The simplest implement in the oilfield–a joint of pipe–is not so simple any more, but that’s good for all involved.
Edwin Drake started the ball rolling when he designed a method of drilling for oil that used an iron pipe. Since those early days of the oil industry in 1859 when his iron drive pipe invention drilled down into the ground and the black gold flowed up, pipe has formed the core of the industry.
The “iron pipe” has evolved over a century and a half and the industry today encompasses a variety of materials, sizes, and uses as pipe remains the mainstay for every stage of the industry. From drilling vertical and horizontal wells to disposal wells, from flowing lines to gathering lines, the petroleum industry relies on pipe.
For decades, pipe was manufactured of steel. In recent times, that industry has evolved to include materials such as polyethylene and fiberglass, and meanwhile has seen the introduction of various coatings. As technology has expanded the petroleum industry’s ability to search for oil and gas, pipe has changed to conform to the needs.
Pipe companies in the Permian Basin have experienced the industry’s highs and lows and adapted to its changing technology. One company moved into Midland three years ago with a new type of pipe. Another firm found its niche in the pipe re-sell market over 30 years ago. On the far eastern fringe of the Permian, in Abilene, Smith Pipe Company has built an empire within the pipe market, having amassed more than 3 million feet of pipe within their yards.
Experts are expecting the petroleum industry to continue thriving, without a bust expected in the near future. “The International Energy Agency estimates that 70 percent of the world’s remaining oil reserves consist of crude oil with either high sulfur or CO2 content that requires high quality, corrosion-resistant materials,” wrote Robert Miller in the March 15, 2013, issue of breakingenergy.com. He noted, “Almost 45 percent of the cost of corrosion—about $1 trillion annually—is attributable to the oil, gas, and petrochemical industries.”
And that includes pipe.
Gary Compton, special projects manager with Onda-Lay Pipe, said the company opened its doors in Midland in 1982 and sold polyethylene pipe. The company also rented pipe to drilling rigs. They eased out of the rental business and added newer technology. About 1986 Onda-Lay added steel construction and some fiberglass to its inventory. Then in 1999, the firm expanded to fiberglass sales and service.
“Drilling rigs use steel pipe and we service the industry after they have drilled a well,” he explained. The increasing number of directional wells require steel pipe and sometimes the lateral pipe can run 1 ½ miles and is perforated to pull out more oil.
Onda-Lay’s website notes the company has offices in Midland and Hobbs, N.M. It has built a reputation for becoming one of the “leading distributors of polyethylene pipe and fittings throughout the United States.” The firm advertises its ability to provide “complete turnkey installation of polyethylene, steel, and fiberglass and other composite pipe systems including surface and buried applications for gas gathering and salt water disposal systems; flow lines for crude oil, gas, water, and CO2; injection systems for tertiary recovery projects; and slip lining of existing lines.”
Compton started with Onda-Lay in 1983 and has worked his way up and survived the industry’s cycles.
“The challenges right now are in getting supplies,” he said. “It can take three to four weeks to get polyethylene pipe. Fiberglass pipe takes four and a half months. Steel was that way a couple years ago when the inventory was way down.” Since then, mills have geared up and are manufacturing more steel pipe.
However, some companies are buying steel pipe from overseas manufacturers. In one case, Compton said, the company bought their pipe from Korea. That company sent its inspectors to the plant and ensured the pipe was made according to stringent U.S. regulations. In another situation, a company bought pipe from a foreign company and had laid 15 to 20 miles of it before discovering the pipe was defective. “It was expensive to take up that pipe and replace it,” he noted. “Pipeline companies usually request a domestic product.”
Another aspect of the up-cycle comes in the form of competition. More companies have moved into the Permian Basin in the past three years. “We’ve had an influx of at least 50 percent more contractors coming in looking for work. It’s busier than ever in the oilfield. A lot of companies are bringing in their people from Louisiana and Oklahoma.”
While local companies were scrambling three years ago to meet the demand, Compton said the workload appears to have hit a steady note. “We peaked at 330 employees last year and now we have 275.” That contrasts with the 12 they employed when he started 30 years ago.
The Cline Shale has become the talk of the industry and Compton said drilling hasn’t really ramped up in that area. “They’re finishing 3-D seismograph and companies are trying to figure it out.”
