Pipe vendors are focusing their supply and service skills on high-volume slots in an effort to assume single-source responsibility.

Becoming a single supply source in the upstream petroleum industry has been a long-sought-after, but elusive, goal. For oil country tubular goods (OCTG) suppliers, the march has been protracted since producing companies generally have dealt with a range of pipe suppliers, mainly to ensure competitive pricing and encourage impartiality.
That setup worked well in earlier days, when exploration and production activities were concentrated on land and relatively near shore and supply and service points lay reasonably close at hand. But as exploration and production operations reached ever more remote areas, including deep offshore waters, numerous niches were created, each providing substantial business volumes. That prompted producers to reconsider the single-source idea they once sidestepped, not only for tubular products but also for many other products and services. In the past decade or so, single-source supply and service contracts have become more common, especially for deepwater projects.
Hunting, Houston, Texas, announced just such a contract in July. Hunting, which describes itself as "a vertically integrated tubular system supplier," signed a 3-year contract (with one 2-year rollover) to supply and manage tubular goods for the deepwater operations of Conoco Inc.'s Gulf of Mexico region. The deal covers production casing, connections and accessories, including float equipment, pup joints and crossovers. It pertains mainly to the drilling and completion activities of Conoco's new drillship, Deepwater Pathfinder, which is scheduled to drill wells in the Gulf for the next several years. But the deal can be expanded to deepwater wells drilled with other rigs, if Conoco chooses.
The contract, based on Hunting's new Pathway tubular systems program, gives it single-point responsibility for Conoco's Gulf deepwater OCTG casing chain. For the contract period, Conoco plans to drill five to six deepwater Gulf exploration wells per year, each ranging in depth from 15,000 ft to 25,000 ft (4,575 m to 7,625 m). It also plans several deepwater development projects, among which are its Magnolia and K2 discoveries, in water depths of about 4,700 ft and 3,900 ft (1,434 m and 1,190 m), respectively. Those multiwell developments also could be potential receiving points for casing strings provided under Hunting's Pathway program, depending on when they begin.
Going in, Hunting officials said they already had helped Conoco personnel identify enough common items and standard industry practices to realize savings of up to US $100 per ton on its casing and accessories orders. They believe they can improve that even more.
String standardization a key
Charles DeVoe, commercial manager at Hunting's Houston headquarters, said the Pathway program brings value-added tubular systems to customers - from planning and procurement through remnant management and final disposal. The program is based on tubular goods standardization, which DeVoe said cuts customers' OCTG costs significantly.
"We assist in planning the best supply strategy for a customer's tubular systems, including the pipe itself, connections, accessories and threaded completion tools, along with the necessary services to minimize drilling and completion difficulties," he said.
Hunting has sales, service and manufacturing facilities in most of the world's major petroleum centers, DeVoe said. It has working relationships with more than 30 steel mills around the globe. It also provides threading from 15 company-owned sales and service centers and has an established network of more than 50 additional threading partners.
Additionally, he said, Hunting supplies finished OCTG to the customer on a net use basis, under which all unused or damaged pipe is returned without charge. The customer pays only for pipe in the hole. That eliminates having to hold unused pipe in its own inventory.
"The Pathway program's main strength lies in entering the customer's OCTG supply and services chain at the very beginning," said DeVoe. "From that point, we contribute to the planning, sourcing, procurement, supply, transportation, installation, remnant management and documentation of all tubular supplies. We also help ensure product quality and technical support through our own tubular specialists and engineers, who have many years of experience, and through our mill partners and threading vendor network."
While Pathway is designed for a customer's entire OCTG system, it also can be brought to bear in any combination of system components, said DeVoe. That is evident in the company's ongoing relationships with other deepwater operators, including Chevron and Texaco, soon to be merged, and middle-tier and smaller independents as well.
Pathway was developed and enhanced from a similar setup - a strategic alliance with Chevron established by Vinson Supply Co., Houston, which Hunting acquired in March. Since the early 1990s, Vinson had been the sole supplier of all Chevron's OCTG, from drill pipe to production tubing to gathering systems. Hunting inherited the alliance and recently received an extension.
