Oilfield Equipment Workshop - iktva.sa · PDF fileValue Proposition 4: Perforating Guns...

Saudi Aramco: Public

2017Oilfield Equipment Workshop


Disclaimer

The next slides contain forward-looking statements regarding future events based on current

expectations, estimates, forecasts, and projections. The data is subject to updating, revision, further

verification and amendment without notice. No reliance may be placed for any purpose on the

information or opinions contained in this presentation or any other document or statement, or on the

completeness, accuracy or fairness of such information or opinions therein. No representation or

warranty, express or implied, is made or given by or on behalf of Saudi Aramco or its employees, or

any other person as to the accuracy or completeness or fairness of the information or opinions

contained in this presentation and no responsibility or liability is accepted by any of them for such

information or opinions or for any errors, omissions, misstatements, negligent or otherwise, or for any

communication written or otherwise, contained or referred to in this presentation.2


1. Oilfield Equipment agenda

Session Title Presenter

Opening Saudi Aramco (ID&SSD), Majid Almohammed

Value Proposition 1: Precision Machining Halliburton, Brian Stolz

Value Proposition 2: Coiled Tubing Weatherford, Sandro Maciel

Value Proposition 3: Drill Pipes Saudi Aramco Nabors Drilling, Ivan Kasunic

Value Proposition 4: Perforating Guns Schlumberger, Meshari Alayed

Value Proposition 5: Drill Collars Arabian Drilling Company, Mohammad AlSalman

Value Proposition 6: Liner Hangers Saudi Aramco (DTD), Ramon Rodriguez

Value Proposition 7: Packers Saudi Aramco (DTD), Ramon Rodriguez

Value Proposition 8: DV Tools Saudi Aramco (DTD), Abdulaziz Al Somali

Value Proposition 9: Whipstocks Saudi Aramco (DTD), Ala Edeen Herzallah


Establish a state-of-the-art

precision machining

workshop for downhole

equipment and tools to serve

the KSA and GCC Oil and Gas

industry

1.Current KSA demand is

estimated at USD 78 Mn

/annum

2.Forecasted ~4% annual

growth in the regional

precision machining market

until 2022

3.Attractive cost base including

low logistics, land, utilities,

and labor costs

Precision machining for downhole equipment/ tools represent an attractive opportunity given current supply gap and demand growth

The opportunity The business case

Source: Saudi Aramco


Precision/CNC machining accelerates production rates, is cost-efficient, and ensures design consistency

Computer Numerical Control (CNC) machining is a

computer-aided technique. It requires software and

programming, usually in the G-code language, to guide

a machining tool in shaping the workpiece

according to preset parameters. CNC machining is an

automated process and its benefits include:

High production cycles: Once properly coded, it usually needs minimal maintenance or downtime, allowing for a faster production rate.

Low manufacturing costs: Due to its turnover speed and low manual labor requirements, particularly for high-volume production runs.

Uniform production: CNC machining is typically precise and yields a high level of design consistency among its products.

Any machining process that requires small cutting

tolerances (between 0.013 mm and 0.0005 mm) or

surface finishes finer than 32T is considered a form of

precision machining.

Factors such as stiffness, damping, and geometric accuracy

can influence the exactness of a precision tool’s cut.

Machining technologies

Source: Thomasnet, Saudi Aramco analysis

CNC Machining Precision Machining


Various components of downhole equipment and tools utilize precision machining in its manufacturing process

Downhole equipment and tools utilizing precision machining

Source: Saudi Aramco analysis

Precision/ CNC machined components

Wireline tools9

Stabilizers14

Packers13

Centralizer15

Other completion tools16

Drill collars12

Nipples11

Liner hangers10

• Subs• Threads• Accessories

• Body• Blades• Spirals

• Body• Cones• Slips

• Wear resistant rollers

• Blades• Threads/ Connections

• Threads/ Connections

• Seal bores• Locking profiles

• Body• Cones• Slips

• Collars• Shoes• Accs.

PBRs1

Flow couplings6

Frac Sleeves5

Screens7

Float equipment8

Seal Assembly4

Splice Sub3

Gauge Mandrels2

• Body• Threads• Bolt holes

• Threads/ Connections

• Subs• Inner sleeves• Ports

• Jackets• Connections• Holes

• Body• Threads• Linings

• Body• Locking rings• Threads/ Groves

• Body/ jacket• Threads

• Body/ Bore• Threads/ Connections

Precision/ CNC machined components


Downhole tools 1. PBRs2. Gauge Mandrel

3. Splice Sub4. Seal Assembly

5. Frac Sleeves

KSA demand (2016, Units) 500+ 500+ 250+ 500+ 200+

Material / dimensions

4140 material 6” OD / 5” IDOD range up to 8.5” 20 ft long

4140 material 6” OD / 4.5 ID 6.5 ftlong

4140 material 8” OD / 4.5” ID X 24”long

4140 material 6” OD / 4.5” IDOD range up to 7.5” 5 ft long

4140 material 6” OD / 4.5” ID X 24” long

Precision/

CNC

machining

technology

Boring ✓ ✓ ✓ ✓ ✓

Honing ✓

CNC Lathe✓ long bed (20ft)

✓ eccentric turning

✓ ✓

CNC Mill✓ ✓ ✓ multi-axis

✓ 5 axis mill/ turn

Threading ✓ ✓ ✓ ✓ ✓

Precision machining requirements for downhole equipment and tools include boring, honing, CNC lathe, CNC mill, and threading

