October 15, 2012
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Home / Issue Archive / 2012 / October #10 / Diamonds are a Russian Driller’s New Best Friend! Popularity of PDC Bits Soar as Drilling Reaches Record High

№ 10 (October 2012)

Diamonds are a Russian Driller’s New Best Friend! Popularity of PDC Bits Soar as Drilling Reaches Record High

   2012 has been another record-breaking year for Russia’s oilfield drilling industry. So far – driven by drilling programs to open new fields, re-entry programs to revitalize old wells and exploration drilling, the industry seems headed to best last year’s results by another 7 percent.

By Lada Ponomareva

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   Last year, Russia rebounded from a post-crisis dip in activity to post a 10-year drilling record – 18.7 million meters. That is a 67 percent jump over 2001 results, according to statistical research published by the RPI consultancy in Moscow. Principal drivers were Surgutneftegaz, Rosneft, LUKOIL, Gazprom neft, TNK-BP and others as of yearend 2011 (Diagram 1). This year’s expected 20 million meters will best 2011 by 7 percent, and by 2015, the Russian government’s Central Dispatch Department forecasts another 25 percent jump (see Fig. 1). What’s behind the numbers is Russia’s intent to put a host of new fields into full commercial operation by 2020. They include: Bashneft’s Trebs&Titov field (Nenets Autonomous District); Gazprom’s Prirazlomnoye offshore in the Barents Sea, LUKOIL’s Pyakyakhinskoye (Yamal Nenets Autonomous District), Rosneft’s Naulskoye (Nenets Autonomous District) and others. Moreover, Russian producers are attempting to maintain production levels at mature fields by means of sidetracking, and also by supplementary exploration. Of course, all of this is directly related to drilling services and supply of drilling equipment to the oilfield services market.

Optimistic Growth

   In interviewing, executives and other experts from drilling service companies and drilling equipment manufacturers Oil&Gas Eurasia found a general optimism towards Russia as a good place to do business.

   “Varel international is the fastest growing international drillbit company and has made a major investment in a PDC bit manufacturing plant at Kurgan because of the current opportunities in the CIS oil services market,” Varel Regional Manager CIS Thomas Seeney mentioned OGE.

   Statistics published by Central Dispatch Department confirm that business volume for drilling services and equipment suppliers will hit $17.9 billion, exceeding pre-crisis levels of $17 billion. In comparison, after the 2008 global financial meltdown, oilfield drilling services and supply business was a mere $12.4 billion in 2009 (Fig. 2)

   Aberdeen-based energy advisors, Douglas-Westwood, echoes the same optimism of Russian suppliers. Douglas-Westwood’s forecast, which was published by Veles Capital investment company, forecasts a year on year average growth rate of 9 percent in the period of 2011-2014. By 2020, the market volume $45 billion for services and another $11 billion for equipment.
Drilling prices are also increasing. Compared to 2009, the cost per meter of drilling increased almost by 29 percent and by the end of the year can reach $652, according to CDU TEK statistics (See Fig. 3). “Drilling prices are certainly growing, but not as quickly as oil prices. We get the impression that customers are trying to compensate themselves for losses during the crisis,” Damir Valeev, Deputy General Director for strategic development of Gazprom Bureniye, said in an interview with RBC daily. “This wish of service companies is quite clear and justified, particularly, if we take into consideration the fact that now a growing number of ‘complicated’ fields are being brought into development.

   These fields call for new technical and engineering solutions both from the suppliers of drilling services and from the drilling equipment manufacturers. And these solutions must be paid back; otherwise the service market will have no funds for its development and design of new technologies so necessary for their customers.

To Hold Home Market

   With regard to drilling equipment, the industry constantly balances quality versus costs in a market that is constantly raising the bar by implementing increasingly more technologically-complex projects.

   In the drill bit market, for example, Russian manufacturers control 80 to 85 percent of the market in exploration and development drilling. Domestic manufactured bits, though cheaper, had previously lacked in quality. That however is changing as Russian manufacturers become more competitive. Many in fact now have even API certification, for example Volgaburmash.

 Major international service companies (NOV, Schlumberger, Baker Hughes, Halliburton) operating on the Russian market use bits of their own production. And Russian drilling services companies are following suit. Of the domestic service companies shown in Diagram 2, only two – RINACO and Integra – use bits manufac  tured by third-parties. And there is one hybrid: Russian company NewTech Services uses bits manufactured by has a partnership with Varel International. But this summer, The two companies formed a joint venture, Varel-NTS, to manufacture Varel quality bits in Kurgan in East Siberia that marries foreign technology and manufacturing methods with the cost savings and local content advantages of domestic manufacturing.

