Although based in Florence, Italy, GE Oil & Gas maintains its largest services and supply presence in Houston following last year’s $2.8 billion acquisition of John Wood Group Plc.’s Well Support Division.

The company’s drilling and service manufacturing and services portfolio now comprises Wood Group’s former electric submersible pump (ESP), pressure control (including surface wellheads and trees) and logging services businesses, which have been integrated into the VetcoGray platform. The deal, part of an $11 billion acquisition spree, was announced in the first quarter 2011.

The transaction was in line with GE Oil & Gas’ strategic initiative to capitalize on enhanced oil recovery (EOR) from mature fields using downhole-pump artificial lift in brownfield developments -- a primary focal point for the group going forward, according to Samuel Aquillano, vice president, drilling and production.

E&P sat down with Aquillano to discuss a few key industry developments and near-term company goals at this year’s GE Oil & Gas Annual Meeting. Each year in Florence, the company leads a global technology innovation forum among industry experts.

According to Aquillano, three “mega”-trends are on the agenda for 2012 that are pushing the E&P sector into new frontiers: unconventional oil and gas development; EOR; and deepwater drilling. These will be mission-critical to offset the depletion of reserves across the globe and meet the increased energy demands shaping the next few decades.

Applications In Challenging, Remote Formations

With technology systems at the crux of future E&P business growth and activity, GE sought to enhance its pressure-control business platform with a focus on the North American unconventional market.

“Previously we had VetcoGray, and so we took the VetcoGray pressure-control business and the Wood Group pressure-control business and combined that into one business platform,” Aquillano explained. “The uniqueness is that the two units were very complementary. Rarely do you get an asset that had so little overlap … in the same space and capabilities.”

Wood Group, for example, had more standard products, he said, whereas the GE and Vetco space offered a broader range of custom products for the global upstream oil and gas industry. The former also sold to independents, primarily in the U.S., while the latter, which has a large-scale international presence and activities, targeted the majors. “In all service areas that was very complementary, but particularly in the unconventional space.”

GE Oil & Gas sees this space as an arena where equipment such as its natural gas and diesel engines and remote-monitoring and diagnostics capabilities can be transferred from industrial applications and deployed in upstream operations like hydraulic fracturing. The company’s evolving oil and gas platform also provides more automated and integrated solutions in a sector that demands accelerated speed and efficiency in challenging formations.

Electric Submersible Pumps Lift EOR Business

EOR techniques applied in such demanding areas also require advanced pumping and sealing equipment, and the company is “cross-pollinating” experiences and technology from its global research centers, and aircraft engine and turbine business, for example, to enhance its ESP product line.

“The other thing that is new for us this year is enhanced oil recovery,” Aquillano noted. “One of the key assets that was included in the well-support acquisition was electrical submersible pumps. More than 70% of the hydrocarbons produced today come from reservoirs that need some form of artificial lift.”

GE is targeting major and potential markets in the Middle East for its ESP business line in addition to other services, and the company recently secured its first ESP contract in Saudi Arabia with Saudi Aramco. “We didn’t have to build a facility because we were able to use an existing -- and new -- GE facility in Dammam, so we could leverage existing infrastructure,” Aquillano said.

Another country where ESPs have a lot of promise but where the potential has yet to be fully realized is in Iraq, he added. By year-end 2011, the country’s oil sector was accounting for approximately 90% of foreign trade earnings based on GE’s estimations.

Meanwhile, the GE Pressure Control business already is working with partners such as Angola national oil company Sonangol in Iraq, where some 50 productive oil and gas reservoirs have been identified. But given its lack of sufficient infrastructure, Iraq remains in the throes of establishing and upgrading the country’s oil and gas facilities to provide additional services in oil- and gas-producing regions.

In November 2011, GE opened three new offices in Iraq located in: Baghdad; the southern oil and gas hub Basra; and the Kurdish regional center in the north, Erbil. Also in November 2011, the company was awarded a $40 million contract from BP Iraq NV to provide pumps, gas engines, and additional equipment for produced-water-reinjection operations to increase production at the Rumaila oil field in southern Iraq. The equipment is slated for delivery in the second half 2012.

Deep Water Is Driving Force

In addition to its unconventional and EOR initiatives, GE is tackling complex frontier regions such as ultra-deep water head-on as the offshore sector is experiencing an uptick in momentum in places like West Africa, Brazil, and the Gulf of Mexico.

“I’d say there are a few driving forces in the deepwater drilling space with regulations behind it all,” Aquillano said. “Seventy percent of jackups, although not part of deepwater drilling, are past useful lives and are in a renewal cycle. Existing floaters are being retrofitted and are being maintained to a higher standard.

“And while regulations haven’t changed yet, we’re all writing them and have our fingerprints on them, including the drilling contractors so they know where they’re going. Contractors are retrofitting for more maintainability and more availability,” he explained.

There are also prolific opportunities in harsher and deeper water environments with drilling contractors already having placed a number of new orders for drilling rigs with advanced capabilities and equipment. With an orderbook that “goes on at least a couple of years, we will have to increase component manufacturing 50% in some cases and in others as much as 100%” to meet the demand in this improving market, he said.

With deepwater services on the rise, according to Aquillano, GE is investing in significant port cities like Houston and Singapore and emerging energy powerhouses like Brazil, building out what Aquillano calls a stronger supplier network.
“Take, for example, drilling risers,” he said. “Basically the way drilling risers are provided is time-based. Every five years, one-fifth of the riser fleet may be turned over.”

What GE is trying to do in answer to this, according to Aquillano, is further expand its presence in strategic locations where deepwater equipment and services will be in higher demand as these developments continue to ramp up across the globe.

“We recognize the oil and gas sector is service-intensive,” he said, “and we recognize that people are always looking for more resources. We keep cycling around our industry, and we don’t infuse enough, but what we’re trying to do is bring more knowledge-based services to the industry and to make data available in a more efficient format so it can be easily interpreted.”

Contact the author, Nancy Agin, at nagin@hartenergy.com.

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