Precision machining requirements (1/3)

Source: Halliburton, Weatherford, Saudi Aramco analysis





Downhole tools 6. Flow couplings 7. Screens8. Float equipment

9. Wireline tools10. Liner hangers

KSA demand (2016, Units) 2K+ 10K+ 10K+Variation by tool type

1K+

Material / dimensions4140 material 6” OD / 4.5” ID X 5 ft long

SS316L/13Cr-80 material, up to 7.5” OD and 6.5” ID

K55, L80, R95, T95, X52 material, up to 30” OD

4140 material 2-5” OD/ Fish neck 2”/ up to 16 ft long

AISI 4140, Q125, L80, P110, up to 19” OD/ 17” ID/ length up to 20ft

Precision/

CNC

machining

technology

Boring ✓ ✓ ✓ ✓ ✓

Honing ✓

CNC Lathe✓

✓Up to 35" turning

✓ ✓ long bed (16ft)✓ Up to 35"

turning

CNC Mill ✓ Rotary Table Option

✓ ✓

Threading ✓ ✓ ✓ ✓ ✓





Downhole tools 11. Nipples12. Drill collars

13. Packers 14. Stabilizers 15. Centralizer16. Other completion

KSA demand (2016, Units) 2K+ 5K+ 5K+ 5K+ 170K+Variation by tool type

Material / dimensions

4140 material up to 6” OD/ length up to 20”

4142H-4145H material/ up to 9 ½” OD and 3” ID/

4140 material, up to 9” OD/ 6” ID/ length up to 20ft

4145-H steel or Cr-Mnmaterial, up to 11” OD, length up to 8 ft

4140 material or zinc/ aluminiumalloy, up to 30” OD & 10” length

4145 or 4330 material, up to 12” OD/ 11” ID, up to 6ft length

Precision/

CNC

machining

technology

Boring ✓ ✓ ✓ ✓ ✓ ✓

Honing ✓ ✓

CNC Lathe✓

✓Up to 35" turning

✓ Up to 35" turning

✓ ✓ ✓

CNC Mill ✓ ✓

Threading ✓ ✓ ✓ ✓ ✓ ✓


Overall demand for precision machining for downhole tools in KSA has been growing and is estimated at USD 78 Mn in 2016

7888

73

5145

20132012

+72%

201620152014

Precision machining (downhole)

KSA downhole precision machining market size evolution (USD Mn)

Currently, precision

machining for downhole

equipment and tools is

performed out-of-Kingdom

(full gap)

The current gap for precision

machining for downhole

equipment and tools in KSA

is estimated at USD 78 Mn

Precision machining for downhole tools/ equipment demand is driven by the upstream activity in the region



The demand for precision machining for downhole equipment and tools in KSA is expected to reach USD 108 Mn by 2022

10810610499

9586

2017 20192018 20212020

4.7%

2022

Precision machining (downhole)

KSA downhole precision machining expected market size evolution (USD Mn)

Strong oil and gas production activity is expected to fuel the growth in precision machining demand



The demand for precision machining for downhole equipment and tools in GCC is expected to reach USD ~220 Mn by 2022

86 95 99 104 106 108

91101 106 110 111 112

2019

206

2018

177

2021

217195

2017

4.4%

2022

220

2020

213

Rest of GCC Saudi Arabia

GCC downhole precision machining expected market size evolution (USD Mn)

In addition to KSA demand, oil and gas industry activity in the rest of the GCC will support demand growth



Coiled Tubing represents an attractive opportunity given the current supply gap and expected demand growth


manufacturing facility of

Coiled Tubing strings to serve

the KSA and GCC Oil and Gas

industry

The opportunity

1.Current Coiled Tubing KSA

demand is estimated at ~130

coils /annum

2.Forecasted ~5% annual

growth in the regional Coiled

Tubing market until 2022


low logistics, land, utilities, and

labor costs

The business case



Coiled Tubing operations require support equipment such as injection head, a rolled up coil, a power unit and a control cabin

Coiled Tubing string

Coil/ Reel

Power Unit

Control Cabin

Injecting head

Generates the power needed in the hydraulic and pneumatic components

Contains the controls needed to insert the coiled tubing

Supplies the coiled tubing to the injection head and serves as storage for the coiled tubing

Transmits the power to the coiled tubing for push and pull 1

2

3

4

Equipment used in Coiled Tubing operations



Coiled Tubing is used for various purposes across the upstream O&G supply chain

C.T. types

Development ProductionExploration

Abandonment• Plugging• Gravel Packing • Cementation

Exploration and resource identification

Production and Maintenance• Cleanouts, inductions, stimulations• Insertion and velocity string recovery• Milling• Logging• “Gas lift” with Nitrogen• Fishing• Fracturing

Finishing• Inductions• Plugging• Gravel Packing• Isolation• Fractures• Cleanouts

Field Design Site Preparation

FinishingDucts and infrastructure construction

Production and Maintenance

Abandonment

Drilling• Drilling with C.T.• Cleanouts• Cementation• Fishing

Drilling

Uses

Off-shore C.T.

