no joints on it, so the pipe runs about 25,000 feet long, 25- to 30,000 feet of pipe. And it varies in size from 1 inch up to, say, 2 7/8". Typical sizes today are 2 3/8" and 2 5/8" coil pipe. Obviously, it's got a hole through it, and this is wound up on this huge reel, like a garden hose almost, except it's steel. And we use that pipe. On the end of the pipe, there should be attached tools to go in the hole, in the laterals, because obviously you can't push wide along a horizontal. So we use the coil, we pump fluids, and we can [inaudible 00:13:44] mud motors and whole tunnel bits, and we can drill out wells, drill out concept bridge plugs, after-the-fact wells, we can do stimulation, with this pipe and all sorts of other remedial interventions.

So one of the things that we lacked, other than the big boys, like the [inaudible 00:14:01] and the Bakers had at the time, they had real-time coil tubing, which is extremely expensive and cumbersome, but there's really no memory tools on coil. So Magnolia embarked on bringing in memory technology to the culture of an industry. And what we do today is we've got a very high tech eight sensor package that runs about 30 inches long, and we attached that to the rest of the mud motor and the bit, because it goes in amongst that BHA and when they're drilling out the wells or whatever operation they're doing, we're recording things like weight and tension, side load and talk, pressure, temperature, G-Forces, etc. We get that data post analysis. So when they come out of the hole, we're done with the data. We provide the client with an analysis of how the BHA performed. To get the probe then down hole, or something broke, we can provide the analysis as to what was going on. It's kind of like the crux of our company. It's our core product.

So is coil tubing exclusively used for completions?

Pretty much. It's core application is obviously through-tubing, drill-outs, and treatments of your formation.

So this is something that you'd use after the drilling process. Drill the open hole, the holes cased, when they're getting ready to frack. You're going through plugs or you're working out in existing well, trying to modify it. These kinds of applications. Right?

Correct.

Are there any other kind of applications for coil tubing?

I mean, you could use coil tubing for all sorts of stuff. Well, after a memory base, but you can have a wire run through the coil.

Mm-hmm (affirmative)

It sounds bizarre. You can run a... If your coil's 25,000 feet long, they pump a wire through it. It's an electrical wire. And we attach that to the tools. And rather than having my memory tools getting data to surface post job, you can get live data up through the coil, through that wire to surface, and that [inaudible 00:15:47] say while you're drilling out, milling out your wells and your plugs, you can see your data real-time. So as you slack off at surface actually a way to push down into your pipe to affect the drill bit that weight transfer as you slack off [inaudible 00:16:01], real-time downhole with peak output is maybe seeing 2000 pounds weight on bit because obviously there're losses between set down weight and their natural weight-to-bit and how that weight gets there because of friction between your coil pipe OD and your case in pipe ID, and the logical extension through the heel and dog legs causes losses. So the real side effects of that can be seen by having the wire in coil.

And the other things they do is things like fluid stimulation, aft stimulation on a zone by zone basis on a lateral section. So you can go up 60 zones and they can go in there and pinpoint stimulate specific zones rather than just blossom the entire lateral. They can do that with a coil tubing and pinpoint accurate depth stimulation.

So when you say stimulate, what do you mean?

So you've got maybe some you've got scaling on your center face. You've lost production in a certain area of the lateral and you want to go back in there and you'll go down with the coil tubing and you will pump acid in the effect zones. And to treat the... To break down the scaling of that area affects the rock scene until our productions come back in. Or, you may go down with what's called a jetting nozzle and a has very small ports on it. And you pump three, four, five bottles a minute out of these small ports. It's like a pressure wash effect that you use. Like pressure wash your driveway. And there's a high, high velocity jet comes out the side of this tool and it will create perforating tunnels for you in the rock rather than running down with peppering guns. So coil tubing can be used for that to give you a safe way to re-perforate, re-stimulate the well to open up.

So it's like a water jet that actually cuts through the casing?

They have those actually.

Wow.

Your listeners should YouTube that. They can actually cut through steel casing in a well using the high pressure water. They typically were cutting through, pressuring through the existing paths and treating that that way. Yeah. You can create new holes in the actual casing itself and perforate through it.

Wow, that's incredible.

So how is the data that these downhole tools log, or transmit in real-time, used? Is it used for drilling optimization or for production? Fill us in.

So the last batches of wells that we've performed in are, I remember, were going to... The latest ones are 42,000 feet. So it's 12,000 feet vertical depth with a 30,000 foot lateral. And they're going to go in there and attempt to get the coil all the way to TD. Total depth to tool. What they want to know is as they're doing that on the first well, they want to know how much weight transfer they're going to get, how the extended reach tools, so there's basically tools able to break friction between pipe, coil pipe and the casing, the casing pipe wall. So these anti-friction tools are shaking the pipe all the time so we can push the pipe along the horizontal section. So they use our technology, and there's a lot of companies that have similar tools to us. Not as good.

