As the global oil and gas industry continues to recover from the November 2014 oil price downturn, it faces bare cupboards and idle ovens in terms of equipment components and supply chains. Not only does skilled labor need to be rehired to man equipment, but time is needed to get component production up and running again.
The U.S. shale boom dramatically increased U.S. oil and natural gas production but also presented the industry with challenges such as higher costs. Although the oil and gas industry achieved significant cost reductions during the downturn, companies need to be diligent in containing cost increases outside of expected growth in oilfield service company costs, particularly in supply chain and resource development arenas, according to PwC’s recent report, “2017 Oil & Gas Trends.”
In addition to watching costs, oil and gas companies looking for rigs face challenges in available supply. During the downturn rigs were cannibalized for parts or sat idle for a long time. Now, with the recovery just beginning, supply chains are still down, and given delays and shortages in equipment as well as competition for capacity from other industries, companies need to anticipate delays. As rigs go back to work, drilling rig contractors will need to know what rigs are running and what critical parts they need to keep equipment in operation. At the material level customers will need to understand that components will be available on a first-come, first-served basis.
Communicating about parts
To get the parts they need, oil and gas operators will need to communicate early and often with their drilling rig contractors. This collaboration is necessary to allow operators to face 2017’s challenges, including lack of skilled labor, organization framework, and systems and processes to be sufficiently flexible and innovative in an uncertain and evolving marketplace.
Companies also need to be prepared to pursue new drilling and completion technologies and strategies. Along these lines Schramm has been working with oil and gas operators and drillers in pursuing a two-rig pad drilling strategy, automation of operational tasks and standardization of rig controls and features across rig classes. In two-rig pad drilling an operator first uses a smaller lower-specification rig to drill the vertical topholes on a pad and then uses a second 1,000-plus-horsepower rig to drill the horizontal legs. By using this approach, operators have achieved significant efficiencies and reduced overall well delivery costs.
The application of Schramm’s Fit for Purpose rig strategy has been proven in the Permian, Bakken and Appalachian regions. Using the strategy allows smaller crews, hands-free pipehandling, power density that proves results similar to complex AC electrical systems and fit-for-purpose rig selection. Small changes above ground can lead to big savings. These small changes can be accomplished by building rigs that are easy to move, set up and break down as well as walking systems that are ideal for pad drilling. Changes below the ground such as boosting rig power density and applying speed while not compromising the wellbore also reduce costs.
Operators also are looking for greater automation of operational tasks in drilling rigs. This demand is not only to reduce costs but also to ensure worker safety. For the past three years the oil and gas industry has sought to reduce worker deaths and injuries on the job, according to EHS Today’s website, but in first-half 2014 more than 43 workers were killed and more than 1,800 were injured while working at U.S.-based drilling sites. As a percentage of active workers the injuries metrics for 2016 are expected to look very similar, EHS reported.
The handling of drillpipe and the erection of drilling rigs have been leading causes of worker injuries year after year. Looking ahead, to maintain lower costs and increase safety, oil and gas companies will need to look at digital technology to enhance their performance in today’s market. Adoption of this technology will have to go well beyond the support of back office and shared functions.
Schramm has continued to invest in technology for its oil and gas drilling rigs to meet the challenges that operators face today and in the future. Going forward, it’s the right technology applied the right way to unconventional rock that will enable companies to control costs while boosting productivity and maintaining safety.
Meanwhile, to keep rigs up and running, operators and drilling contractors will need to work together to navigate the re-emerging supply chains for rig components. What else should companies expect in today’s market?
For starters, many suppliers are out of business or are shadows of their former selves. If they are still in business, these companies are suffering from loss of market intelligence due to skilled labor leaving the industry, or they don’t have the assets they once did. During the downturn many people either left the industry or changed organizations. Typically, people like to do business with those they know and trust, and trust is earned over time. As new people take on new roles, it will take time for trust to be rebuilt. A partner will prove its value and integrity if it is able to acknowledge when a business is no longer in its area of expertise. This level of honesty will be a must going forward as companies focus on products and services with the highest return on capital and as they exit less profitable arenas.
Because of ongoing oil price volatility, more discipline from a project standpoint also is essential. Companies will need to connect with key partners and validate what’s still available in the supply chain. People also will be returning to their core competencies, making it more difficult to find one-stop shops for all project needs.
As a result, companies will need to stay current with bills such as deposits and progress payments. Strong nondisclosure agreements will be compulsory in this market to ensure that intellectual property at the operator level is protected.
Taking responsibility for quality assurance and validating certifications also will be critical in the new energy landscape.
Despite the challenges, Schramm is optimistic about the outlook for U.S. land drilling. Going forward, oil and gas companies are expected to prefer 1,500-hp AC rigs as they continue to pursue U.S. unconventional plays. With nearly 400 AC 1,500-hp rigs still cold-stacked, Schramm believes the opportunities for these drilling rigs will continue to increase in the coming years. And the company is still seeing interest in newbuild rigs; one of its longtime customers recently purchased a Schramm T250 because of its additional capabilities compared with the Schramm TXD rig. These capabilities include the ability to handle greater casing string weights, which are rising as operators drill deeper into the Utica Shale. The T250 also can build the curve for shallower Marcellus wells.
Cautious optimism is on the rise, but the industry isn’t out of the woods yet. As the recovery is taking its first steps, communicating early and often will be critical to success.