Dealing With Rig Decline

Drilling product providers and consultants share insight on rig activity slowdown and how their respective approaches have put more focus on internal operations.
By Emily Aasand | April 09, 2015

To see the impact of low oil prices on the Bakken shale, look no further than North Dakota’s drilling rig count. Since January, the rig count has been steadily dropping, according to the Department of Mineral Resources. January’s count was down 21 rigs from the previous month, February was down 27 and by mid-March, the state’s total rig count equaled 111—the lowest since April 2010. At press time, the rig count had fallen below 100.

The Bakken isn’t the only major U.S. unconventional resource play incurring a declining rig count, or a slowdown in monthly oil and gas production. The U.S. Energy Information Administration’s recent Drilling Productivity Report also indicates a slowdown in oil production growth patterns in the Eagle Ford and Niobrara. 

The combined three plays are down roughly 24,023 barrels of oil per day (bopd). The estimates cover the months of March and April, and include the first projected declines in crude production in these regions since the first issue of DPR appeared in October 2013.
The DPR shows sharp decreases in rig counts in all regions starting in January and February of this year. In the current oil price market, producers have begun to lay down rigs, idling the older, least-efficient ones first, leaving monthly production output dependent on the remaining rigs.

Production may not depend entirely on the overall rig count, according to the EIA. Amidst lower oil prices, the 2008-‛09 recessions led to decreases in rig counts, but no decrease in production. At that time, lower rig counts were more than offset by increases in the productivity of remaining rigs, as more productive rigs required fewer days to drill and complete a well, recorded higher initial production rates, and were more than able to drill multiple horizontal wells from a single pad. “Because the base level of rig performance is so much higher now than several years ago, it is not clear that the productivity gains will offset rig count declines to the same degree as in 2008-‛09.”

Overall, U.S. crude production numbers might remain at current levels for the short-term. Drilling rig numbers are down, however, and companies directly leveraged by rig count and well completions are incurring a variety of requests and changes to their respective businesses. Although the rig decline may appear to be negative, some firms are finding ways to benefit from an activity level slowdown.

Decreased Activity Requires Increased Focus
Summit Casing Equipment, a U.S.-based drilling component manufacturer, is dealing with the effects of declining rig counts. The decline for drilling products, including centralizers, a hinged collar placed on the outside of drill string casing that helps to keep the casing string in the center of the wellbore, has made Summit intensify its internal focus.

“Our product is used during the drilling process, so if the drilling rig count goes down, that affects us because that’s less rigs we can sell our products to,” says Andrew Eldridge, CFO of Summit Casing. “Through these tough times, we’re really focusing on the quality of our product, and the service that we provide.”

Summit Casing got its start in the industry 10 years ago in Elk City, Oklahoma, and has since grown to 10 locations throughout the U.S. Summit began manufacturing solid body centralizers five years ago and since then, has begun manufacturing bow spring centralizers, composite centralizers and float equipment.

“We have to be spot on and deliver on who we are if we want to come out of this thing better positioned than we were before,” Eldridge says. To do that, the company is continuing to push its service offerings that come with the drilling components. Summit equips regional field sales representatives with iPads, technologically advanced equipment and transportation allowing each manager to visit or service drilling rig locations throughout each region. At a time when cost cutting measures are happening at every level of the oil and gas sector, Summit believes it needs to refrain from cutting costs by cutting its face-to-face time in the plays it serves.

“If we stick to who we are, we will be very well-positioned to take a larger share of the market and service more operators than we do today because we have had the opportunity to interface with them on the rig site and tell them our story,” according to Jeff Reynolds, vice president of sales for the company.

The slowdown in activity has forced many businesses to increase internal focus and pinpoint the true value of their service offerings or products. While Summit believes it has a value proposition linked to the quality of its components and its commitment to service (even if it means answering a phone call at 4 a.m. from a drilling rig site), others are pursuing the same focus through different means.

Centek Group, a global provider of onshore and offshore drilling components, believes the current crude market provides great opportunity to get in front of customers to show how important Centek’s centralizers are in cutting well costs by decreasing overall drilling days and the time it takes to reach total depth. In the current market, the team is working to highlight its product functions, many of which help to decrease total drilling days and in developing engineered solutions that support API best practices for cementing, reducing risk and rig time as well as enhancing the integrity of the well construction phase.

The company has spent and continues to spend time on research and development before introducing its products, including centralizers, into the field. The aim for its centralizer R&D was to provide a hybrid product that had all the benefits of a rigid centralizer and a bow spring centralizer without any of the detriments.

“The field is a very different field right now,” says John Costine, North American sales manager at Centek. From the operator standpoint, we see a lot of people buying on upfront costs alone and subsequently dealing with a lot of remedial issues and overall higher well costs. Our product allows them to get to bottom more efficiently saving them costs related to rig time, crews and overall well construction time. Typically, we’ll save them several hours running in hole. Running in hole at gauge allows us to maximize standoff. We have a long history of cement bond logs showing that we have improved wellbore integrity. This provides piece of mind from an environmental standpoint and eliminates costly remedial work before going into the production phase. It is very important to communicate the total well cost, versus just the upfront product cost.”

In many cases, the current oil price environment has pushed procurement managers and equipment buy-side decision makers to purchase product based on initial price, instead of overall value and service offerings included with the product.