• Equipment assembled on one or two trailers, with or without the capacity to hoist the injection head• Set of injection head, roll and coiled tubing with a pushing capacity between 20k and 100k LBF, and with pressure capacity between 5,000 and

15,000 PSI

• Modular equipment (coil, injection head, power unit and control cabin) with the capacity of being assembled on ships and on platforms (or a combination of both)

• Pushing force and pressure of work similar to the ones used on land. Additional technology for adverse weather conditions (e.g.: catenary systems)

On-shore C.T.

Role of C.T. in the Upstream O&G supply chain



Coiled Tubing strings demand in Saudi Arabia has been growing and is estimated to be ~130 coil units in 2016

130124

118

2013

2012

+893%

2016201520142013

Coiled Tubing Coils

KSA Coiled Tubing strings market size evolution (Coil Units)

Coiled Tubing strings demand is driven by the upstream activity in the Kingdom


Currently, total KSA demand

of Coiled Tubing strings is

achieved through imports

(full gap)

The current gap for Coiled

Tubing strings in KSA is

estimated at ~USD 30 Mn and

the demand in the GCC is



The demand for Coiled Tubing strings in Saudi Arabia is expected to reach ~207 units by 2022

207207207197

184

164

5%

202220212020201920182017

Coiled Tubing Coils

KSA Coiled Tubing strings expected market size evolution (Coil Units)

Strong outlook on KSA oil and gas production is expected to fuel the growth in Coiled Tubing strings



The demand for Coiled Tubing strings in the GCC is expected to reach ~422 units by 2022

164 184 197 207 207 207

174196

211 218 217 214

338

4.6%

2022

422

2021

424

2017

380

2018

408

2019

425

2020

Saudi ArabiaRest of GCC

Increased production and re-entry/ workover activity in the region will drive further demand for Coiled Tubing strings in the region


GCC Coiled Tubing strings expected market size evolution (Coil Units)


The focus of this value proposition is the consumable part of the value chain, the Coiled Tubing string

C.T. service delivery Equipment and consumables

Supplies and tools

Principal Components1

Focus

Tubing diameter:• 1 ¼”• 1 ½”• 1 ¾”• Up to 3”

Consumables (Coiled tubing strings)

Work pressure:• 5,000 PSI• 10,000 PSI• 15,000 PSI

Equipment

Injection Heads

Reels

Power Units

Control Cabins

C.T. value chain analysis

1. Non-exhaustive




Suppliers & tools also possess investment opportunities covered in other value propositions (e.g., Stimulation fluids & packers)

Principal Components1

Fluids

Tools

Nitrogen

Stimulation fluids (acids, surfactants, etc.)

Corrosion inhibitors

Gels/ foams

Inflatable plugs, drillable plugs, logging heads

Packers

Bottom-hole motors, mills, drills

1. Non-exhaustive



Supplies and tools



The C.T. service providers are potential consumers of the Coiled Tubing string materials


Consumers of C.T. strings in Saudi Arabia

Push force (Lbf)

De

pth

(m

)

40,000

3,000

80,000

Work pressure• 5,000 PSI

• 10,000 PSI• 15,000 PSI

15,000

120,000 160,000

Tubing diameter• 1 ¼”, 1 ½”, 1 ¾”

• Up to 3”

Land equipment

Sea equipment


Supplies and tools


After sales services such as NDE and spooling can be as well offered by SMEs to Coiled Tubing strings consumers

1

2

•Saudi Aramco requires coiled tubes to be inspected using NDE techniques once every

6 months

•Only tubes passing test can be used on Saudi Aramco wells

•NDE includes magnetic flux leakage, phased array ultrasound, non-contact magnetic

method for measuring wall thickness, and phased array for flaw assessment

•Coiled tubing string spooling requires large space, resources, and long time to

complete the process

•Coiled tubing service providers consider outsourcing this services while they focus on

delivering their operations

•SMEs can potentially provide this service which does not have major barriers to entry

Coiled tubing string NDE1

Coiled tubing string spooling

1. Non-Destructive Examination



Why is this a good business opportunity?

Increasing demand for Coiled Tubing strings in Saudi Arabia and the wider GCC region

Incentives for investors to increase IKTVA score, which provides them with advantage for procurement within Saudi

Relatively simple manufacturing process and existence of local capabilities to support the manufacturing of Coiled Tubing strings

Cost advantages in Saudi on labor, land, and logistics

General funding and other government support incentives

1

2

3

4

5



Drill pipes represent an attractive opportunity given the current supply gap, expected demand growth and localization potential

1. Ktpa: Kilo tons per annum


• Potential to develop drill pipes

production facilities to serve the

KSA and GCC Oil and Gas

industry

• Additional opportunity for SMEs to

offer drill pipe inspection,

maintenance, and refurbishment

services

The opportunity

1.Current KSA demand is estimated

at ~13.3 Ktpa1

2.Forecasted ~4% annual growth in

the regional drill pipes market until

2022

3.Attractive cost base including low

logistics, land, utilities, and labor

costs

The business case


Drill pipe is hollow, thick-walled piping that transmits drilling fluid and torque through the wellbore to the drill bit

Standard type

•Long tubular sections of pipe that make up the majority of the drill string

•Typically 31 foot long section of tubular pipe but may vary from 18 to 45 feet in length

Spiral HWDPStandard type Standard HWDP

Heavy Weight type

Drill pipes configurations

Source: Saudi Aramco, DP-Master Manufacturing, Web search

Heavy weight type

•Tubular pipe that adds weight or acts as a transitional piece in the drill string

