№6 June 2011Table of contents Issue Archive
№6 June 2011Table of contents Issue Archive
№ 6 (June 2011)
John F. “Jay” Glick spent a good part of his oil and gas industry career in the Eastern Hemisphere. So it seems fitting that now, as President and CEO of East Texas-based Lufkin Industries, Glick finds himself leading the transformation of Lufkin into a global, high-tech artificial-lift solutions provider.
By Pat Davis Szymczak, Reporting from Lufkin, Texas
What’s so different about Lufkin? Intelligent well technology that keeps evolving as Lufkin builds on the best R&D it can find – wherever in the world that might be.
Glick joined Lufkin Industries in 1994 as Vice President and General Manager of Lufkin’s Power Transmission Division, and was later the Vice President General Manager of Lufkin’s Oilfield Division. Prior to joining Lufkin, Glick had a 20-year career with Cameron, much of it based out of London. He is a 37-year veteran of the oil and gas industry and has been heavily involved in the global, oil services industry. He is a graduate of the Harvard Business School’s Program for Management Development.
As Lufkin finishes construction of a manufacturing facility in Romania – soon to become Lufkin’s Eastern Hemisphere platform – it looks to Russia as potentially its largest growth market. Lufkin has just opened a Moscow office and launched a Russian website, www.lufkin.ru. But, Lufkin is no stranger to the region. For 20 years, Lufkin has been selling its high-tech well automation equipment and beam pumping units into, among other places, Tatarstan, West Sibera, Belarus and Kazakhstan.
Oil&Gas Eurasia met in May with Glick in his Lufkin, Texas office, a two-hour drive northeast of Houston. Lufkin got its start here 100 years ago. Now, let President and CEO Jay Glick describe his vision of the next 100 years.
Oil&Gas Eurasia: What is the Lufkin vision?
Jay Glick: Our vision is to first expand geographically; second, to develop and acquire a broader portfolio of artificial lift products, and thirdly to develop new technologies that add intelligence and increased value to our artificial lift applications. To accomplish that, we need to bring in new, talented people who are internationally based as we step out into new, global locations.
OGE: How has Lufkin approached international markets?
We began life 100 years ago as a U.S. corporation focused largely in the Texas region. We expanded into Canada, becoming North American. And we’ve had a global presence for a number of years through our field service groups and through customers that import our products.
We expanded into South American in 2002 when we bought Baker Hughes out of a JV we had jointly owned in Argentina. We then made significant investments into manufacturing, engineering, and service and support to give us a Latin American platform in the city of Comodoro Rivadavia. We also have an office in Buenos Aries.
We’ve expanded sales operation and service support, and have grown our business in Brazil. We now have business throughout the Latin American region as a result of having a focused team and a local platform to support it.
Now our next step is Romania where we’ve committed $120 million to build our own manufacturing facility in Ploesti. We will move our Eastern Hemisphere headquarters there for Lufkin’s Oilfield Group, including engineering and service teams. This operation will become the platform from which we will support the Eastern Hemisphere, including Russia and the FSU, the Middle East, North Africa and Europe. And potentially we’ll pick up Turkey and other countries that have strong growth prospects. Our Eastern Hemisphere headquarters for power transmission will remain in France.
OGE: Where does the new Moscow representation fit into this picture?
Glick: The opening of our Moscow representation is intended to better support our customers in Russia. Our Moscow office will be the link between our platform in Romania and the markets we see in Russia.
OGE: How important is Russia to Lufkin’s global success?
Glick: Russia has the potential to be the dominant country for our products because it’s a massive market. If you look at the land area, resources, the reserves that are in place and the characteristics of those reserves, a lot of them need artificial lift.
I think there is a massive opportunity for rod lift to replace ESPs. As production volumes drop in aging wells, the range of rod lift that can be used greatly exceeds the range that ESPs can cover, particularly with regard to rod lift systems that employ our automation equipment.
OGE: But don’t Russian operators prefer ESPs?
Glick: ESPs are best in very high volume production environments. But as the production volume diminishes, ESPs typically are not the most economical way to produce a field. Heavier oil is problematic for ESPs; abrasives are problematic for ESPs. Typically, rod lift can better cope with these environments.
I think there are a lot of ESPs installed in Russia that might be replaced economically by rod lift coupled with our automation product, which gives you the intelligence you need to adjust the production based on reservoir conditions. And I think automation is the key to understanding Lufkin’s value proposition – the integration of intelligence with the automation product to optimize production, minimize damage to equipment, and minimize electricity costs.
