By Paul Wiseman
“Instead of being focused on the drilling side, we’re very much focused on the production side,” says Ron Underwood, president and founder of R&D Pipe. The company is based near Houston, selling pipe throughout the Gulf Coast as well as in the Permian Basin.
The flood of drilling rigs in the Permian has led to a flood of production—some of which is from EOR methods such as CO2 floods. The methods, says Underwood, are corrosive to the pipes that carry them—so R&D has upped their corrosion mitigation business for that sector over the last two years, particularly for Permian clients.
“There are strings of pipe out in West Texas that, you run them in a well and a week later they’re eaten up completely.” As causes of this corrosion Underwood lists bacteria, “sweet corrosion, sour corrosion—the list goes on of challenges out there in West Texas.”
R&D does still provide a significant amount of pipe for drilling, however. He notes that deeper wells with longer laterals require more pipe than ever before. “A lot of these horizontal wells they’re drilling, they’ll be 10-11,000 feet vertically. And then they kick out and they may be another 15-20,000 feet on a horizontal plane,” in several directions.
At one time, the industry estimated 200 tons of pipe were involved in a vertical well. “It’s double or triple that now.”
Pipemakers from whom R&D purchases its product have “come a long way” in improvements in performance properties by changing the recipe, Underwood says. Improvements have also come on threads, creating the ability to bend around corners, without leaks, on laterals involved in horizontal wells. “You can also rotate your casing string and not back off on the other side.”
Of all the industries that might be affected by a looming steel tariff, the oilfield pipe sector would have to be near the top. Underwood has seen pipe manufacturers raise prices by about a third in anticipation of these changes. What frustrates Underwood is that there has not actually been a tariff enacted and might never be one—yet the prices have risen on fear that they might.
“Our president mentions, and all of a sudden, all the companies that are importing pipe start raising prices—long before there’s any definitive decision. It’s hard to explain that to your customer if you’re trying to sell a product and it’s certainly hard to digest when someone’s saying, ‘Your prices are going up 37 and a half percent as opposed to just 25 percent. We’re not only having to make up for the tariff, but we want a price increase, too,” he said, speaking of his suppliers.
At this stage, the price increases seem to be universal, says Underwood—no manufacturer he knows of is holding prices down, even though there is no concrete reason for higher prices, such as increased costs of labor or materials. “It all stems from someone talking—and that someone is the President.”
One supplier did give R&D a list of future prices—one based on the tariff going through and the other on it not going through—variables which cause Underwood to ask, “How do you plan?”
One way producers can deal with the possibility of tariff-led price increases is with pipe coating, as Underwood noted. Odessa’s Permian Enterprises has been in business doing exactly that since 1948. Western Region Sales Representative Chris Holcomb says operators can re-use corroded pipe by having it covered with a corrosion-resistant coating.
“When they have a failure on the well, and there’s a hole in the tubing or something, they’ll send that pipe to us. We’ll clean it, we’ll inspect it, get rid of any bad pieces of pipe and refurbish the good pieces of pipe so they can put it back into the well.” This leads to a better return on capital investment. It also keeps an operator from having to buy the possibly more expensive pipe that would come with tariffs.
Pipe prices matter more in a downturn and less in a boom—and current prices are in neither category. When prices were high, Holcomb said, “Oil companies really didn’t care—just buy more tubing, they said. At this juncture, at $60, it’s good money, but it’s still not that $80-$100 oil. So they’re being a little more cognizant of their costs and their equipment and how to get the most value out of it.”
Internal and external coatings protect downhole pipe from corrosion, greatly extending its life from the start.
Holcomb added that the cost of a pipe failure is greater than just the pipe itself. Replacement involves stopping production while the pipe is pulled and replaced, which adds a reduction in revenue to the outgoing costs.
Many producers coat new pipe in order to lengthen its life from the start. With deeper holes come more and more slight deviations, which create places where the rod string rubs against the pipe, creating holidays. Coated pipe resists wear longer, reducing the number of times it must be pulled, refurbished, and replaced.
Any length of pipe can be refurbished and reinstalled as long as its length is sufficient to allow space for threads on either end, in the same way a pencil is useful until it’s been sharpened so many times that it can no longer be held in the hand.