•As a transitional section of the drill string, it is placed between the drill collar and standard drill pipe to reduce fatigue failures


Drill pipes demand in Saudi Arabia has been growing at 6% annually and has reached 13.3 Ktpa1 in 2016

KSA market size evolution (Ktpa)1

13.312.6

11.911.3

10.7

2015 2016201420132012

+6%



Currently, KSA demand

of Drill pipes is met fully

through imports


Drill pipes demand in GCC is estimated to reach 38.7 Ktpa1 by year 2022

14.0 14.8 15.8 16.6 16.6 16.7

18.4 19.420.8 21.9 21.9 22.0

+4%

2022

38.7

2021

38.5

2020

38.5

2019

36.6

2018

34.2

2017

32.4


GCC expected market size evolution (Ktpa)1

KSA market demand is expected to be roughly 43% of the overall GCC demand for drill pipes


Source: Rystad, Saudi Aramco analysis


Source: Technavio, Saudi Aramco analysis

Steel alloys segment makes up ~70% of the market, while aluminum and composites are other materials used

706560 955045 100908555 807525 40353020151050

70%

58%

13%

2%

3%

2%

1%

17%3% 10%

8%14%

Steel

Alloys

Offshore Onshore

Aluminum

Alloys

Titanium

Alloys

Composite

Drill pipes made of steel alloy is

the primary type used in the Kingdom

Market segmentation

Segments by application and material (Global, 2016, %)


The drill pipes manufacturing value chain has potential for localization across the manufacturing stage

Gaps

• R&D and

design of drill

pipes is

currently done

outside the

Kingdom

• Key raw material needed are carbon steel and steel alloys

• Ongoing initiatives to localize steel manufacturing in the Kingdom

• No local manufacturers of drill pipes

• All the current demand is being met through imports

• Number of companies are offering rental services in the Kingdom

• However, the local drill pipe manufacturers have the opportunity to provide inspection and refurbishment services

Localization potential

Input materials Manufacturing Rental and servicesDesign

Tier-1/2Tier-1/2 Tier-3 Tier-2

Source: Manufacturers, Saudi Aramco analysis


SMEs can contribute to the local manufacturing of drill pipes and its blocks

1

2

3

Pipe Body

Drill pipe blocks

Tool Joint (Box

and Pin)

Assembly

(Pipe Body +

Tool Joint)

Alloy and carbon

steel

• Upsetting

• Austenitizing

• Quenching

• Tempering

Input material Manufacturing process

Alloy and carbon

steel

• Forging and Blanking

• Austenitizing

• Quenching & Tempering

• Threading

• Phosphate/Copper coating

Respective body and

tool joint material

• Inertia Friction Welding

• Tool Joint Alignment

• Austenitizing and Quenching of Weld Zone

• Tempering

• Hardness Inspection

Drill pipes blocks and manufacturing

Source: Manufacturers, Saudi Aramco analysis


Drilling contractors with activity in the Kingdom are the main consumers of drill pipe

Main drill pipe consumers in the Kingdom

Source: Company websites, Saudi Aramco analysis

Selection

DPS


Drill pipe value chain gaps translate into opportunities that can be localized within KSA

Opportunities

1. Set up design

and R&D

facilities to

engineer drill

pipes with

specifications

needed for KSA

customers

2. Opportunity to partner with steel suppliers to produce raw materials, as per the required specifications

3. Potential to set up new facilities to manufacture drill pipes in the Kingdom

4.Potential for SMEs to offer inspection, maintenance and repair services

Input materials Manufacturing Rental and servicesDesign

Tier-1/2Tier-1/2 Tier-3 Tier-2

Source: Dril l pipes manufacturers catalogues, Saudi Aramco analysis


Perforating guns represent an attractive opportunity given the current supply gap and expected demand growth



manufacturing unit of

perforating guns to serve the

KSA and GCC Oil and Gas

industry

The opportunity


estimated at ~32,000 ft of

perforating guns /annum

2.Forecasted ~5% annual growth

in the regional perforating

systems market until 2022



labor costs

The business case


Perforation is a process used to establish a flow path between the near reservoir and the wellbore

A perforation refers to a hole punched

in the casing or liner of an oil well to

connect it to the reservoir

Perforating guns are designed to hold an array

of shaped charges and they are lowered into

the well. The gun is then fired electrically to

shoot multiple (or sometimes hundreds or

thousands) holes in casing interval.

Perforating operations

Source: Schlumberger, Halliburton, Perf.com, Saudi Aramco analysis


All parts of the gun below the collar locator are either destroyed during the perforation explosion or left in the well as debris in the rathole.

Guns can cause casing damage in unsupported casing.

Expendable gun

Perforating guns come in expandable, semi-expandable, and retrievable hollow carrier configurations

Perforating guns configurations

The semi-expendable gun has a metal bar that holds the shaped charges. After firing, some of the gun disintegrates, part of the jet charges fall to the bottom of the hole, and the metal bar is recovered.

Semi-expendable gun

The hollow carrier gun contains all parts inside a steel tube that is resistant to wellbore fluids. When the gun is fired, most debris remains inside the tube and is retrieved at the surface.