The Russian government has issued guidelines to encourage a reduction in electrical consumption in the production of oil. Our automation product is designed to do precisely that.
OGE: But how do you change the mindset?
Glick: The best way to respond is to have objective data that demonstrates the advantages of moving to rod lift versus continuing with ESPs. With objective data in hand most intelligent people are persuaded by the data.
In some types of production, ESPs have been misapplied. One of the first things that Apache (a U.S. independent producer) did when they developed Egypt’s Western Desert was to remove the ESPs and replace them with rod lift equipped with Lufkin’s automation controllers.
The ESPs had a very high failure rate. They failed because the volume of production wasn’t high enough and they also failed because a lot of abrasives were being produced. Once Apache made the switch to rod lift, they were able to quantify a significant savings in their production costs. I think that same set of conditions exists in a number of areas outside of Egypt. We’ve seen it in the U.S. and I think we’ll see it in Russia as well.
OGE: How important is Lufkin Automation?
Glick: Lufkin’s automation product is absolutely critical. The artificial lift hardware works best when it is integrated into a total artificial lift package with Lufkin surface and downhole hardware integrated with the intelligence gathering of Lufkin’s automation product. And that should all be supported by Lufkin service.
If you have the entire package, you get the highest reliability, you get the highest optimization and you get the best cost for CAPEX, OPEX and maintenance.
You can use our automation with another company’s product but you don’t get the reliability. And as time goes on and we embed more intelligence into the Lufkin controllers, this will become even more so. It’s like buying a BMW and then replacing parts with another brand and using a service mechanic who doesn’t know BMW. You don’t get the performance you paid for.
OGE: You have quite an operation in North Africa. What is the future there?
Glick: Our current focus in North Africa is Egypt. Egypt was our launching point in supporting Apache in the Western Desert. And it has really worked out well. We see big opportunity also in Libya and in Algeria.
And we have a good Egyptian partner for manufacturing some of our structural items so that we’re able to support our customers there without having to incur significant transportation costs.
OGE: What about some of Lufkin’s more recent acquisitions?
Glick: We acquired International Lift Systems (ILS) in 2009. It gives us another array of products – gaslift, plunger lift and various completion products – for application where there is associated gas. If production volumes are declining or pressure drops, and you have associated gas to reinject, you can do gas lift and recover oil more cheaply than using an ESP, for example. So in a way, gaslift is probably the first form of artificial lift that operators should move to.
Plunger lift is probably the least expensive form of artificial lift. It typically is used when you have low volumes of production. We acquired PHL (Petro Hydraulic Lift) in 2010. These units are used largely for shallow wells and for dewatering gaswells.
It’s a high growth opportunity in areas where you have coal-bed methane or wet-gas environments where you have to lift water off for the gas to flow. They’re very light, easy to install and inexpensive,
It’s a different type of type of technology from our conventional beam balanced or counter-balanced rod lift. It’s an over the wellbore concentric lift. The other product that we have that’s in its infancy is this hydraulic submersible pump. Its application is where you have long laterals and you’re trying to dewater with the long lateral. You can run a hydraulic submersible pump down and lift water off the gas well or pump oil, for that matter. But typically, it's being used right now in dewatering heavily fracked fields around the Barnett shale plays.
These are our primary new acquisitions. We’ll be looking at more downhole applications such as a line of packers, and other products that will fill gaps in our current portfolio.
OGE: Would you in the future add ESP to your offerings?
Glick: It’s a possibility. But our approach to ESPs would depend on our finding an underserved niche in the ESP market that could be filled by a product we would either acquire or develop. We wouldn’t do a head-on assault on the global ESP players. But if there’s a niche product to which we could apply a new technology to differentiate it, we might look at a nich.
OGE: What is your vision of Lufkin in three to five years?
Glick: Lufkin will be bigger, much more international and higher tech. I think we will have more inteligent products in the field. I think the value delivery from Lufkin relative to our peer group will be significantly higher because of the intelligence and the tighter integration of Lufkin’s hardware and software.
I think education will be a bigger component of what we do and the only way we can do that is to have guys teaching in local languages. We’ll need to develop our own core knowledge experts in the regions.
We’re already No. 1 in rod lift. I would hope we would move up to No. 1 or No. 2 in the other niches as well. And I would think that our services are already recognized globally as differentiated.