“Our product allows them to get to the bottom faster and to be more efficient with their rig time. Typically, we’ll save them several hours running in hole. Our job right now is very important to show them the big picture of overall well costs versus just paying for a product upfront.”

Centek’s ability to thrive during the slowdown is connected to its research and development efforts put towards a common industry equipment item.

Centek’s centralizers were the first 100 percent heat-treated,single-piece, nonweld product in the industry, according to Costine. The U.K. and Oklahoma City-based company produces a centralizer that is designed to run in hole at gauge, with no starting or running forces providing the highest amount of standoff, he added. 

“Our patents on our unique construction, metallurgy and heat treat process are what sets Centek apart,” says Costine.

The Centek S2 centralizer is manufactured from a flat plate, is rolled then formed and then bulged into its shape, according to Cliff Berry, global sales and marketing manager for Centek. It is a single-piece unit, has no moving parts, and is rapidly becoming an industry leader for both liners and standard casing sizes, he added. 

The S2 is applicable for all applications—vertical and horizontal wells and can withstand high temperatures. It is manufactured to gauge and provides maximum standoff, eliminating cement channeling. Its bow spring design was created to allow for flexibility when encountering tight spots, yet, due to its single piece construction, it does not compromise on performance integrity, according to the company.

Summit relies on the U.S. onshore market for revenue. The company manufacturers several U.S.-made products, a facet of the company that can help expedite the order and delivery process. “We manufacture it, we sell it. A huge differentiator for us is that all our centralizers and float equipment are manufactured in the U.S., which is quite rare.” In many cases, if a drilling rig engineer is in need of a speciality product, Summit can minimize downtime through its network of field sales representatives well-versed in product location.

“We’re a small company and we compete against some of the largest in the world,” says Eldridge. “Our focus on our one product offering model is really what sets us apart. It’s the quality of the product and the service that we provide that’s really of our legacy. Around here, we call it the Summit standard—going the extra mile, making the extra trip that needs to be taken.”

Like many companies, Reynolds says it is working to cut costs wherever possible, but cutting its service and the crucial materials used to fabricate its drilling components will not happen. Although our profit margin will be adjusted in a depressed market, we are still going to provide that type of service because we think that it is a strategic point of difference,” Reynolds says.

Consulting Perspective
Drilling activity-related companies aren’t the only oil and gas firms impacted by a declining rig count. DTC Energy Group Inc., a Colorado-based oil and gas drilling and completion consultancy, has experienced decreased requests for service in its drilling supervision segment due to the current oil market.

DTC Energy started as a an idea in mid-2010, when Robert Sylar and Luke Clausen began discussing a larger oilfield consulting firm that could expand into a broader area of the country. The Denver-based firm officially began doing business in 2011.

As a consulting firm, DTC Energy’s drilling supervision has been impacted due to the substantial drop in drilling activity.

“The market conditions have had an impact on some of our service lines,” says Clausen, co-owner and chief operating officer of DTC. “There are currently about 700 fewer drilling rigs operating in the U.S. than there were in the fall of 2014, so growth in that area has been a challenge. We have adapted to the current market by pushing harder on our other service lines to make up for the lack of demand for drilling supervision. We have also been working diligently with our customers to get costs in line with their new budgets.”

Along with drilling supervision, DTC also provides professional, on-site supervisors for completion, stimulation, workover, production, site preparation, construction, remediation and safety to oil companies. The supervisors work on location, overseeing oil and gas operations, and ensure the operator’s plans are being followed.

“Our supervisors are instrumental in reducing time and costs for our clients while maintaining safe operations,” says Clausen.

DTC Energy also provides on-site frack engineers who help minimize screen-outs and reduce overall completion costs. The engineers specialize in on-site hydraulic fracture treatment analysis and design while focusing on optimizing overall completion economics. Clausen says his team is capable of providing real-time treatment adjustments to ensure that completion objectives are achieved.

The company also provides project and operations management to oil and gas operators, offering services such as preparation and permitting along with the procurement of equipment and supplies.

“One of the main factors that sets us apart from our competition is our ability and strong dedication to work closely with our customers to provide the right person for each job,” says Clausen. “We ensure we understand exactly what our customers are looking for in terms of experience, skill level and personality. Our diversification across the country allows us to move people from region to region since we are not centric to basin or area.”

DTC Energy is one of only a few companies in the oilfield consulting market that’s employee driven, which Clausen says is another differentiator for the company, and a reason it is able to withstand the current activity slowdown.

“It’s important for us to operate as an employee-based company so that our supervisors can be provided for in their daily lives. This model has been proven beneficial as a recruiting tool as well.”

Like most companies, DTC Energy has taken steps to position themselves to remain successful in the current oil price environment.

“As with any downturn, there is concern. However, we think DTC is positioned very well to ride out an uncertain market,” says Clausen. “We expect, as with every slowdown in our sector, that smaller companies will not be able to survive and that there will be opportunities as oil prices recover. We believe there will be potential to grow or add service lines when we come out of the downturn. Overall, we see the downturn as an opportunity and are excited about the future at DTC Energy.”

Author: Emily Aasand
Staff Writer, The Bakken magazine
701-738-4976
eaasand@bbiinternational.com