Retrievable hollow carrier gun (commonly used)

Source: AAPG, PDK, Saudi Aramco analysis


Perforating guns demand is driven by the completion services activity within upstream operations in the region

Perforating guns demand in Saudi Arabia has been growing and has reached a total of 32,000 ft in 2016

KSA perforating guns market size evolution (ft)


32,000

37,84039,087

29,27827,884

2012 2013

+15%

2014 2015 2016

Perforating guns

Currently, total KSA demand of

perforating guns is achieved

through imports (full gap)

Hollow carrier guns represent the

majority of the market for

perforating guns with different size

varieties including: 2 7/8”, 3 1/8”, 3

1/2", and 4 1/2"


The demand for perforating guns in Saudi Arabia is expected to reach ~45,000 ft by 2022

44,68244,62644,53443,20040,374

34,788

2020

5.1%

2021 2022201920182017Perforating guns

KSA perforating guns expected market size evolution (ft)

Strong oil and gas production outlook is expected to fuel the growth in perforating guns



The demand for perforating guns in the GCC is expected to reach 91,000 ft by 2022

34,788 40,374 43,200 44,534 44,626 44,682

36,820

43,07646,218 47,107 46,832 46,234

2019

91,45891,641

2020 2021 2022

90,915

2018

89,41883,450

2017

71,608

4.9%


GCC perforating guns expected market size evolution (ft)




The hollow carriers and charge tubes are manufactured from tubes according to ASTM A450/ M that are precision machined

Material Manufacturing processPerforating guns components

Pressure-tight steel tubes, A450

cold-drawn tolerances

• Precision/CNC Machining• Boring/Groves Machining• Seamless alternative

Hollow carrier and charge

tube

The manufacturing process starts with a pressure-tight steel tubes that are cold drawn to A450 standard.

Precision/ CNC machining is then used to bore the scallops on the tube. The scallop profile reduces the external burrs created as the perforating jet exits the gun body.

The tubes are finally threaded and cut to the appropriate sizes.

Perforating guns manufacturing

Source: EPA, Ningbojinxiang, Patentscope, Saudi Aramco Analysis


Local value chain gaps translate into opportunities to do business in the KSA

Opportunities

1.Establish a

perforating

guns design

and R&D

office to

develop

perforating

designs fit for

KSA

requirements

2.Partner with local tube suppliers to localize tubes manufacturing

3.Establish a fabrication shop to fabricate the hollow carriers and charge tubes

4.Establish a lathe/CNC shop to machine the perforating systems and other downhole equipment

5.Assemble and test perforating systems prior to use in perforating operations

6.Provide support services for perforating gungs, including inventory management


Value chain opportunities

Tier-1/2 Tier-3 Tier-2

Input materials

ProductionTesting and Assembly

DesignLifecycle management

Tier-2/3


Drill collars are an attractive opportunity given the current supply gap, expected demand growth and localization potential


• Opportunity to manufacture spiral

and slick drill collars given no local

manufacturing and abundant raw

material

• Opportunity to offer rental services

for OEMs given an increasing trend

towards rentals rather than purchases

• Opportunity for T&C i.e., magnetic

particle inspection, liquid-penetrant

The opportunity

1. Current KSA demand is estimated at

~5,000 drill collars /annum

2. Forecasted ~5% annual growth in

the regional drill collars market until

2025

3. Competitive pricing of material

supply including carbon and alloy

steel

4. Attractive cost base including low


costs

The business case


KSA demand for drilling collars has been growing at a CAGR of ~5% and is expected to reach $18 MM in 2025

Growth in onshore

drilling and well

completion up to

2025 to maintain

production targets

will drive drill collar

demand


7,2876,825

6,3635,9645,9435,943

5,6495,271

4,998

20192018 20232022 2024

5%

2025202120202017

Volume# units

Value$ MM 12 13 14 15 15 15 16 17 18

KSA drilling collars market size evolution


GCC projected demand is expected to reach ~$49 MM by 2025 at a CAGR of 5%

GCC drill collars expected market size evolution


5,964

2025

5%20,019

7,287

12,732

2024

18,750

6,825

11,925

2023

17,481

6,363

11,118

2022

16,385

10,421

2021

16,327

5,943

10,384

2020

16,327

5,943

10,384

2019

15,519

5,649

9,870

2018

14,481

5,271

9,210

2017

13,731

4,998

8,733

KSARest of GCC

34 36 38 40 40 40 43 46 49

Value‘000 units

Value$ MM

Growth to be

driven by

increased

drilling activity

to maintain

production levels


There is high localization potential in manufacturing and after sales & renting

Gaps

•Limited availability of carbon steel and stainless steel raw materials with required grades

•Ongoing initiatives to localize steel manufacturing, including grades required to manufacture drill collars

•No local player manufacturing drill collars in KSA

•There is an opportunity to design and manufacture spiral and slick drill collars based on international and Aramco standards and certifications, i.e., NS-1™, NS-2™, and DS1 cat 3-5

• Installation already done by local players at the rig site, i.e., Arabian Drilling Company, Nabors, Saipem, etc.