Advancing technology, especially in the Permian Basin, has driven changes in types of pipe. Among the newcomers to the area is Fiberspar, which recently was bought by NOV FiberGlass Systems.
“We came here three years ago,” said Nathan Fowler, district manager based in Midland. During the first year, Fowler hired one other employee and the two handled the demand. Since then, he’s hired five additional employees to help with the company’s installation of spoolable fiber-reinforced pipe that was designed for the oilfield. It is manufactured for oil, gas, and water applications, he said.
Fiberspar originally was founded in 1986 to produce “continuous fiber-reinforced products in high performance sporting goods applications. From 1993 to 1995, Fiberspar and Conoco, Inc. worked together to develop the basic spoolable pipe technology for application in the oil industry. In 1996, Fiberspar acquired from Conoco all their background intellectual property in this technology, and then entered into a joint development with Halliburton Energy Services to develop a broader range of products.”
Fowler said Fiberspar offers a 20-year guarantee for the poly-pipe wrapped in fiberglass. “You don’t have to worry about corrosion or x-raying it,” he said.
One of the first LinePipe systems was laid in the Levelland area in 1999, according to Fowler. Fiberspar’s website highlighted that installation, noting that a segment was replaced recently after an operator accidentally came into contact with it while digging a ditch. “Fiberspar representatives replaced the affected segment and sent a sample to our Houston manufacturing facility for testing. After being in service for over 12 years, the LinePipe exceeded the minimum test requirements for new pipe.” This line is a 2.5-inch, 2,500-psi sour produced water injection system that spans 40,000 feet and has been operating about 2,200 psi for more than 12 years.
According to Fowler, when spoolable pipe can be utilized instead of steel, the company can see cost savings in price of the product and manpower. “We can run 10,000 feet in one day and we use a three-man crew. If you were putting in steel pipe, it would take a week and require welders and X-ray inspectors” in addition to having a crew lay the pipe.
As the industry changes, Fiberspar is constantly researching ways to improve its products, Fowler said. The company’s corporate headquarters and manufacturing facility are located in Houston. Sales and distribution offices can be found across North and South America, Canada, Australia, Africa, and the Middle East.
While Onda-Lay and Fiberspar sell and install new pipe, Coastal Pipeline in Midland deals with used pipe and owner James Rice is experiencing a growing business. Coastal Pipeline was founded in 1967 by the late Ron Roetzchke. Rice was hired in 1972, and he took over the operation in 1980.
“There are not a lot of companies who do what I do. I buy used pipe, re-condition it, re-test it, and sell it to smaller oil companies or to the structural market for fence building,” Rice said. “When I took over from my partner, we had a niche of customers already.”
He also had fine-tuned the process on acquiring used pipe. “Companies store used pipe in a storage yard like Tuboscope and they will bid it out. We bid on it and I buy it that way. And I’ve had some contracts with companies where they call me directly and I go get it. Plugging companies will call me and they want an offer on the used pipe.
“Tuboscope measures the wall thickness of the pipe and if it doesn’t meet their criteria, they will junk it out,” Rice said. Some of that “junked” pipe will go to the fence-building industry and “the really rough stuff is shipped to Mexico. If it’s really bad, it is sold as scrap.”
Pipe no longer meeting major oil company criteria can often be used for shallow wells, for flow lines that take the oil from the well to the battery, or for salt water disposals. The latter type has a plastic coat on the inside. Rice said he repairs the ends and re-sells them for disposal wells.
“My supply right now is good,” he said of his pipe inventory. “There is so much activity in the oilfield and companies are running through a lot of pipe. The most popular size is 2 3/8 to 2 7/8 inch tubing. Most of what I have is for tubing, casing, and sucker rods.”
His pricing depends on the new market prices. “The market is soft right now,” he said of steel pipe. “The mills are cranking it out and prices are down from where they’ve been the last couple of years.”
Meanwhile, he’s added employees and equipment while keeping an eye toward exposure to risk. Rice’s experience with the boom-and-bust cycles taught him to stay out of debt and forego the fancy equipment. “We have no debt; we have stayed small; and we’ve weathered each storm. By dealing in used pipe, it’s not as risky.”
Steel, coatings, fiberglass, polyethylene. The pipe used today is nothing like the iron pipe Drake used in 1859 to drill the world’s first oil well.