Diamonds in Wells

   Varel-NTS manufactures only PDC (polycrystalline diamond cutter) bits, while typical Russian manufacturers produce both PDC and roller bits. Kamil Zakirov, executive vice-president of NewtechServices, said in an interview with www.prom-oil.ru. “During the last 10 years, the market has been moving in the direction of diamond bits.” In 2010, shares of PDC bits and roller bits used for drilling in Russia were respectively 80 percent and 20 percent. Experts believe that by 2020, the situation for the Russian market of drill bits will shift even more in favor of PDC: their share will increase to 95 percent, and the remaining 5 percent will fall on roller bits (approximately the same ratio can be observed at present on the US market), according RPI report.

   The rise in demand for PDC drill bits can be explained by the fact that this type of bit is fundamentally more efficient in its rock destruction process than roller cone bits. in “complicated” wells with hard and interbedded rocks. “For complicated drilling more and more PDC bits are required, increasing costs; these bits gradually replace common roller bits, though the latter are still in firm demand,” Oleg Dushin, senior analyst at IC Tserikh Capital Management in Moscow told Russian business magazine,  Expert.

   Andrei Suleimanov, director of marketing and development of NPP Burservice also gives credit to the advantages of PDC bits: “All significant economic indexes related to improving drilling efficiency are achieved by using this type of rock cutting tool. Everywhere, beginning first in West Siberia, we’ve seen the time it takes us to construct a well drop after we’ve shifted to PDC bits.”

   PDC bits are also more wear resistant. Even in cases of deformation, these bits can be repaired and run into the well again. Therefore, customers see it important to have repair services nearby. Varel-NTS is one of only a few Russian manufacturers which repair bits, thus increasing the life cycle of their products. Other companies who repair bits are, for example, Burservice and Burintech.

More Opportunities 

    “The market is competitive, so not only we have good products; explicitly or implicitly, the customer himself regulates the number of players on the market,” New-Tech’s Zakirov told www.prom-oil.ru. “The customer does not like when somebody dominates the market, because he always wants to have a choice. This approach is good, as it supports competition, proper prices and good quality.”

   And competition will grow. Russia’s entry into the WTO enables more foreign companies to enter the Russian market, and will pressure established players to evolve so as to stay competitive. Vladimir Borisov, Head of the Tyumen Association of oil and gas service companies, told the Russian daily newspaper “Rossiiskaya Gazeta” that at present, foreign service companies perform 65 percent of all service operations in Russian oilfields. This has put pressure on suppliers to embrace international standards.

   “The CIS oilfield market is evolving rapidly, the countries’ infrastructures are improving, there is a well educated young workforce available, there are great business opportunities here in Russia,” Thomas Seeney said OGE.

   Oil&Gas Eurasia magazine has made some interviews with executives and experts of major oil service companies on drilling service and drilling equipment manufacturing questions. A special attention was paid to PDC drill bits, its production and use in Russia, and advantages and disadvantages of different drill bits types.

Georgy Kuznetsov, Business Development Manager, Drill Bits, Russia & CIS, National Oilwell Varco

   NOV manufactures land-based and offshore oil drilling rigs and major mechanical components for such rigs, also performs services for oil industry.
First of all, it should be noted, that bit service is the main component of the bit market in Russia (according to our estimates, approximately 70 percent of the total market). In the rest of the world, other mechanisms are commonly used – sale, consignment and lease.

   Extremely high competition exists on the market and gradually knocks out non-producing companies. High competition also forces the players to improve the quality of their services, which implies constant development of new bit designs, new materials, prompt production and logistics, price formation, etc.
Further market development will go along three main lines: technical support of bit run (which became classic already); bit lease; integrated service for directional drilling (bit, screw downhole motor, MWD, jar, etc.).