"Chevron noted in a recent report that since 1994, strategic alliances have reduced its number of suppliers from 70,000 to fewer than 30,000," said DeVoe. "One of these, the Vinson alliance, covered about $100 million a year in OCTG purchases that previously had been split among 26 vendors. Chevron said that alliance alone resulted in an average annual savings of 7%."
But DeVoe said the Chevron deal did not include accessories and premium threads, for which Vinson had to create subcontracts. Now, all such accessories and services can be gotten under one roof, he said.
High-volume purchases lower costs
As for the Conoco deal, DeVoe said string standardization has created the biggest efficiency for all operators in the deepwater Gulf.
"The string designs Conoco uses are identical to what the other operators use in the deepwater Gulf, including independents," he said. "Conoco benefits from our purchasing for virtually all of them already, buying in large volumes."
The Gulf deepwater players have standardized connections as well, he said, which again gives them more efficiencies through larger purchases of couplings and protectors. "We mass-produce these products in our own facilities, so we issue major stock orders rather than lots of smaller, individual orders," he said. "And it's all cancelable and returnable. The customers carry no inventory, which gives them significant capital cost savings."
The $100-a-ton savings at the outset of the Conoco contract probably is conservative, DeVoe said, explaining that Hunting is obligated to run a complete analysis of Conoco's OCTG purchasing chain, which in a year or so should reveal areas of more savings.
No inventory pleases operators
Mark Robicheaux, material logistics services supervisor for Conoco's Gulf region, based in Lafayette, La., said the Pathway system, with its standardization of pipe specifications, threads, weight and grade, is suitable for his company's deepwater drilling and completion needs.
"Prior to the Hunting contract, we were doing business with a pipe company that didn't have any other deepwater programs in their portfolio, whereas Hunting did," said Robicheaux. "And Hunting takes over the responsibility of pipe inventory. That's the beauty of it. We give them a forecast of our casing string needs, and they get pipe on the ground, ready for us. We don't have to pay for it until after the pipe goes out and the excess comes back. They bill us for the net. That's pretty unique when compared to some of our other contracts."
While the original deal covers the Deepwater Pathfinder rig, it is not limited to it, Robicheaux said.
"We're picking up the Glomar Explorer soon, and Hunting will be furnishing that pipe also," he said. "The Pathfinder is scheduled to move to a one-well contract off Barbados, and Hunting will furnish the pipe for that job too."
Robicheaux said Hunting would be a "likely" player in deepwater development projects as well, depending on the casing design Conoco uses.
All in all, Conoco welcomes Hunting's approach. "Standardization of casing strings for deep water gives the vendor a lot of flexibility," Robicheaux said. "Hunting has been willing to step up to the plate and assume a lot of inventory. Oil companies don't like to tie up capital in inventory. The Pathway program relieves a lot of pressure on our capital expenditures and allows us to put the money where it really counts, into oil and gas wells."
Expanding through R&D
DeVoe leaves no doubt that Hunting is not satisfied with Conoco's casing business only, and he believes the Pathway program contract eventually will be expanded to the operator's total OCTG volumes. And to keep interest high, Hunting's research and development specialists are at work developing new products to keep operators "in the fold."
"In fact, we're in the process of developing a thread design for a product that has not been used in the Gulf before," he said. "It's actually a size-weight grade of production casing, to be manufactured in Germany, that's conducive to these deepwater designs. We're co-developing a new thread for it with Chevron. The thread, which is so new we don't even have a name for it yet, will be a little better in terms of compression, collapse and tension than anything else that's out there."
Conoco also is involved, he said, working with Chevron on the thread design.
"We believe that factors like this new thread design will keep us in the forefront for increased business," said DeVoe.
Conoco's Robicheaux agreed. "These days, pipe vendors have to concentrate on various niches, and it looks like Hunting is seeking to fill the deepwater niche."

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