So they're the ones who understand first the weight transfer from surface to the bed and are we making ROP or are we making [inaudible 00:19:17] along the lasso quick enough? And if not, then how much losses are we getting between surface slack off weight and downhole? So if we're slacking off 10, 15, 20 thousand to the surface, and we're only getting a thousand pounds at the bit, we've got a problem and we need to come out of the hole and reconfigure our operations. So they may pump different gel sweeps, friction reducers, beads. You can pump beads down there to reduce friction on the pipe. So it's used to post analysis of different problems. The other thing we've done several times is sadly, fishing jobs. I say sadly because we're along for the ride. We cannot know what's going on and then a thread breaks in BHA.

What we can see is the initial fatigue of the thread, because we'll see on the charts where the thread's tight. And then maybe as we drill to eight, nine, 10 more plots where the thread actually yielded and failed. So we use that analysis to figure out what was going on on assignments with side loading. Because we've got a side load sensor for vibration because the G-Forces downhole with it but then extended would show phenomenally high. We record in excess of a hundred Gs, which is unacceptable, and that causes damage to equipment.

So the data's used to: a. Figure out what went wrong or the BHA comes apart, or something, and the BHA actually fails that we don't lose the BHA. And then it's also used to understand your weight transfer, taut with mortar, stuff like that. And if we see issue, then we can change the motors out, change our fluid program, add different frictions, or just the bit. Maybe the bit's just not working, then we change the bit out. But besides the dates, you're not going to know what to do, right? You go, well, we never made it to bottom. Let's try it again. Well, that kind of thing is expensive.

Okay. Yeah. That makes sense.

So final question, Stuart, what we talked a lot about coil tubing, your background, being an entrepreneur, or getting out there. What kind of advice would you have for people that are either trying to make it through a very rough time right now or even looking to get started as an entrepreneur in this time?

That's nice. So I've got a big LinkedIn following. Excuse me. And I put it out there before, being an entrepreneur, you deal with the highs and the lows. And I've been through some extremely tough times. I say to my family and friends, the highest of the high, is when you develop the technology, go out there and you run it, it's successful, and they pay you for it. That's the high, being an entrepreneur, the success of that. But no one understands the deepest darkest hole that comes along when you can't pay your bills, you can't pay your providers who build your equipment for you, and there's no money left in the bank to pay your mortgage. That's the darkest space that you'll be, and you're in it all alone.

So on the one hand is, we're not going to say everyone should be, should do what we do, but it isn't easy. But on my LinkedIn blogs, I say a lot, "do it." There's work out there to be had. And a lot of guys call me up from my LinkedIn blogs and say, "Stuart, how do I get started? How do I find money? Should I do it? Or, I've got an idea, should I take it to my company"? But if you've got an idea for a technology, follow it. It's not hard to start a company. It's cheap to get an LLC, of course. And the struggle for anyone who wants to start a company is having the money in the bank to keep your household going for the best part of a year or two.

If you've got the money to keep your household going for a year or two, because you won't be making money, then I would go for it. And in the downturn, if you're sitting at home, pick a pad and a pen and write down your ideas and start thinking about it so that when the upturn comes back, you've maybe got a technology that you're ready to go out there and develop with an investor.

Oh, that's fantastic. And I totally concur with you. I think that one of the best feelings is when you dream up something yourself, you build it and then a client takes it, it runs, gets a benefit from it, enjoys it and then pays you for it. It's hard to describe that feeling. We all chase it, right?

Yeah. Yeah. So I had something else to say. What I've always done, and I advise people, start your new business. Become an entrepreneur in a downturn. Because if you start your company when we're at our peak, you will fall because it's going to come down. If you start in the downturn, you can only rise up. And I've always advised people to do that, which is why I think we develop our best technologies during the downturn, because as the wave rises again, we're on board with it. So don't wait until you've got, I was going to say a hundred dollar oil, but I don't think that's going to back anytime soon, don't wait to the oil price's sky high and then go "okay. Things are great. Let's let's build a company." Do it now. You've got time on your hands anyway, because we're all sat at home. Do it now.

Totally. I mean, I would say that if you wait until the upturn you're too late. You got to get started during the downturn.

Correct.

Yep. Perfect. Well, Stuart, we really enjoyed having on the show today. David?

Yeah, thanks, Stuart. That was really, really good. And I believe that's all the time we have for today. Thank you again, Stuart, for joining us on our show today.

Thanks for having me. I appreciate it.

Be sure to check out our podcast on iTunes, Spotify, and YouTube. And thanks again for tuning in today's episode with Mr. Stuart McLaughlin from Magnolia R&D.