April 18, 2010
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Home / Issue Archive / 2010 / February #2 / Long-Term Deals Saved Rig Makers in 2009

№ 2 (February 2010)

Long-Term Deals Saved Rig Makers in 2009

For drilling equipment producers 2009 was an uneasy year. Pre-crisis forecasts predicted soaring demand for drilling rigs as aging fleets across the country required replacement. In reality, manufacturers were able to keep their business afloat largely owing to long-term contracts.

By Elena Zhuk

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   OGE interviewed several industry professionals who talked about the drilling sector’s performance in 2009 and shared their views on the competitiveness of Chinese rig manufacturers whose expansion in the Russian market has been on the rise in recent years.

   Alexei Trukhin, technical sales director,  Integra Group, Machine-Building Dept.
In 2009 we continued working on BU 4200/250 EK-BM(Ch) Yekaterina drilling units for Gazprom’s Bovanenkovsky field on Yamal Peninsula. Meanwhile, our Uralmash Burovoye Oborudovanie (URBO) division worked on Rosneft orders, completing by year-end the work on three 320-ton load capacity modular units for cluster drilling. We’re completing the manufacture of four new-generation stationary rigs with 320-ton working load, which were ordered by Vostok-Energy, a joint venture of Rosneft and China’s CNPC. The rigs will be delivered to the Irkutsk region where they will drill exploration wells. We plan to complete shipment of the units in January 2010.

   The latest drilling rigs use revolutionary new drawworks developed by URBO designers. This drawworks is a single-speed unit, which requires fewer couplings and gears, thus reducing the need for spare parts and slashing service and maintenance times. Our customers recognized these benefits when the unit was unveiled at a presentation. Many of them have stressed that when ordering new rigs they would insist on fitting them with this very model of drawworks.

   In 2009 we continued to supply drilling equipment kits to the CIS countries. In particular, URBO has a long-term contract with our partners in Turkmenistan and last year we sent six NBO-D drilling kits that will be used to upgrade the drilling rigs owned by the state-controlled Turkmenneft company. This year we plan to deliver additional kits to Turkmenistan and Azerbaijan. We have work to do despite the crisis.

   Bernd Albrecht, general director of the Russian branch of Nabors Drilling International Limited

   Nabors Drilling International Limited (NDIL) Russia had a stable 2009. Due to the collapse of the price of oil in the fourth quarter of 2008, a lot of equipment became available in the Russian market. However, NDIL was largely unaffected by this as four drilling rigs and one workover rig are contracted by operators which focus on quality equipment and fast, safe work. Naturally the surplus equipment laid off by some operators is old and in state of repair. NDIL has long-term contracts in strategic areas and the operators are unlikely to exit existing contracts to replace state-of-the art equipment with the abovementioned. NDIL expects for 2010 some moderate growth in activity.

   Vladimir Kozhokar, vice president, CIS Projects Development, Integra Group
The bulk of drilling rigs in Russia are already obsolete. In Soviet times, the average depreciation period for a rig was about seven years. Despite the recent appearance of many Western and Chinese rigs in the Russian market, the majority of those currently operated throughout the country had been manufactured 15 and even 20 years ago. That is why the market of heavy-duty drilling units is vast with the current demand estimated at least at several hundred units.

   The Chinese producers are quite active in the Russian market. In 2009 they supplied more than half of all imported rigs. But if earlier the Chinese equipment was no match for Western and domestic production, now the quality of rigs is improving − the Chinese learn quickly and they adapt fast to the customers’ needs. They also have a competitive advantage thanks to the government support to exporters. The subsidies, provided by the government in Beijing, enable the Chinese producers to offer the equipment, with quality sometimes lower than that of its Russian-made counterparts, at significantly lower prices. However, by selling the equipment to Russian customers at what seems to be “next to nothing”, the Chinese hook them up to spare parts supply service – and this is where producers undoubtedly dictate the prices, which now seem quite comparable to those charged for their Russian analogues.

   Sergei Veselkov, chief executive officer, ASBUR
The members of ASBUR have experience in using both Western and Chinese equipment. Chinese rigs boast good ergonomics. However, a number of Chinese producers use inappropriate, soft steel grades. There were times when a rig would duck to a side, failing to sustain the load. This does not apply to all Chinese producers, though it’s useful to know the names of such companies. With regard to Western equipment I can say that at very low temperatures even the most modern units – including coiled tubing and fracking rigs  – go out of order, the hydraulics simply “deflate.” Regrettably, even the equipment of the well-known Western brands fails, though it is also top in terms of ergonomics. ASBUR members predominantly use Russian or Romanian equipment, which is more familiar to their staff. Another important issue is the repair of equipment. Due to Russia’s harsh winters, repairs have to be done all the time. Unfortunately, the task of setting up a well-stocked spare parts warehouse and a repairs shop has not been solved yet. The Chinese companies are trying to address the issue, but so far they haven’t had much success.

