The boom was great while it lasted, and the bust, at least in North America, has largely played out. Oil and gas companies and service companies have executed their traditional cyclical playbook, cutting staff and squeezing vendors to protect margins. With no quick recovery in sight, attention is now focused on more substantial, systemic cost cutting to improve finding and development costs and service company margins.
One area of potential savings is the standardization of equipment used to complete and produce oil and gas wells. While all the equipment is “round with a hole in it,” the degree of customization evident today is staggering. Conventional wisdom says that if we could agree on and implement standard tools for oil and gas wells, we could drive unnecessary costs out of the system. However, customization of completion and production equipment can add significant value by improving efficiency and increasing production. While some standardization makes sense, it is important for the industry to implement cost-effective supply chain practices to efficiently deliver customization when it improves efficiency and increases production.
The current level of customization did not happen overnight. Service companies introduced simple tools and simple processes to design, manufacture, and install these tools. Initially, each tool had a few defined features such as “size” or “threads,” and a few options within each feature. Over time, we added additional features and expanded the number of options within each feature. The industry rarely did this in an organized, systematic manner. A new well chemistry required a different material, so a new material option was born. A customer wanted a new setting mechanism, so the setting mechanism feature expanded with another option. Features were added to handle high-temperature and high-pressure conditions.
Service companies invested in R&D to develop differentiated technology, so the designs of tools to meet the same downhole conditions varied from company to company. Eventually, the simple tools had given rise to families with thousands of possible configurations to accommodate specific customer needs. Service company’s costs to deliver from a catalog of diverse low-volume products rose and lead times extended as every order became a special....
Guest Editorial: How I Stopped Worrying and Learned to Love Customization
Gary Flaharty and Noman Waheed, SCLinx Incorporated
01 October 2015