   Actually, the principles for the selection of bit types for particular drilling conditions in Russia do not differ and should not differ from the rest of the world. Main factors for bit selection include: lithology, potential drilling problems, requirements and tasks put forward by the customer, drive type, well profile, etc.
PDC bits are becoming more and more popular not only in Russia, but all over the world. Actually, it is not surprising at all, as the mechanism of rock destruction by cutting is two times more effective compared to compression, so MCP for PDC bits should be higher. Thanks to new design features, bit controllability for directional drilling is being constantly improved, and new PDC cutters make it possible to drill harder and/or interbedded rocks.
Commercial production of PDC bits was started in 1980. It was set up from scratch in Great Britain. Main bit manufacturers present in the Russian Federation are: BIT, VBM, NOV, Smith, Hughes Christensen, Security and Varel.
Our company operates in all regions of the Russian Federation: the Volga-Ural, Western Siberia, Eastern Siberia and Sakhalin. As a rule, all bit types are used in all regions, but their percent ratio can vary from region to region.

Thomas Seeney, Regional Manager CIS, Varel International
Varel International manufactures drill bits for the global drilling community as well as for the blasthole mining, industrial, construction and water well drilling communities.

   The oil service market is rather unique in Russia compared to the rest of the world. Its potentially huge size is a clear differentiator and more importantly there remain many opportunities to introduce technology and techniques that has become commonplace outside CIS countries. As an example the biggest source of wear on drillbits in Russian drilling is from heavy impact damage to the cutting structure and yet there is little action taken by many customers in optimizing BHA design and improving drilling practice with a view to reducing bit impact damage.

   Despite (or maybe because of) the glacial winters and relatively tough logistics environment, I have found that Russians can be extremely warm, ready to laugh and yet formally polite, on the other hand, ready to fly off the handle when under stress. It’s no surprise then that friendships and long standing relationships between sellers and buyers are a major mover in purchasing decisions.

   Despite the above statement, we still need to prepare no nonsense technical reasons for our customers to buy our bits, with a rapid delivery and low price.
The lithological conditions are not the main challenge in Russia for international drillbit suppliers. The biggest challenge is the underpowered rigs, poor drilling parameter control and the lack of information about what actually happens in the drilling environment where our bits are run. The consequence of this is that PDC bits tend to be less aggressive than Varel would normally propose for the rock types to be encountered in many Russian applications. However, Varel prides itself in its attention to detail in analysis of the many different drilling applications, selecting the bit design after considering detailed lithology, rig capacity, drilling program and detailed offset bit run analysis. We always strive with a passion to provide a “fit-for-purpose” bit design.

   Rock fails much more efficiently through a shearing action. PDC bits “break-up” rock principally by shearing, so clearly drilling can potentially be much faster with a PDC bit. The down side is that the more rock removed per rotation of the bit, the more energy required at the bit. Excessive bit torque and unstable directional drilling are common reasons for poor PDC bit performance in Russia. The roller cone bit fails rock principally by fracturing the rock (although there is a shear component, greater in soft formation bit design) and the rolling movement of the teeth expends energy as heat. The roller drilling action is much more user friendly to tired mud motors and old rig equipment. Diamond is the hardest known substance so the PDC cutter is super resistant to slicing through rock. However diamond in PDC form is rather fragile and can break up from bit load fluctuations and bottom hole impacts. This is where the roller cone comes into its own, Tungsten carbide inserts are much more impact resistant than diamond so there are still some applications where they are the best choice. In Russia, the hard rock areas of Samara, Usinsk and eastern Siberia are still very reliant on roller cone bits but this is evolving, more and more PDC bits are being tested. Westen Siberia drilling is probably 95 percent PDC bit drilling.

   The largest volume suppliers in Russia are still Volga Burmarsh for roller cones and Burintech for PDC bits. However as more powerful rigs are brought in, drilling techniques evolve and more difficult wells are being drilled, the big five international suppliers, Hughes, Smith, Halliburton, NOV and Varel are gaining more market share.

   The Russian drilling operations can be essentially divided up into six principal drilling areas, Varel NTS operates in all the onshore areas at this time. By far the greatest drilling activity is currently in western Siberia around Khanti-Mancisk, Niznevartovsk and Noyabrsk. The next largest area of activity is west of the Urals around Orenburg, Perm, Samara and Almetyevsk. Very similar formations extend to the North but drilling is mostly around the Usinsk-Komi area. An increasingly large amount of drilling occurs in eastern Siberia around Irkutsk and there is some important offshore drilling in the Sakhalin area. The area of future development with potentially huge reserves is the Barents sea Varel has no activity here at this time.

