Mark Twain famously wrote in a letter to a reporter, “The report of my death was an exaggeration.” The sentiment holds true for our industry. Yes, we are in the midst of a downturn, but our best days are ahead of us—if we prepare for them.
More than a decade ago, the oil and gas industry had to become technologically resourceful to overcome physical challenges. Harsher, unconventional environments and the demands of continuous-duty operations drove the need for new thinking and higher-performing equipment.
Today, the industry is forced to become economically resourceful as companies try to produce a profit amid a sustained economic downturn. For many, if not most, pressure pumping service companies, this has meant cutting costs and workforces. In this atmosphere, service and preventive maintenance are frequent targets. Unfortunately, simply cutting these costs to save money limits a company’s ability to weather the crisis, leaving these firms poorly positioned for a recovery. But there is a way that companies can control costs and keep pumping.
Consider the following scenario: A pressure pumping company lowers its price to win a bid. Upon winning the bid, the company attempts to figure out how to make a profit at that price point—reducing its workforce, using older equipment or employing newer equipment with lower preventive maintenance costs. Many companies might even salvage parts from one piece of equipment to keep another one running. In any case, this is nothing more than postmortem planning that puts pumping companies in a poor position to effectively manage operations or successfully capitalize on opportunity.
Aftermarket Not an Afterthought
Making decisions based solely on price is tempting during a downturn, but it is simply not sustainable. To weather the current business climate, some companies have reduced or almost eliminated their maintenance programs—extending inspection periods from 400 to 800 hours—as a way of getting the next series of fracs in the ground at the lowest possible price.
While this is an understandable course of action, any savings realized will be short-lived because these companies will eventually need to start repairing failed equipment or replacing iron that has failed and can no longer be rebuilt or refurbished. However, by partnering with an aftermarket provider with experience in maintaining equipment with the long term in mind, companies can ensure their equipment is running in low- and high-margin environments.
When the recovery inevitably arrives, companies that played the long game will be set up for success. They will have the infrastructure and the related efficiencies to meet demand and job specifications.
Total Cost of Ownership Matters
Before the slowdown, companies paid a lot of attention to the total cost of ownership—what it costs to own a piece of equipment over its life cycle and how that cost could be lowered through efficiencies and technological improvements. For example, in response to increased load requirements and continuous-duty operations, a company developed a stainless-steel fluid end that offered up to five times the lifespan of a conventional carbon-steel fluid end. That potential lifespan represents a significant reduction in downtime over the course of a depreciation cycle—a smart, long-term investment with significant returns. Companies looked at this as an investment that paid off over the course of continued operations.
As the market slowed down, companies narrowed their focus on the short term, saving money by cutting costs. Now is the time to think about the total cost of ownership, particularly in terms of aftermarket services.
Lowering the total cost of ownership is a fundamental objective of the aftermarket service strategy. Even though there is a tendency to look at total cost of ownership from a long-term perspective, it does not take long to demonstrate the value of this approach.
For example, one company specializing in well service pumps and high pressure flow control equipment has proprietary software that documents users’ iron inspection requirements in great detail and drives inspection and refurbishment processes to meet these specifications in that company’s service facilities. The software also records the results of those inspection processes in its database, providing a comprehensive service history for each piece of equipment.
For the local management teams of one particular user, the software revealed that, compared to all of the iron in the field, plug valves had a disproportionately higher failure rate. The service provider learned not only that the valves were failing, but also why they were failing. In this case, the problem was primarily the result of pitting—not wear. Corrosive media became trapped in the valve because of a lack of regular greasing.
The company demonstrated that by increasing the frequency of greasing valves with an improved process, plug valve failures could be reduced by 37 percent. Comparing the cost of grease with the cost of replacing a plug valve helps to illustrate the advantage of a comprehensive aftermarket strategy.
The user with the plug valve issue had been pumping up to 16 wells per pad. Before upgrading the grease, leaks would cause the operator to shut down for a day to change out iron. Because crews were half the size they were before the downturn, it was not feasible to throw manpower at the problem.
The company specializing in well service pumps and high pressure flow control equipment has been on location with that user, greasing valves while they are rigged out between stages. Putting an employee from the service provider on location to work with the operator’s crews a couple of days a week has significantly reduced the failure rate of iron and helped control costs and maintain pumping.
The Future of Aftermarket
Building a bigger, better widget is not always the best goal. In some cases, taking proven technology and fine-tuning the details can pay off in a big way.
Consider the power systems. With a life cycle of up to 24,000 hours (depending on load profile), one frac engine now meets United States Environmental Protection Agency (EPA) Tier 4 final standards without exhaust aftertreatment. It is built specifically for continuous-duty operations. However, pairing that engine with a pump rated for 3,000 to 4,000 hours leaves the benefits of an extended life cycle on the table.
The problem is pervasive. It is common to see a random patchwork of variously sourced pumps, engines, controls and blenders, none of which are designed to work together, but all of which are connected on a single platform. It limits the ability to control cost and infinitely complicates serviceability.
To address this lack of alignment, one company specializing in well service pumps and high pressure flow control equipment and one motor and drive manufacturer are in the process of formalizing a joint venture to help firms lower their total cost of ownership. Once formalized, the joint venture will pair the previously mentioned engine with a hydraulic frac pump that features the stainless-steel fluid-end technology. The result, according to the two companies, will be the industry’s first high-horsepower, continuous-duty frac pump. With more than 13 million cycles, 6 million of which were at full rod load, on a pump test stand, the pump is projected to reduce total cost of ownership by 17 percent.
With the addition of a newly developed transmission, the three power components will be combined on a single platform, specifically designed to work together to handle demanding applications. Operators can run for extended periods, with lower replacement and repair costs. To simplify things further, scheduled maintenance and overhauls will be performed at one time, in one place and under a single service agreement.
Later evolutions will incorporate intelligent systems for integrated monitoring and communication, letting operators know the time for service or even preventing an operator from making a costly or dangerous error.
There are few things less predictable than the price of oil. Long-term strategies that include a comprehensive aftermarket program should be embraced, not in spite of adverse market conditions but because of them. Doing so positions companies to be prepared for the predictable recovery awaiting us all.