   Yevgeny Gorshkov, general director, TECHNOWELL
One of the key areas of TECHNOWELL’s business activity is the delivery of Chinese drilling rigs with up to 240 tons load capacity to the Russian market. The rigs are manufactured in China at the RG Neftemash plant. In my opinion, in terms of quality these rigs are better than their Russian equivalents, but they still lag behind the units produced in the West. As a rule, Chinese manufacturers produce only the frame and put on it the equipment produced by well-known international rig makers. At the same time, a few Western companies have transferred some of their manufacturing facilities to China, so that now the Western equipment is produced by Chinese workers. Regarding 2010, I think that we can expect a bit of revival in the market.

   Dr. Stefano Angeli, commercial director, Drillmec
According to estimates, we expect that the Russian market will need 50 new rigs over the next two years. The new rigs will be mainly 320- and 250-ton pull up capacity while we expect smaller demand for workover rig and 160-ton to 200-ton rigs. In 2008 and 2009 we have promoted the mobile rig with a 200-ton hook load capacity, in fast moving configuration complete with a hydraulic top drive: the package includes mud pumps, mud tanks and generator sets mounted on wheels.

   In the last three years Drillmec production got a significant increase. Considering the complete range composed by mobile-mechanical, automated hydraulic and land rig we reached a total production capacity of 50 rigs per year. In the last 12 months five rigs were successfully delivered to Russia.
Regarding competitiveness of Chinese drilling rigs, I'd  say that we are focused on high quality equipment and service while the major concern of the Chinese is the cheap price. All Drillmec rig components are manufactured by first class Western suppliers. Most of them are located in a 50-kilometer distance from our headquarters in a highly technologically advance area near Milan. This is very convenient for a more accurate daily check of their quality standard by our QA/QC Dept.

   As for our 2010 plans, Drillmec was recently awarded by Saipem the engineering and construction of two pad land rigs rated 3,000 horsepower, winterized, with the final destination in Kazakhstan. The tailor-made rigs have requested significant engineering efforts reaching high levels of safety and performance. We plan to promote this kind of pad land rig ranging from 1,500 to 2,000 horsepower also in the Russian market.

   Andrei Zagorodnyuk, board chairman, Discovery Drilling Equipment Ltd.
The main reasons behind the optimistic pre-crisis forecasts were the record high price of oil and a large number of old rig fleet still under the operation. However the financial crisis had changed that outlook significantly – oil prices had a huge drop and oil companies had postponed quite a lot of their exploration plans, which had itself decreased the operating rig count. That in turn had substantially reduced the contractors’ capital expenditures. We do not think there will be a complete recovery during the first six months as we do not believe oil prices will come even close to the past years’ record. However, we do expect the market in 2010 to stabilize and post certain growth as the need for new equipment still exists.

   We have shipped two large land skidding rigs in Russia this year. These rigs meet both API and GOST standards and were developed by our company. Last year, our engineering had finished development of new 1,000 horsepower fast- moving trailer-mounted rig. Currently we are working on the new type of rig model for the FSU market, which we hope to introduce early this year. We have successfully completed five large projects last year – three skidding rigs for cold climate (350 tons, 1,500 horsepower) and two desert type rigs (560 tons, 2,500 horsepower) for a large international contractor. Some of these rigs are already drilling and we are pleased to know the clients are fully satisfied with these products.

   We are currently working on several rig projects in the Middle East and are also building a large 2,500 horsepower land rig in our facility in Ukraine. Also we plan to launch the rig assembly initiative jointly with a local partner in Russia as well as the full scale rig-up and refurbishment facility venture in the Middle East we currently are working at.  

   We consider Chinese producers to be serious competitors, but mainly because of their aggressive pricing in recent years. It drew some attention of the contractors who wanted to enlarge their fleet with cheaper equipment. However, these rigs often have significant quality issues. These concern fabrication, machinery and often the quality of after-sale service, too. Unfortunately, the same producer may manufacture the equipment of different quality. All of that does not contribute to the savings, originally expected by contractors.

   Alexei Sokolovich, deputy head of Bentec in Russia
Our company wasn’t heavily affected by the crisis as producers of high quality drilling equipment usually have long-term contracts. In 2009 we had no new orders and our staff focused on implementing the contracts that were signed in summer 2008. Despite this gap, we don’t think the situation is dramatic. Currently, we are participating in several tenders for the supply of drilling rigs in Russia and the CIS. In my opinion, rig demand dynamics change from time to time regardless of the crisis, and directly depend on the price of oil. The crisis had the least impact on our plant in Tyumen. Last year, we launched production of drilling rig components there under current contracts. We also rolled out our training program for Russian specialists, which is now in full swing. The training focuses primarily on Bentec’s Quality Management System, which guarantees continuous improvement of all production processes and manufactured goods.

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