Andrei Suleimanov, Director Marketing & Business Development,  “NPP Burservice” OJSC

   NPP Burservice manufactures different drilling equipment and components for construction and workovers of oil and gas wells, also provides service support.
Burservice started its own PDC bit production in 2005 from scratch. At first it was hard to find and buy the type of metal-working machines that we needed to produce our products. Such machines just weren’t available in Russia. But two years ago, this situation changed and we now operate two, domestically produced, five-axis machining units. And we plan soon to install two more.
Burservice captured five to eight percent market share in Russia this year. All but 1 percent of our product line is PDC bits. The 1 percent is a special-purpose bit equipped with hard-alloy cutters. We also offer engineering support.

   Russia’s oil service market can be chaotic. Domestic bit manufacturers own 85 percent of the Russian market. And while the quality of drill bits is high, other equipment can be poor and drilling crews inexperienced. Thus, customers often expect the high technology bit to compensate.

   Price dumping by new players, mostly Chinese, is a problem. They attack to win market share, bringing down the price, but when they retreat, prices remain low for everyone.

   This all combines to make it difficult to get a fair price given the value of high quality drill bits and engineering maintenance. Add in a lack of state support for Russian oilfield equipment manufacturers (as opposed to Chinese that do receive state support) and the result is instability and difficulty in forecasting.
The drilling services and equipment business is profit and R&D driven. And whether a bit type is effective or not depends not on the bit but on whether or not it is being used correctly. Given the drop in prices over the last three years, customers are trying to get far more for less money. They don’t acknowledge the real value of the product.

   In choosing a bit, you need to consider the geological characteristics of the field, project requirements, well design and technical capabilities of surface drilling equipment. Currently, Russia’s drilling rig fleet is being replaced, and components upgraded. So today you can see two drilling rigs equipped differently on neighbouring well pads. Certainly, bits offered for each of the rigs will have different design features.

   PDC bits are more efficient than roller bits. And PDC bits are replacing roller bits especially when drilling through carbonate layers. However, there are no sufficiently strong PDC bits for dense rocks of high strength yet. Roller bits are still more effective.

   In some cases, the higher torque capacity of PDC bits is an important factor limiting their application. Specifically, it concerns drilling of the upper intervals with large-diameter bits and drilling of horizontal liner sections.

   When I say Russian bits, I mean bits designed and manufactured in Russia. The list of domestic producers includes, Burservice, Burintekh, Volgaburmash, UDOL, Universalnoye Bureniye. Of the foreign producers, all major international brands, and Chinese companies are present on our market.

   We operate throughout Russia, but West Siberia is our top market. And we manufacture a separate bit line for virtually every project. We certainly have some basic designs, but because drilling conditions vary significantly, it is impossible to achieve high technical and economic performance without customization.

   Meanwhile, we are successfully coring with our core bits in East Siberia and the Volga-Ural region. In these regions, we are also introducing PDC bits designed for carbonate rocks. Though we don’t manufacture roller bits, we do source them from third parties for turn-key projects.

Sanal Tsedenov, First Vice-President,
BSK-RINAKO LLC

   BSK RINAKO provides technological and engineering services for drilling, also performs service support for well completion, operation and well recovery.
Russia’s oilfield services market has good prospects for growth today. Oil companies are increasing their drilling activity, which increases the scope of required services including drill bit services. One can refer to the last few years as a period of stabilization.

   At present, high global oil prices coupled with declining production in major Russian oilfields drive the market in drilling services and drilling equipment deliveries. The customers’ requirements are always the same – they expect a steady improvement in quality, reliability and rate of penetration, and a steady reduction of our prices.

   Our company operates over the whole territory of the Russian Federation. We work successfully in west and in east Siberia, Perm, Volgograd, Saratov, Orenburg and Samara regions, the Republics of Tatarstan, Bashkortostan, Kalmykia, Udmurtia, Komi, Yakutia and elsewhere. We select bits to suit the drilling program and the lithological section of the particular well and field, taking into account available experience.

   In the last five years, roller bits have noticeably surrendered the market to PDC bits. Though roller bits do have their advantages and traditional customers, PDC bits have the edge. PDC bits are designed to have no moving parts. This reduces the risk of losing bit parts on the bottomhole while drilling. It also makes them highly resistant to wear which means they can drill a lot of meters. And they have a low axial load required at high drilling rates. Also, if PDC bits are used correctly, they will wear evenly and thus can be restored for further use, this makes them cheaper over the long term.

