Oil & Gas Technologies Supplement: Advances in Technology Expand Oil and Gas Extraction
The world's appetite for oil and gas is expected to grow over the long haul, even if there are moments such as the present when demand declines. Technology expands energy supplies. Can manufacturing deliver that technology?
By Bruce Morey
Although 2009 promises to be a challenging year for oil, with prices down, the long-term prospects for those that deliver technology look good.
Drilling for and recovering oil has always stretched the limits of known technology. Today's drilling assemblies act like robotic moles, sensing where oil lies while they cut through tough geological formations. Played-out fields—some containing hydrogen sulfide, sand, or water—get new life from tools that make extraction economical. New fields, especially in deep water, are only accessible because of recent advances in technology.
Three factors determine how much energy gets to market: How much is there (proven reserves), how much can be pumped (percent recoverable), and how fast it can be lifted (recovery rate). The good news is that technology can help improve all three factors, for either existing fields or new ones. For example, an optimistic study commissioned in 2005 by the US Department of Energy showed the impact of technology on recovery factors for conventional oil in the US. It suggested that technical improvements could raise recovery factors up to 60% for areas in the US already under production, contrasting with existing rates that range from 23 to 44%.
"In fact, what we are seeing is that the productivity of natural gas wells [has improved] to the point that supply is outstripping demand in the short term. This year [gas] supply growth is running 9 or 10% above last year, while demand is considerably less than that, due to a variety of economic conditions," says Gary Flaharty, director of investor relations for Baker Hughes (Houston). Advancing technology also makes possible unconventional extraction, which Flaharty describes as oil shales, oil sands, and wells with long horizontal sections or requiring hydraulic fracturing. "Unconventional [gas] wells are the new conventional wells," says Flaharty. "Enabled by technology, operators are actually adding more reserves through unconventional wells than conventional wells." Although gas is one story, oil is different. "We [as an industry] have barely kept up with the demand for oil, despite increased spending," says Flaharty.
Investment growth has been significant. Eight years ago, according to Flaharty, industry spent approximately $150 billion per year on technology to drill and complete oil and gas wells. In 2008, that figure is closer to $350 billion per year.
While business has been good for oil-extraction companies, by all accounts it remains a competitive business. "The extent of innovation and product enhancement is high and increasing," says George Van Horn, senior analyst with IBISWorld (Los Angeles), a market intelligence firm. "This is an industry that is more labor-intensive than others, but at the same time is driven by productivity gains." He notes that wages in mining, oil, and gas equipment manufacturing account for about 17% of total costs versus 12.5% for all manufacturing industries. According to Van Horn, some companies spend significant amounts on research and development.
To illustrate this point, Baker Hughes just completed a new design and testing center to develop new technologies in drilling and extraction. Expected to employ over 600 engineers, according to Flaharty, it includes laboratories for testing elastomers, composites, and metals, along with rapid prototyping facilities for fabricating new tools. It also has the ability to test a full-size completion string in test cells that will stress parts to maximum temperatures of 700°F (371°C) and 40,000 psi (276 MPa)—almost twice current operating temperatures and pressures, according to Flaharty. "This will give us the ability to develop new completion technology for at least the next decade," he says.
One of the pressures on new technology is its price. Things can get expensive. "Some offshore rigs charge $1 million/day, so anything that's used has to perform to the utmost," explains Wayne Mausbach, manager of manufacturing systems of National Oilwell Varco's (NOV) ReedHycalog division (Houston). The ReedHycalog division of NOV specializes in rock bits, the specialized drills that create the holes used to extract oil and gas. Durability is a must. Extending the life of drill bits while increasing their rate-of-penetration (ROP) is the "cutting edge" of their development, according to Mausbach. Swapping out a drill bit located at the end of a string that extends a mile under water and an additional 10,000' (3048 m) into the earth's crust could take days.
"The other trend [in drill bit engineering] is more variety, more specialization," says Mausbach. Each field, whether it contains oil trapped in salt domes or sandstone reservoirs, requires specialized equipment to match that field. In response, drill bits come in a variety of configurations and materials. ReedHycalog offers fixed cutter and roller-cone bits made of tough materials ranging from tungsten carbide to polycrystalline diamond. They are almost customized, but not quite, since there are still economies of scale in producing standardized parts. "That is the challenge [balancing economics and versatility]," explains Mausbach. "We do that by using just-in-time production coupled with modular designs. We mix and match different components to come up with bits that are matched to the needs of the field and the customer. In fact, some of our bits can even be finished in the field with different cutting elements."