•Rental services is a major opportunity for SMEs as it allows the drillers access to the most advanced equipment that suit the local terrain

•Stubbing of drill collars is a potential opportunity that will allow recycled usage and repair of the drill collars

Tiering

Step

Localization potential

Low High

Tier-1/2/3

Raw materials Installation Design & manufacturing

After sales and renting

Drill collars production value chain



Drill collars are mainly composed of carbon steel and stainless steel

Insights

•Ongoing initiatives to localize manufacturing of carbon steel and stainless steel raw materials, including required steel grades to manufacture drill collars

•Depending on inputs from OFS players, there may be potential for localization of advanced grades:

–Duplex SS

–SS 316L / SS 304L

–Molyndenum impregnated SS78.7%

21.3%

Carbon steel Stainless steel

Drill collar raw materials

Drill collars material composition



Drilling contractors with activity in the Kingdom are the main consumers of drill collars

Main drill collars consumers in the Kingdom

Source: Company websites, Saudi Aramco analysis

Selection

DPS


Liner Hangers represent an attractive opportunity given the current supply gap, expected demand growth and localization potential



manufacturing unit of liner hangers

to serve the KSA and GCC Oil and Gas

industry

The opportunity

1. Current KSA demand is estimated at

~1,200 Liner Hangers /annum


the regional Liner Hangers market

until 2022

3. Plans to localize Elastomers which

has been a barrier for Liner Hangers

localization



costs

The business case


Liner hangers provide ability to suspend liner inside the casing string which reduces weight on wellhead and saves casing costs

Liner Hangers configurations

A mechanical liner hanger attaches itself to the well’s cones, through using its mechanical parts, allowing for oil to pass through to the surface.Mechanical liner hangers are designed to be used on vertical, onshore wells.

Mechanical Liner Hangers

The hydraulic liner hanger attaches the liner to the cone by using powerful hydraulics.Hydraulic liner hangers are used in offshore oil wells, onshore wells that are extremely deep, or high pressure high temperature (HPHT) wells.

Hydraulic Liner Hangers

The expandable liner hanger provides bi-directional anchoring capabilities and a bi-directional annular seal while offering both tensile and compressive load capabilities. It offers increased bypass area due to smaller OD.

Expandable Liner Hangers

Source: Saudi Aramco, Conjecture Corporation, Sagatrade, Halliburton

ExpandableMechanical Hydraulic


Liner Hangers demand is driven by the upstream activity in the region

Liner Hangers demand in Saudi Arabia has been growing and is estimated to be ~1,200 units in 2016

KSA Liner Hangers market size evolution (Volume, Units)



Liner Hangers is achieved


The current gap for Liner

Hangers in KSA is estimated at

USD 95 Mn and the demand in

the rest of GCC is estimated at

USD 100 Mn

421 399598

721 686

178

267 288100

162 223

1018273

87

2016

+106%

2015

1,1971,150

2014

876

2013

582

2012

581

Mechanical Liner HangersOther Liner Hangers Hydraulic Liner Hangers


The demand for Liner Hangers in Saudi Arabia is expected to reach ~1,900 units by 2022

902 988 1,018 1,065 1,107 1,152

331363 374 391 407 423264289 298

312 324 337

2022

5.0%

2020

1,838 1,912

2021

1,768

2018

1,4981,640

2017 2019

1,690

Hydraulic Liner HangersMechanical Liner HangersOther Liner Hangers

KSA Liner Hangers expected market size evolution (Volume, Units)

Strong oil and gas production activity is expected to fuel the growth in Liner Hangers



The demand for Liner Hangers in the GCC is expected to reach ~3,890 units by 2022

1,498 1,640 1,690 1,768 1,838 1,912

1,5851,750 1,808 1,870 1,929 1,978

4.8%

2022

3,890

2021

3,768

3,390

2017

3,083

2020

3,638

20192018

3,497


GCC Liner Hangers expected market size evolution (Volume, Units)




Body is machined from casing pipe, components are precision machined, and pack-off elements are elastomer based

Liner Hanger blocks and manufacturing Common Liner Hanger components

Source: Saudi Aramco analysis, Sovonex, DEW, TIW

Material Manufacturing processLiner Hanger blocks

High grade API 5CT casing body for

extra pressure strength, CRA Inconel

• Machined from one piece• Threading (API)• Heat treatment for H2S exposure

Body/ Mandrel

Elastomer based, Viton, HNBR, Aflas

• Synthesis

• Conversion

• Compounding

Pack-off elements/

bushings

Low alloy steel AISI 4130 or 4140,

Q125, or P110 depending on the

casing material and well bore

conditions/ requirements

• Precision/ CNC machiningComponents (Cones,

slips, J-lug, etc.)

1

2

3


Tiering

Step

Tier-1/2

Design ProductionInput materialsTesting and Assembly

Lifecycle management


Opportunities

1.Establish an

office to

optimize

designs for

Liner Hangers,

to fit bottom

hole

requirements

in KSA

2.Manufacture elastomer based rubber for oil and gas applications

3.Partner with local OCTG suppliers to upgrade casing manufacturing capabilities used in fabricating the body

4.Establish a fabrication shop to manufacture Liner Hanger system components (including Pack-off bushing)

5.Establish a lathe/CNC shop to fabricate slips, cones, and other components

6.Leverage local facilities to outsource surface treatment and finishing services

7.Prepare and test equipment prior to installation on site. Mechanical tests include Compression/Tensile Load, Digital Hardness Tester, and Charppy Impact/Izod Testing

8.Provide liner hangers redressing services

9.Prove Liner Hanger maintenance and repair services, include spare parts for Liner Hanger components

Source: Saudi Aramco analysis, Liner Hanger catalogues from key OFS suppliers

Tier-3 Tier-2

Tier-2/3


Packers represent an attractive opportunity given the current supply gap, expected demand growth and localization potential



manufacturing unit of packers to

serve the KSA and GCC Oil and Gas

industry

The opportunity

1. Current KSA demand is estimated

at ~5,050 Packers /annum


the regional Packers market until

2022

3. Plans to localize Elastomers which

has been a barrier for packers

localization in the past



costs

The business case


Packers are key well-completion component that protect casing and deliver effective zone separation

Production and Isolation Packers configurations

Packers classification: Setting method:

Permanent:

Retrievable:

Packer can be removed from the wellbore only by milling. They offers higher performance in both temperature and pressure ratings.

