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Tue 1 Aug 2006 04:00 AM

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Adapting drilling technology, logistics to meet demand pressure

Weatherford’s John King explains how the global thirst for oil is putting the heat on service companies

Weatherford|~|200WEARHERFORD-----.gif|~||~|Soaring oil field costs and shortages of everything from raw materials to labour are pressuring service companies to increase production and efficiency. Oil&Gas Middle East talked to John King, president of Evaluation, Drilling & Intervention division of Weatherford, multinational oil services firm, about the challenges and opportunities thrown up by the boom.

Is there demand for tools that are faster and use less material?

Weatherford’s active in all markets in the Middle East, especially following our recent acquisition of Precision Drilling’s international contract drilling and services business.
Among other things, this has added onshore drilling rigs as well as some of the more technical measurement-focused services that compliment WFT’s core mechanical based services. The rising tide lifts all boats and it’s busy everywhere.

There’s enormous pressure from our customers, in every facet of our business, to further develop our services in their markets.

There’s a real push towards driving innovation for performance—doing more with less. Obviously, we’re running into our own resource challenges both in supply of basic raw material and the supply of labour —there are shortages everywhere.

There’s no magic wand that can be waved to make things the way you want.. However, you can start to address the issue by focusing on efficiency. Ultimately our customers are focussed on drilling wells, actually it’s more than that, it’s drilling productive wells and anything we can do to increase the efficiency of our customers reaching that goal will be rewarded.

From a rig perspective if you can rig up and rig down faster or cut a day out here and there you create more with less. Maybe in a drilling programme you can add another well or well and half. If you can drill top hole sections and then drill more productively through the reservoir section everyone will win. We are driven by a strong desire to improve the efficiency of the entire drilling and production process. We are doing anything that impacts that process, whether it is technology related or merely streamlining operational efficiencies.

Rising costs have affected the supply chain of logistics—the ability to get from the manufacturer to the inventory to the field. Until recently most of our manufacturing capacity has been in the West, resulting in significant supply chain logistics for operations in the Eastern Hemisphere.

We have recently opened a manufacturing facility in Dubai Investment Park and we plan to open another one in Abu Dhabi early in 2007. These facilities will support a number of our products and services businesses. We chose the UAE because it is a central supply point for the Eastern Hemisphere and in all likelihood the UAE will become our head quarters for our markets outside of the Americas. There’s good access to skilled labour and the UAE government is providing businesses with the right kinds of incentives to come here.

Are firms allowing flexible price contracts due to rising costs?

Yes, but it’s almost like a domino effect. At the coalface you’ve got customers who are being more flexible with their contracting models. But the reality is that this doesn’t always work seamlessly back through the entire supply chain. There can be flexibility at the customer end but suppliers, manufacturers and human resources are being squeezed at the other end. So what is needed is better inventory management, better aligned planning with customers and much better manufacturing related forecasting abilities than existed in the past. Historically it has been a just-in-time industry now there’s real forecasting needs for raw materials.

What’s Weatherford’s strategy to deal with the skills shortage that’s hitting firms worldwide?

We’re reacting to it. We’re hiring and training more people, and getting more local people to work in the industry instead of relying on a few western regions of the world for our staff. There is no supply of ready trained and available crews that one has on ice that can quickly be brought into the market. So we’ve ramped up our recruitment, training and career development programmes.

Battling with competitors for mid-career hires does nothing but attract mercenaries and run costs up across the entire industry. We want to take local people from school and early stages in their career and train them.

How would you adapt your latest technology in a market like Iraq?

Like Iraq, there are many markets that have similar challenges related to years of under investment in their industry. Firstly, you have to have an adaptive service base to work with.

Theoretically one can do all kinds of exciting things using technology but if you don’t have the underlying traditional service infrastructure to work with you will struggle. You may find out that you’re working with 1970s technology, not 2001 technology, or that the legislative and business environment may impair your ability to work at the speed you would like.

But we have a few pieces in our toolbox that are quite unique. We know how to run an onshore contract drilling business. We are different because we own and operate the rigs as a core business which allows us to unlock unique operational efficiencies with our other services. We can adapt rates and service models, and bring in cross-trained crews and other services that go with the rig, providing an integrated package.

In the past, we have had a strong track record of integrated services in places like Mexico where we have worked on projects involving over 500 wells drilled and completed in five years. We’ve taken that mindset and are expanding our capabilities and have set up a self supporting business unit called Integrated Drilling Services to deliver upon the potential that we have. We own 51 international (defined as outside on North America) rigs of which 35 are in the Middle East that we will use as a platform for growth of this business rather than exclusively focusing on our traditional day-rate only business.

Can you give an example of a solution addressing several issues?

A few years ago you would never have thought that our Tubular Running Systems TRS business would tie into our downhole directional drilling business to create tangible efficiency gains. We have found that our rotary steerable drilling technology has resulted in drilling a better hole. In other words in many formations we are able to drill a smoother, straighter hole. This in turn can significantly reduce the time needed to run the casing in the well. In some cases we have seen this time be reduced by a third. Running casing is, of course, not a drilling process, and therefore if it can be done quicker it releases the rig to move to the next well, and ultimately improves the efficiency of the rig. In other words allows it to drill more wells. ||**||

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