Once a well has been drilled, the well string needs to be "completed" with equipment to extract the oil or gas in the reservoir. Completion strings include screens to separate earth from oil, flow control devices, isolation packers, and subsurface and surface safety valves. That is where Don Rakow, project manager for completion services for Halliburton Energy Services (West Carrolton, TX), comes in. His group manufactures completion equipment for use internally by Halliburton, and for external customers. "Each product we make presents a unique manufacturing challenge," states Rakow. "We are basically a job shop."
For example, just as with drilling systems, durability in the completion string is vital. "With completion equipment, the metallurgy is critical to achieving long service life in highly corrosive 'sour' service," explains Rakow, meaning environments with significant levels of hydrogen sulfide. "You end up using Inconels and other high-chromiumcontent metals. We have made components out of 13.25% chromiumcontent material. That is a very challenging material to machine. At 25% chromium content, the metal has inherent stresses. If you do not relieve that stress, the part will move dimensionally."
The equipment his facility produces must not only be tough, but at times built to exacting tolerances. Halliburton manufactures wire-wrapped screens for screening earth from oil. These are critical to "open-hole" completions where pipes are not cemented in place, such as in horizontal drilling. This reduces cost. "Tying fabrication together with a machining operation has been the biggest challenge I face in wire-wrapped screening. We need to monitor the tolerances of the process used to create these screens using 8-gauge wire to 25 µm," says Rakow.
Not only small tolerances but also big parts are important as well. "We need large-diameter, through-the-spindle long-bed lathes. We turn parts up to 20' [6-m] long and we might need up to 15" [381 mm] through the spindle," says Rakow, describing how they have needed to rebuild some existing equipment to meet their needs.
Automated processes are becoming more important. Enter companies like ARC Specialties (Houston) that deliver systems to help build oil and gas extraction equipment. "We make equipment that makes welds on rock bits, both structural and for wear-resistant coatings. We also build drill pipe that connects the rig to the bit, casings, centralizers, screens and pressure-relief valves," explains Dan Allford, president and CEO of ARC Specialties. To illustrate how no expense is spared chasing durability, Allford describes how drill bits use cobalt-welded inlays against silver bearings. "The only reason they do not use gold is that silver works better," explains Allford.
Horizontal drilling, a key enabler for improving recovery rates, has changed how drill bits power themselves. Instead of rotating the entire string, they use 'mud' motors at the end of the drill string. Mud is the term for liquid pumped downhole. "Bearings in mud motors are a technical challenge, and frequently are plasma-welded to create a bearing that will run without lubrication," says Allford. "We'll use tungsten carbide in a matrix of chrome, nickel, silicon, and boron that is deposited by our plasma-welding process. Plasma welding provides the strong metallurgical bond necessary." Allford reports that their plasma-welding process can achieve tolerances as small as ±0.007" (0.18 mm) on cylindrical bearings up to 4" (102 mm) in diameter.
For an industry that delivers specialized equipment, automation would seem out of place. Not at all. "As computers get more powerful, flexibility increases. It is easier to automate smaller batches of products," explains Allford. For him, automation is the key to manufacturing globally competitive extraction equipment. "ARC Specialties offers three automation platforms. We build around robots when we have a six-axis [or multiple-axis] problem, around CNC controllers to solve a complex motion problem, and around PLCs for a process problem. The advantage of today's automation is that you do not have to rebuild it to build a new drill bit. You just reprogram."
Extracting oil from many fields means using artificial lift, because the natural pressure of the field is no longer sufficient to get it to the surface. Kudu Industries (Calgary, Alberta, Canada) supplies their Progressing Cavity Pumps (PCPs) for artificial lift. They are especially useful for lifting medium-toheavy sand-laden crude oil, light crude oil with high aromatic content, or oil with a high percentage of water (high water cuts), and dewatering gas wells for Coal Bed Methane projects.
"The oil and gas field has always been technology-driven in Canada. Our fields are old and never were as good as fields elsewhere," explains Robert Mills, chairman of Kudu Industries. "Our light and medium oil fields produce at higher than 90% water-cut. To make money you have to move a lot of fluid. We reduce the operating cost to the point where we have clients pumping up to 99.5% water-cut. You can't even see any oil in what they are pumping." He goes on to explain that going from 90% to 99.5% water cut doubles the percent recoverable from a well.
