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Home / Issue Archive / 2008 / March #3 / Chinese Hybrids Offer a Practical, Low Cost Solution to Russia’s Rig Shortage

№ 3 (March 2008)

Chinese Hybrids Offer a Practical, Low Cost Solution to Russia’s Rig Shortage

In February, Russian drilling contractor North Expedition Holding (under contract to Gazprom’s Burgaz) demonstrated the ZJ50DBS hybrid drilling rig on the Urgenoi field

By

_editor_Rig_tall.jpgThe rig, designed for deep drilling, was manufactured at China's Honghua Petroleum Equipment Co Ltd. in Sichuan province.

Its developers, the Russian-Chinese drillling equipment joint venture Izhdril-Nordeks-Honghua, expect the new rig to initiate a new trend in the industry.

Yuri Livchits, president of the North Expedition Holding, characterized the rig's presentation in fact as the beginning of what he called,  “a new era in drilling”. This new era is defined by an ever increasing interest on the part of the Russian oil industry in building relationships with Chinese drilling equipment manufacturers. China's  Honghua company has been closely cooperating with the Izhdril group for more than four years.

Chinese Drilling Rig Resembling Lego

Although their joint business was limited to the delivery of driling equipment spare parts to the Russian market earlier, now these two companies have founded a joint venture Izhdril-Nordex-Honghua to manufacture and supply entire drilling rigs, some to be assembled in China and some to be assembled in Russia.

Izhdril representatives understand Honghua to be a well financed and respected manufacturer in China with whom they can work in partnership. The Russian side also believe that by building hybrid rigs together with the Chinese, they can design "fit for purpose" rigs that offer the best balance of price versus quality for the Russian market.

_editor_Caterpillar-1.jpgThese rigs are unique because they are assembled from a variety of brand name components to suit the needs of the buyer. In an interview with Oil&Gas Eurasia during the Urengoi demonstration, Livchits likened the mixing and matching of parts to a "Lego" construction.  The hybrid rigs are capable of operating in the most severe climatic conditions of the Russian Arctic. Components include National Oilwell Varco top drives; Caterpillar motors and electrics supplied by General Electric and Siemens. The rig is assembled, tested and supplied from China to meet customer requirements. One Honghua representative told OGE that in addition to its new Arctic series, the JV Izhdril-Nordex-Honghua has other rig classes operating in Samara, Irkutsk and Udmurtia.  

Key competitive advantages of the new drilling rig for Russian and Chinese companies include the following:

Rigs are assembled and installed in record-breaking time;
While it takes six to eight months to manufacture a joint venture rig in China, Russian manufacturers can take a year or longer to build the same rig;
It takes a drilling crew of 35 workers to operate a ZJ50DBS series rig in the field whereas a typical Russian rig requires a drilling crew of 45 or more workers.

Strategic Partners in Drilling Rig Manufacturing

_editor_Cabin.jpgIn 2008, JV Izhdril-Nordex-Honghua plans to supply up to 56 drilling rigs in total from China. Ten of those are expected to be delivered by April. Such high volume will help the JV cover the market of heavy fixed drilling rigs, in particular, for the deep drilling segment. According to Livchits, this niche is "wide open" in the market.

But to succeed, the Russian-Chinese partnership depends not only on market demand and the performance of their product, but also on the availability of financing for the manufacture of the rigs. Under the arrangement, the JV leases the rigs from the Chinese partner and then subleases further to drilling contractors and producers.

On the finance side, OGE estimates it will cost the JV $1.12 bln (based on a loosely estimated cost of $20 mln per rig) to produce the 56 drilling rigs they plan to deliver in 2008. Thus, the companies cannot rely solely on their own financial resources and so they are on a constant look out for strategic partners among banks and investment houses. 

Russian banks are in a good position to cooperate in this area because the Russian government has been actively voicing its support and readiness to stimulate and build up Russia's oil engineering sector. The government is consistant in its encouraging Russian banks to take an active part in this.
According to North Expedition Holding, some Russian banks, such as Sberbank and the Bank of Foreign Trade (VTB) have already offered their hand in strategic partnership. The principle conditions of such a partnership will most likely include leasing and renting.

The next step is to add manufacturing capacity in Russia itself. JV Izhdril-Nordeks-Honghua plans to assemble rigs of the Chinese series 50DBS at its Neftekamsk drilling equipment factory.  The JV will also manufacture spare parts at the Votkinsk factory, with whom the company has cooperation agreement.

If this strategy succeeds, the companies will be capable of manufacturing up to 50 rigs of the Chinese 50DBS series per year, starting from 2010. According to Izhdril’s estimations, the company could cover up to 75 percent of demand for drilling equipment in Russia after 2010.

For potential customers using Chinese rigs, one of the most important points is the day rates drilling. Taking into account that such rigs are designed for deep drilling, up to 5,000 m, the deeper the wells are, and the more expensive the drilling is. Therefore, the original cost of drilling will be higher.

In the words of Livchits, “everything depends on wells, what wells should be drilled and where”. Izhdril estimates that its own daily rates for drilling will be rather expensive, since the rigs are new, and the rates are higher than in the Russian market. At the same time, according to Izhdril experts, it will be to advantage of the customers to use the ZJ50DBS, because such high-tech rigs do not require regular repairs. 

Fixed Drilling Rig,  ZJ50DBS

1.    Rated drilling depth, (127-mm DP)     5,000 m
2.    Maximum hook load rating                3,150 kN
3.    Maximum drilling string weight           1,800 kN
4.    Rotary drilling line diameter               35 mm
5.    Ultimate derrick height                      45 m
6.    Rig floor height                                9 m
7.    Drawworks power rating                     1,400 kW
8.    Rotary table opening                        950 mm
9.    Mud pump horsepower rating             1,600x2 hp                                   10.Hoisting capacity with 6 x 7 
line string-up                                          315 t (3,150 kN)
Diesel electric drive.
Drive location: separate table drive.

 

Joint venture Izhdril-Nordex-Honghua was established in 2006.

It’s a trilateral project of North Expedition Petroleum (a subsidiary of North Expedition Holding), Izhdril and Honghua. The company produces and supplies drilling equipment to Russia. Production and technical facilities for accessories and additional equipment (drilling pumps, fluid processing systems) were established in Izhevsk. Part of the equipment is produced in China at the Honghua plant, part is purchased in the U.S. on direct contracts. Eurasia drilling company bought two drilling rigs TZJ50DBS last year for its operations in Kazakhstan. Nordex is due to receive five such rigs for drilling works at the Yamal fields.

 

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Copyright © 2007 Eurasia Press (www.eurasiapress.com)