Reusable packer and more expensive that permanent packers. Used in both low and high pressure/ temperature.

Mechanical sets: Setting is accomplished via tubing

movement. This either includes a rotation or upwards/ downwards motion.

Hydraulic-set:

This category operates via fluid pressure driving the cone in place behind the slips.

Inflatable:Also known as swellable elements, these components rely on fluid pressure to inflate cylindrical tubes for setting.

Source: Saudi Aramco, Dallas Texas 75206: Society of Petroleum Engineers AIME, Global Spec,


Packers demand is driven by the upstream activity in the region

Packers demand in Saudi Arabia has been growing and is estimated to be ~5,051 units in 2016

KSA Packers market size evolution (Volume, Units)



Packers is achieved through

imports (full gap)

The current gap for Packers in KSA

is estimated at USD 173 Mn and

the demand in the GCC is


1,548 1,631

3,5374,487

4,028

816

9671,023

433

20142013

5,454

4,353

2015 2016

+159%

5,051

1,949 2,064

2012

401

Production Packers Isolation Packers


The demand for Packers in Saudi Arabia is expected to reach ~8,147 units by 2022

5,156 5,645 5,816 6,084 6,328 6,581

1,2271,344 1,384

1,448 1,506 1,5667,533

5.0%

2022

8,147

6,383

2021

7,8347,200

20202017 20192018

6,988

Isolation PackersProduction Packers

KSA Packers expected market size evolution (Volume, Units)

Strong oil and gas production activity is expected to fuel the growth in Packers



The demand for Packers in the GCC is expected to reach ~16,577 units by 2022

6,383 6,988 7,200 7,533 7,834 8,147

6,7567,456 7,703 7,968 8,221 8,430

4.8%

2022

16,577

2021

16,055

2020

15,500

2019

14,903

2018

14,444

2017

13,139


GCC Packers expected market size evolution (Volume, Units)




DV tools represent an attractive opportunity given the current supply gap, expected demand growth and localization potential



manufacturing unit of DV tools to

serve the KSA and GCC Oil and

Gas industry

The opportunity


estimated at ~1,170 DV tools

units /annum

2.Forecasted ~2.3% annual

growth in the regional DV tool

market until 2022



labor costs

The business case


Multi-stage cementing are essential downhole operations in formations with different intervals/ section requirements

Multiple-stage cementing operations

2nd stage cementing

DV tool

1st stage cementing

Multiple-stage cementing operations allow for selected intervals around the casing string to be cemented at separate times or in stages.

Multi-stage cementing applications:

Wells where losses are encountered or hydrostatic head of the cement is greater than the formation pressure in some intervals

When certain portions of the wellbore require zonal isolation

Source: Saudi Aramco analysis, TAM, Halliburton


DV tools or stage cementing tools are used to cement multiple sections behind the same casing string

DV tools configurations

Source: Davis-Lynch LLC, Rubicon Oilfield, TAM, Saudi Aramco analysis

Mechanical Stage Tools are designed for stage cementing operations that require the tool to be opened mechanically.The tool features two internal sleeves that shift during the stage cementing operations. The bottom sleeve is shifted open by dropping an opening plug. Closing collar is shifted through a closing plug.

Mechanical Stage Cementing Tools

Isolation below the stage cementing tools is achieved through an external Casing Packer, which eliminate the need for cementing baskets.

Casing Packers come in two configurations: Mechanical and Inflatable. Casing Packers should be compatible with the stage cementing tool.

Casing Packer

Mechanical Stage Cementing Tools

Casing Packer


DV tools demand in Saudi Arabia has been growing and is estimated to be ~1,171 units in 2016

KSA DV tools market size evolution (Units)


DV tools demand is driven by the cementing service activity within upstream operations in the region

Currently, all DV tools used in

Saudi Arabia are manufactured

out of the Kingdom

The current gap for DV tools in

KSA is estimated at USD 64 Mn

and the demand in the GCC is


1,171

1,311

765

933

654

2012 2013

+79%

201620152014

Mechanical DV tools


The demand for DV tools in Saudi Arabia is expected to reach ~1,366 units by 2022

KSA DV tools expected market size evolution (Units)


Strong oil and gas production outlook is expected to fuel the growth in DV tools

1,3661,3141,263

1,2031,2361,206

20202017 202120192018 2022

2.5%

Mechanical DV tools


The demand for DV tools in the GCC is expected to reach ~2,780 units by 2022

GCC DV tools expected market size evolution (Units)



