Drilling advances

Vol. 233 No. 11

Doubling down builds hefty pots

As the story goes, the boulder appears as a geological phenomenon, seemingly suspended in mid-air atop a seaside cliff. The way I heard it during a business trip to South America a number of years back, the lithoidal oddity supposedly became the center of a local crusade after an operator announced plans to drill an offshore exploration well.

The crusaders, it seems, feared the drilling would generate weird vibrations that would cause the boulder to break free and tumble into obscurity. When told of the totally baseless row, the operator’s representative purportedly replied, “What’s the problem? Don’t they have a back-up rock?”

Memory escapes me as to the location of the alleged rock, or the veracity of the account as told, but nonetheless, in spirit, the obviously flippant comment has never rung truer than it does today. While engineering redundancies for every conceivability have long been a central component of any offshore or onshore well plan, it has taken on an entirely new dimension in today’s regulatory and economic climate. With some of the largest offshore drilling contractors taking the proactive approach of employing dual BOP stacks on newbuilds, and others undertaking extensive safety makeovers of older offshore and land rigs, it comes as no surprise that healthy backlogs are springing up for designers and manufacturers.

On Sept. 11, The Wall Street Journal singled out National Oilwell Varco (NOV) and Cameron as two of the top beneficiaries of the retooling renaissance, which is borne out in their most recent earnings reports. At the end of the second quarter, Cameron reported a backlog of $7.5 billion, up 35% from a year earlier, thanks in no small part to $2.6 billion in orders during the quarter—the second highest in the company’s history. Meanwhile, NOV said that by the end of June, its Rig Technology segment had received capital equipment orders totaling $11.28 billion, which was 46% higher than the same quarter in 2011.

Obviously, much of those reported backlogs can be attributed to offshore contractors like Transocean, Rowan, Diamond Offshore, Seadrill and Noble, announcing their intentions to employ twin BOP stacks on newbuild deepwater rigs where possible, even though they are not mandated by any regulations to do so. As of late September, Seadrill, alone, was overseeing a 19-rig construction program that, according to World Oil, includes seven drillships and two harsh environment semi-submersibles, with fixed-price options for three additional ultra-deepwater/harsh environment rigs.

That’s all good news for companies like Cameron, where Chairman, CEO and President Jack Moore said in response to an analyst’s question during the second quarter earnings call that he expects no less than half of the new deepwater rigs to exit shipyards carrying two BOPs. “You’re looking at more redundancy that’s going to benefit all of us in the manufacturing side of the business,” he said.

The outlook was similar at NOV, where Chairman, CEO and President Merrill “Pete” Miller suggested to analysts that it’s definitely a good time to be in the BOP business. “I think a lot of them (contractors) are taking a couple of stacks per rig. We’re also having some of our traditional customers coming in and ordering one-off stacks now. I think everybody realizes the need for that, and I think that’s going to be a business that’s going to continue to be very, very strong for ourselves in that arena.”

What’s more, as deepwater rigs come into the yard for their five-year inspection, many are very likely to be outfitted with newer-generation BOPs when they go back to work. Either way, manufacturers like Cameron and NOV benefit.

“We’ve got a number of customers that are going to move forward with dual BOPs where they can,” Moore said. “Not every rig can accommodate a dual system. And even when the rigs can’t, we’re seeing some customers move to ensure that they have a backup strategically located where their rigs are operating. So it’s going to be better, I think, than we thought.”

While clearly an added safety measure, the idea of adding two BOPs also makes sound business sense. “What the operators and contractors are realizing, is with the spread costs where they are today in the deepwater markets, a backup (BOP) that can keep you from being down for a week or so while you’re tripping a stack can be significant to the savings,” Moore told analysts.

Regulate one’s self. It can be argued that while current economics certainly come into play, the relatively recent escalation in rig overhauls may have more to do with the heightened prominence that the industry has placed on self-regulation. Contractors and operators say they are actively remodeling components in some of their elder rigs, with a primary emphasis on installing the latest-generation HSE-related technologies.

The increased focus on rig renovations is not restricted to offshore, as land-based contractors join their offshore brethren in making certain that older units can handle the rigors of critical onshore applications. In its 2011 annual report, NOV said 14% of the $10.2-billion year-end backlog recorded by its Rig Technology segment was for equipment destined for onshore rigs. In August, NOV paid $2.55 billion to acquire Robbins & Myers, which manufactures pumps, horizontal power sections, pressure control devices and associated technologies.

Both Cameron and NOV said with the focus on self-regulation, the maintenance, repair, upgrading and retrofitting of rig equipment has become a considerably higher priority. Those roles fall into the laps of the original equipment manufacturers (OEMs), which in turn helps bloat the bottom lines of the aftermarket business. Cameron, for instance, said its aftermarket sales at the end of 2011 stood at $1.8 billion—a company record.