The operating conditions these pumps operate in are harsh. For instance, the highest temperature was 260°F (127°C), highest hydrogen sulfide content was 12% at 30°C, and the highest sand content was 70% sand by volume, according to the company. To cope with such conditions, Kudu uses a proprietary alloy spray coating on their pump impellers that is superior in corrosion resistance to chrome while still resisting abrasion, according to Mills.
Like other extraction technologies, dealing with complexity is a challenge for Kudu and its pumps. "We have to design the system to fit every well," says Mills. "We have 36 different pump models that are each available with six different elastomers, six different sizes of rotors and on-surface drive heads that range from 30 to 250 hp [22–187 kW]." A commitment to lean manufacturing principles, especially just-in-time production, sophisticated Kanban pull systems, and single piece flow, helps contain the complexity.
Other companies build a variety of parts rather than complete units. In fact, IBISWorld predicts outsourcing as a trend is expected to continue. One example of such a company is Optima Manufacturing (Calgary, Alberta, Canada.)
"We supply over 4000 components for energy supply-service OEMs. That includes everything from spikes for seismic applications all the way to single engineered products for drilling equipment," says Duane Hertzer, president of Optima Manufacturing. They produce everything from one-off prototypes to 10,000-piece production runs. Specializing in precision machining, they too deal with challenging materials. "Up to 80% of our parts are made from nickel-based alloys and exotic materials. We need rigidity for the harder-to-machine materials." The oil and gas components that Optima produces are up to 8" (203 mm) in diam, "with a sweet spot around 2" [51 mm] that requires a machining tolerance down to 0.0001" [0.003]," says Hertzer. As one might expect, many of the pieces are longer, requiring a longer stroke. He believes solid box-way CNC machines are still the most effective means of providing that rigidity. "We go around the world looking for machines suitable for our [oil and gas] work," says Hertzer. "The parts are becoming more complex in shape, so we have also invested in wire and sinker EDM."
Multitier supply chain management is a significant trend Hertzer sees. OEMs are requiring suppliers like Optima to provide complex kits and assemblies. "Our origins were as a traditional machine shop, [kitting] now pushes you into areas such as complex Enterprise Resource Planning [ERP] systems and dealing with seven or eight layers of Bill of Material," explains Hertzer. "It is not something a traditional machine shop would do, but we have taken on the challenge in response to these needs from our [oil and gas] customers." For Optima, a typical kit might comprise about 100 components, of which 75% are produced in-house. Their most complex kit includes about 485 parts, and about 50% of those are made in-house.
Clearly, organizations with specialized manufacturing technologies and skills may be in more demand, especially if the outsourcing trend continues. Another example is LAI International Inc. (Scottsdale, AZ), which uses an advanced waterjet cutting process to manufacture flex couplings. Used to steer downhole drilling operations, the couplings incorporate an interlocking design in 4' (1.2-m) long alloy steel pipe. The customer had an existing design using stiff rubber bolted to metal parts that they wanted to make more robust, according to Thomas Sterner, operations support manager for LAI. "Although the flex coupling we make appears to be assembled from separate interlocking pieces, it is actually cut from a single piece of pipe. We offer the part in nickel-plated steel or a precipitation-hardened stainless steel, giving it even greater longevity," says Sterner.
"This industry does not get as much credit as it should for the level of technology that we bring to this mission of finding oil and gas," says Clay Williams, chief financial officer of National Oilwell Varco (Houston). He cites a steady stream of other technical advances that have effectively enlarged the pool of proven reserves, both from onshore and offshore sources. These include Active Heave Drawworks that opened up deep-water drilling by allowing drill bits to remain onstation while the active rig is moving up and down due to wave action on the surface. Tension leg platforms (TLPs) literally float production rigs over deep water. Coiled tubing rigs repair existing oil fields, adding to recoverable reserves. While recognizing that it will be increasingly difficult to find oil and gas in the 21st century versus the 20th century, extracted fossil fuels are still needed. "I am a big believer in the ingenuity of our engineers in this industry," says Williams. "Technology will be key to supplying affordable oil and gas until we transition to other sources of energy in the coming years."
This article was first published in the February 2009 edition of Manufacturing Engineering magazine.