Nation's Largest Newbuild Program for Land Rigs Nears an End

Abstract: Helmerich & Payne IDC will have built 47 new state-of-the-art land rigs when its FlexRig construction program ends this summer.

Analysis: The best exposition of onshore drilling technology is often found in Houston at the Offshore Technology Conference.

In fact, one need not even visit the crowded Reliant Center. This year, the best view was located on the east side of Houston in the industrial complex where Helmerich & Payne (H&P) IDC has been quietly building rigs that represent state-of-the-art in land drilling.

This was the second year for the H&P rig tour. Last year's tour was to unveil a 25-rig newbuild project for the company's FlexRig3 program. Besides the rigs, the manufacturing and assembling project itself, based on a model used for aircraft assembly, constituted a showcase for the most ambitious newbuild program in the land drilling sector over the last 25 years.

This year's tour emphasized performance now that several of those newly built units had some history.

Currently, H&P is assembling the 21st of the 25 planned units in the program. Indications are the company will build four more FlexRig3s (beyond the original 25) before the program expires this summer. It will bring to 47 the number of newbuild land units the company has created since 1998.

To place the project in context, it helps to recall that the number of new land units constructed after 1982 could be counted on both hands. The main story in the 1990s was the rapid dissolution of the land drilling fleet due to cannibalization, rust, neglect, or salvage.

That story changed after 1997 as the hydrocarbon supply/demand trend lines began a nuanced dance that drew them ever closer together. They are so close now that the industry will have to drill its way out of constrained supplies, particularly for natural gas. This places a call on the existing contract drilling industry to retool to meet higher demand for field services. The land drilling industry is in the earliest phases of a rebuilding cycle whose zenith is a decade or more in the future.

The ultimate composition of that future fleet is impossible to predict. But the H&P newbuild program points to one way the industry will evolve. FlexRig3 is the third generation of a program that began in 1998 with six newbuild drilling units. The concept was to create a multipurpose rig that could improve drilling performance while operating in a safe and environmentally sensitive manner.

The rig was designed to operate for the same costs whether the well was 8,000 or 18,000 ft deep, a range that encompasses two-thirds of all wells in the United States.

The original FlexRig1 design was derived from the Cabot trailer-mounted units common in South Texas. Trailer-mounted rigs are modular and quickly moved between locations, typically setting industry efficiency standards. H&P acquired its first trailer-mounted rigs in the early 1990s after purchasing ENSCO's land drilling division, and was impressed with the rigs' performance.

H&P designed refinements to improve efficiencies, including rounded mudtanks, and commissioned six new land rigs from IRI International in 1998 as part of the FlexRig1 program. The rigs were constructed for under $6 million each during a time when the main rig manufacturer was quoting prices from $11 to $13 million on newbuild land rigs of comparable capabilities.

After field tests of the design, H&P moved forward with the FlexRig2 program in 2000, eventually constructing 18 more rigs at its Houston industrial facility.

Then the company made step-level changes in the design and commenced the FlexRig3 program in 2002. These new 1500-hp units included an integrated AC top drive, a variable-frequency drive AC Varco drawworks, the latest generation rig instrumentation and control systems, an automated Varco iron roughneck, and a wider rig floor to accommodate greater activity on the platform. Other innovations included automated hydraulic BOP handling that also improved cycle time on a well.

The company is investing more than a quarter billion dollars in FlexRig3. The units, with integrated top drive and an expanded instrumentation package, still cost $1 million less than the original newbuild figure quoted by the industry's largest rig manufacturer back in the late 1990s.

During the last year, H&P generated two new FlexRigs monthly from its state-of-the-art lean manufacturing module on Houston?s east side.

Innovations were not confined to nuts and bolts. H&P developed an integrated training program for crews that had them comfortable with the rig's operation before the unit was commissioned. The company was training 30 to 40 employees monthly at a 13-station, hands-on facility in Houston.

H&P now has drilled more than 500 wells with FlexRigs over the last five years, 75 percent of these between 9,000 and 14,000 ft. Now that the rigs have history, H&P is happy to share performance data.

FlexRigs are safer. Over the last five years FlexRigs have produced total recordable incident rates (TRIR) 73 percent lower than the industry average as tracked by the International Association of Drilling Contractors. The six rigs built for FlexRig1 in 1998 had 23 percent fewer TRIRs than the land drilling sector as a whole. The 12 rigs built under the FlexRig2 program were at 54 percent of the industry average, which had improved 13 percent by 2001. Similarly, FlexRig3's TRIR was 77 percent better than the industry average in 2002, which had improved another 30 percent over 2001.

FlexRigs are attractive for employees. H&P's 45 mobile and FlexRig units had annualized crew turnover of 41 percent over the last two years in an industry where annual turnover often exceeds 100 percent.

FlexRigs feature improved performance compared to industry norms. More than 80 percent of the 73 wells drilled by FlexRig3 units last year were completed under or on the customer's estimates of drilling time. Unsolicited testimony from E&P companies on this year's rig tour noted that the decrease in cycle time had ripple effects through E&P firms whose staffs now had to scramble to keep prospects lined up to drill at a faster pace than the organizations had been accustomed to in the past.

FlexRigs decrease mobility between wells to roughly half the time for conventional rigs of similar capabilities, and allow operators to drill more wells per year. Company officials say that higher utilization rates and improved performance enable H&P to command a premium day rate for FlexRig equipment.

One study showed FlexRigs generating a daily operating margin three times that of conventional rigs with similar capabilities.

One of the challenges facing the drilling industry is how to improve efficiency. It is hard to imagine rates of penetration improving much beyond where they are now. And unless the drilling model itself changes, other gains are going to be incremental at best. The legacy of the FlexRig program suggests that tweaking the drilling model does in fact yield efficiency improvements.

The industry will need these innovations--and all the rest it can get--to meet the greater demand for drilling services implied in the tightening natural gas situation.