   The Chinese company Kingdream PLC has been our strategic partner for a long time. During the 11-years of our close technical collaboration, the specialists in our rock cutting tool department and Kingdream R&D center have designed a wide range of roller and diamond drill bits for the Russian market. This work was realized by constant implementation of new technologies, and development and realization of new technical solutions in the process of improving our products. We always paid special attention to designing bits for West Siberia, but now we can also offer well-proven bit lines for eastern Siberia, Ural-Volga and the Pechora regions.

   We also have close contacts and cooperate with all Russian and global manufacturers, such as Burintekh, Baker Hughes, Reed Hycalog, Smith and others.

   Based on 18.5 million meters drilled in 2011, we cover now approximately seven to eight percent of the market. I believe that we have good prospects for extending our segment based on the current indicators of our bit services. Another one of our advantages is the availability of our rather large stock of downhole screw motors and, respectively, of well-proven assemblies “drill bit plus downhole screw motor” for many Russian regions.

   We have certain experience in collaborating with Varel. In 2003 we were among the first companies which tested Varel bits in Russian fields. Setting-up of production facilities in Russia, especially in the drilling equipment manufacturing sector, always inspires respect for the foreign investors who really want to work here. Requirements for the drilling equipment are increasing day by day on the oil service market. Therefore, given the good quality of their bits, they (NewTechVarel) can be quite competitive on the Russian market.

Maksim Petrenko, Business Development Manager,  Drill Bits and New Technologies Department, Smith Bits (Schlumberger)
Smith Bits provides different drilling products and services to oil and gas industry. Company became part of Schlumberger in August 2010.

   The Russian drillbit market is quite stable. According to our estimates, it shows a sustainable growth of 5% to 7%, compensating the crisis price drop by the fact that the producing companies start developing more and more complicated and remote fields, i.e. they drill deeper, father, deviating more from the vertical and, which is the most important factor, in more difficult geological conditions. The drilling focus is gradually advancing from Western Siberia to Eastern Siberia, where more often than not the fields show much more complicated lithological structure. The same can be said about the Timano-Pechora oil-and-gas province.

   In addition, one can observe two strong trends characterizing the recent development of the Russian drillbit market:  transfer from the direct sales of the bits to the drillbit service and transition from the roller-bit drilling to the polycrystalline diamond compact (PDC) cutter drilling (up to 80% today). But while the transition to PDC is a global trend, the service is yet developed in a couple of countries only.

   The development of the PDC drillbits has resulted in a qualitative jump of the indicators reflecting both the drilling rate and the run lengths, with respective reduction of the round trip number. The accident rate related to leaving drillbit parts in the wellbore zone has also dropped down.

   The new approaches used for PDC cutter production allowed us to reach some revolutionary indicators for hard rock drilling: - the PDC drillbit drilling rates and run lengths have increased several folds in the recent 5 to 7 year period. Accordingly, the companies investing substantial assets to the Research and Advanced Development enjoy a serious competitive advantage. The PDC drillbit production technology is developing very dynamically in two main directions i.e. the controllability and durability of the equipment.

   Today, the Russian drillbit market shows a high competitiveness created by both the domestic manufacturers (Burintekh, VBM and some smaller companies) and the Western manufacturers (the Big Four, Varel, Chinese suppliers, and also by the companies rendering the drillbit service. In the given situation, the success, in our opinion, depends on two basic moments: - the equipment and the personnel. The advanced drillbit technologies and the strong team of the professionals allowed Smith Bits to increase its share on the Russian market by 10% in the recent 5 years. Also, according to the SPEARS marketing report on the global oil service market, the Smith Bits (Schlumberger) drillbits rank first in the global market. Without any doubt this achievement was facilitated by the synergistic effect of business merger of Smith International and Schlumberger, which took place in September 2010.

   The major advantage of our company is represented, first of all, by the big annual investments to development of new drillbit technologies and designs. In addition to that, Smith Bits offers an extensive product line of drillbits, including the roller bits, PDC, diamond impregnated drillbits, hole sizers, as well as various software, for both the drillbit modeling and the drilling parameter optimization, thus providing the best tool selection for any conditions of its use.
Today Smith Bits operates in all basic oil & gas regions of the country: Western and Eastern Siberia, Timano-Pechora, Volga-Urals and Caspian regions, as well as in the Black Sea and on the Sakhalin Island.

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