Another issue facing pipe companies is the increased demand due to $60 oil. Holcomb says some producers still expect quick turnaround on pipe, as was possible during the bust of 2015-16. “If you sent me pipe today [for coating]… I would tell you it’ll be approximately eight weeks if you got it to me today, before I could have it back. That’s how far back our backlog is.”
There’s a new twist on the supply chain, however, that shifts inventory costs and allows pipe companies to prepare for quicker shipping. Holcomb says producers no longer keep miles of pipe in their own yards. “Since [pipe] can’t be coated quickly, what these pipe companies are doing, they’re sending in their pipe, they’re coating it, they keep it there for when these oil companies call.”
There is a premium to be paid for this service, but producers save money on inventory costs.
Like everyone in the Oil Patch during an upturn, Permian Enterprises balances the need for new workers with the need for good new workers. People ask Holcomb why the company doesn’t just hire more people and put on another shift. “It sound so simple, but you don’t just hire somebody off the street and put them into a computerized coating system. You’ve got to train them.” And make sure they’re quality people.
Another company whose job is to extend the life of oilfield pipe is Odessa’s Bond-Coat. Their President and CEO is Chad Green.
Bond-Coat’s clients are largely interested in protecting pipe as it goes through the brine water in the San Andres formation, which averages around 800 feet in depth.
“We put the coating on the casing that goes across the San Andres, primarily. It protects that pipe—the brine water it has in it—puts holes in the casing and therefore you get water into your wellbore,” he said.
Deeper wells and longer laterals have changed the size of pipe required. “With the change in well design to the horizontals—used to, 95 percent of all the pipe we coated was 5-1/2 inch—and now, it 9-5/8.”
Producers had always used 9-5/8” pipe, but, Green says, they now use it at much greater depths than before, so that it now extends into more corrosive environments such as the San Andres.
Green is happy to report that most clients moving to the new designs continued to use Bond-Coat for the newer sizes, so they didn’t lose any significant business in the changeover. Their equipment was readily able to adjust to the larger sizes.
The rebound in oil prices has funded much of the deeper drilling, and it has also brought about more drilling of all sorts. Bond-Coat is reaping some benefit from the increased activity, but $60 oil is not the same as the $100 oil last seen in 2014. “We’re not back to our 2013-2014 levels, but I would say we’re probably 75 percent back to where we were at our busiest time.”
Through boom and bust cycles Bond-Coat has maintained relatively stable pricing—they did not raise prices during the boom so they did not cut them during the bust. This stability has helped them maintain a good margin now as oil prices have only recovered partway to where they were in the biggest boom.
Echoing the plight of most other oil patch firms, he noted that adding staff to keep up with client needs is a challenge. During the downturn they got “as lean as we could be,” staffing-wise, and now the search for employees is on full steam.
Being fully automated has helped the company do more work with fewer people—but it also requires those that do work there to be fully trained on the system.
“We can coat one 40-foot piece of casing—that’s 10-inch, 9-5/8-in-casing—we put out one coated joint every four minutes.” It takes hours for each pipe section to go through the system, but once the pipeline is loaded, so to speak, “You’ve got one coming in the front and one coming out the back, finished, every four minutes.” In one day shift the company coats 7-8,000 feet of pipe.
Bond-Coat began moving toward automation about two boom-bust cycles back, in 2009-10. They designed the needed equipment around their unique process, and had the equipment manufactured for that purpose. “We had to do that out of necessity,” Green says, “because, with the old ways of doing it, we couldn’t produce what we needed to.”
This assembly-line process has paid huge dividends for the company in a surprising way—they’ve duplicated the process in plants overseas. “We have two plants in the Middle East,” he says. “We have one plant in Oman that we’ve had for eight years now.” They have recently opened a plant in Qatar. “This year we’re putting in a third plant in Saudi Arabia.” That plant should be operational by the end of 2018.
The automation process makes sure that clients in those three countries get the exact same product as do those in the Permian Basin.
While every aspect of the oil and gas business rises and falls somewhat, based on commodity prices, as long as there is any drilling or production, downhole pipe will be a vital part of the business.
Paul Wiseman is a freelance writer in Midland.