With thousands of strings of pipes to manage in multiple locations, operators need just-in-time solutions.
In their quest to reduce total operating costs, oil and gas companies are demanding their suppliers to provide them with more innovative supply chain solutions. Rational management of the tubulars supply chain represents a viable solution to increase operational efficiency and generate substantial per-well cost reduction.

Traditional shortcomings

Historically, a key challenge faced by oil and gas companies during the construction phase of a well is to avoid expensive downtime periods deriving from shortage of pipes or tubular accessories. Traditionally, supply and handling of oil country tubular goods (OCTG) has been viewed as a cost of doing business rather than as a core activity. The supply process was handled by simply purchasing and stocking sizeable volumes of pipes and accessories ahead of time enough to guarantee uninterrupted operation. This inevitably had a negative impact on the overall cost of the project as a consequence of over-supply, high maintenance costs and the need for additional storage space.

The risks and costs associated with drilling operations have drastically reduced the margin for error in supply chain management. The wrong selection of pipes, connections and accessories, along with their mishandling, can have severe consequences including ecological problems, accidents, leakages and sizeable downtime-related financial losses.

In the case of offshore drilling, a missing, wrongly specified, or low quality pup-joint can lead to extensive downtime and ultimately bring operations to a halt. In the event the supplier does not have the pup-joint in stock, locating the pup-joint may be a long process, and during this time the rig will be inactive, which further increases costs. In the best scenario, using traditional supply management procedures can solve this problem within 8 to 12 hours and generate losses that can easily reach US $50,000.

Supply chain integration

The potential for oil and gas companies to incur losses increases significantly as exploration and production activities enter deeper waters and to increasingly treacherous regions. As a consequence, effective supply chain management has become increasingly important. During the drilling stage, oil and gas companies or their contractors must have immediate access to a specific selection of pipes to rapidly conduct drilling operations, perform the casing of the well and, finally, set up the tubing to produce the oil.

Efficient supply chain management is a seamless process that entails delivery of a wide range of services, including full inventory management, just-in-time delivery to the rig, procurement of accessories and preparation of sub-assemblies up to the installation down-hole of the complete tubular column prior to cementing. Oil and gas companies seeking a fully integrated tubular supply management process should strive for these key objectives:

* reduction of operational complexities;
* shorter planning periods;
* improved coordination;
* simplified administration;
* customized solutions;
* risk sharing;
* zero downtime; and
* no shortages.

There are two basic alternatives available to accomplish full integration of supply chain management. The first is to build an internal supply chain management team comprised of highly qualified personnel with tubular experience. The second alternative is to hire a company specialized in supply chain management.

A comparison of these two alternatives makes it evident that the benefits obtained by hiring a specialized supply chain manager outweigh the risks and costs associated with in-house supply chain management. Oil and gas companies managing the supply of tubulars on their own usually do not include the costs and losses deriving from erroneous operations as part of the supply management cost. This inevitably leads to significant underestimation of total operational costs. The hundreds of hours needed to coordinate and organize multiple sources of material and services and/or emergency situations such as the above mentioned pup-joint case, clearly exemplifies the magnitude of the additional costs that companies are prone to incur when they opt to manage their tubular supply chain internally.

Third party managers

There are companies with strong expertise and background in tubular technologies that can provide comprehensive packages of products and services specifically aimed at optimizing the management of the OCTG supply chain, reducing costs, risk and downtime. The value-added provided by these companies derives from their ability to focus exclusively on supply chain management, which enables them to achieve clockwork coordination of all the necessary procedures, guarantee supplies for any contingency, and deliver tubes, accessories and connections ready to use according to the just-in-time scheme specified by the customer.

Currently, there are a number of companies in the marketplace that provide supply chain management services. Some of these entities fully manage the stock and delivery process and other key aspect of the drilling project. In general, they add limited value to the process, as they mainly transfer upon themselves the client's supply chain management costs and risks. Other companies offer turnkey packages, which include handling supply chain management and drilling and production activities. By choosing these packages, oil and gas companies are able to remove themselves completely from the process, but at the expense of relinquishing the control of the final result. Oil and gas companies that prefer to delegate tubular supply chain management while retaining full control of the overall well operation are better off selecting manufacturers of tubulars which provide highly specialized supply chain services.

Just-in-time installed column (JIC) services exemplify the most innovative and seamless integration of the OCTG supply chain provided by these companies. By taking full control and responsibility for the whole supply chain management process, JIC providers enable their customers to deal with a single entity for a suite of services usually performed by different suppliers. In addition, customers can benefit from higher service transparency, as they can track on a Web-enabled platform the progress of their orders, from the planning stage through the final delivery and installation.

These companies' primary focus is tubular management and the benefits oil and gas companies can derive by assigning the management of their supply chain to these specialized third parties include:

* A single source for tubular supply, inspection, installation and remnant management, and a single invoice;
* Smart Stock, which combines safety and cost reduction with the ability to quickly stop, change and reschedule pipe manufacturing, as required;
* Surplus inventory management through re-sales or buy-back options;
* On location full time personnel to handle operations and train the workforce;
* One source for string components, which assures timely delivery of tubular goods and special accessories;
* A single source for preparation of sub-assemblies and pre-installation of equipment;
* Proven safety control expertise, which significantly reduces downtime and potential for injuries lowering overall insurance costs;
* Elimination of redundant tasks via efficient coordination of planning and execution activities; and
* Reduced total cost of ownership.

Two Case Studies

The ConocoPhillips' Ekofisk project exemplifies how newly integrated supply chain management processes enable oil and gas companies to achieve improved operational efficiency and substantial per-well cost reduction. The Ekofisk offshore well is located nearly 200 miles (321 km) off the Norway coast in the center of the North Sea. The horizontal position of the last 5,000 ft (1,525 m) of the well posed a significant challenge for the supply chain management company. Furthermore, the particularly severe weather conditions that affect this area rendered supply delivery and operations problematical. By using high collapse, high strength, corrosion resistant chromes and specialized grades to match well demand, the supply chain management company enabled ConocoPhillips to have a complete well running in nearly 30 days, despite the harsh weather conditions.

An additional illustration of the benefits that oil and gas companies can derive from delegating supply chain management to a third party entity is the Penglai 19-3 field in Bohai Bay, on the Northern Sea, ConocoPhillips' largest offshore discovery in China. In this instance, one of the key challenges was represented by the need for constant supply of prepared 133/8-in. and 95/8-in. casing to satisfy the rapid batch drilling activities (some wells were drilled in 2 days). By training and coordinating the workforce and activities of several local service providers, the supply chain manager was able to craft a suite of tailored services that enabled ConocoPhillips to satisfy: a) its core logistic requirements for this project, and b) Chinese government guidelines, which require hiring of local service providers to fulfill the project.
In both instances, efficient management of the supply chain by a manufacturer of tubulars enabled the oil and gas companies to achieve savings of nearly 25% of their total operational cost. With total costs for the installation of a well ranging from $1 million to $20 million, the economic impact derived from efficient supply chain management can be substantial.