1,206 1,236 1,203 1,263 1,314 1,366

1,276 1,319 1,287 1,336 1,379 1,414

20222020

2,599

2021

2,4902,780

20192018

2,6922,482

2.3%

2,555

2017



Similar to other downhole tools, there is high potential to manufacture body, elastomer-based seals, & components in KSA

Localization of DV tools manufacturing in KSA

DV tools blocks

Stage Collar

Body

Packer rubber

element

Stage cementing

plugs

Components

(Sleeves, ports,

connections)

1

2

3

4

KSA Localization potential

• Existing local players with capabilities to supply API 5CT bodies to be

machined

• Saudi Aramco is engaging with leading suppliers to localize

elastomers used in manufacturing seals/ packing elements

Localization efforts are being conducted to localize Precision/ CNC

machining for downhole equipment in the Kingdom




Opportunities

1.Establish a

DV tool

design and

R&D office to

develop DV

tools designs

fit for KSA

requirements

2.Partner with local OCTG suppliers to upgrade casing manufacturing capabilities used in fabricating the body

3.Establish a fabrication shop to manufacture DV tools system components

4.Establish a lathe/CNC shop to fabricate metal components

5.Establish local facilities to conduct surface treatment and finishing services

6.Assemble and test DV tools prior to use in stage cementing operations

N/A


Tier-1/2



Tier-3 Tier-2

Tier-2/3



Whipstocks represent an attractive opportunity given the current supply gap, expected demand growth and localization potential


manufacturing unit of Whipstocks

to serve the KSA and GCC Oil and

Gas industry

The opportunity

1.Current KSA demand is estimated

at ~510 Whipstock units /annum

2.Forecasted ~5% annual growth

in the regional Whipstock market

until 2022

3.Attractive cost base including low


costs

The business case



Whipstocks demand is mainly driven by increasing multilateral wells drilling activity and bottom hole contingencies

Multilateral wells comprise more than one

wellbore drilled from and connected to a

single main bore.

Whipstocks, are mainly used to sidetrack from

the main bore in drilling multilateral wells and in

challenges instances (contingencies) incurred

while conducting bottom hole operations

Multilateral wells

Source: Saudi Aramco analysis, Dril l ing contractor, Schlumberger


Whipstocks demand in Saudi Arabia has been growing and is estimated to be ~510 units in 2016

KSA Whipstock market size evolution (Units)


Whipstock demand is driven by the upstream activity in the region

Currently, total KSA demand

of Whipstock is achieved


The current gap for Whipstocks

in KSA is estimated at USD 21

Mn and the demand in the GCC

is estimated at USD 44 Mn

112

369417 401

455

69

61 60

55

510461

406

181

20152014

37

2016

+182%

2012

478

2013

Hydraulic WhipstockMechanical Whipstock


The demand for Whipstocks in Saudi Arabia is expected to reach ~768 units by 2022

526 576 594 621 646 672

7683 85

89 9396

5.0%

2022

768

2021

739

2020

710

2019

679

2018

659

2017

602

Hydraulic WhipstockMechanical Whipstock

KSA Whipstock expected market size evolution (Units)


Strong outlook on multilateral well drilling is expected to fuel the growth in Whipstocks


GCC Whipstock expected market size evolution (Units)

The demand for Whipstocks in the GCC is expected to reach ~1,560 units by 2022

602 659 679 710 739 768

637703 726 751 775 795

2019

1,405 1,461

2018 2021

1,5144.8%

2022

1,563

1,362

20202017

1,239





Whipstock has primarily three main sections: Whipface, Anchor (mechanical and hydraulic) and milling systems

Shear Screws

Whipface

Shear Bolt andShear Bolt Locks

Shear Pins

Mechanical Set Anchor

Safety Pin

Trip bar

Hydraulic Set Anchor / Packer

Shear Pins

Mechanical Whipstock Hydraulic WhipstockM

illin

g s

yste

m

Millin

g s

yste

m

Whipstock elements

Source: HPOGC, Saudi Aramco analysis


The manufacturing of both Mechanical and Hydraulic whipstockfollows API / ASME standards and specifications

Whipstock blocks and manufacturing (1/2) Common Whipstock components


Material* Manufacturing processWhipstock blocks

Alloy steel and Aluminum• Top section is machined• Retrieval slot is machined• Milling of slots

Whipface

Alloy and carbon steel• Boring• Machining

Hinge Connector

• Stainless steel• Zinc plated• High tensile steel

• Milling• Machining • Boring • Forging

Hydraulic Set

Anchor/Packer

1

2

3


Milling systems are designed with Viper inserts and Tungsten Carbide for strength and optimum milling performance

Whipstock blocks and manufacturing (2/2) Common Whipstock components


Material* Manufacturing processWhipstock blocks

• Stainless steel• Zinc plated• High tensile steel• Cracked and Un cracked

Concrete

• Milling• Machining • Boring • Forging

Mechanical Set

Anchor

Alloy and tempered steel, aluminum, copper, etc.

• Casting/forging• Machining• Forming• Threading• Tempering• Drilling

Other

Components

(shear screws,

shear pins, shear

bolts)

• Tungsten carbide material and particles

• Alloy and Stainless Steel

• Forging• Milling• Machining

Milling System

4

5

6


Most of the whipstock components are CNC machined, which can be outsourced in the Kingdom

Perform in-house

Outsource to downhole equipment precision machining shops

Outsource to existing CNC machining shops in the Kingdom

• CNC machining for downhole equipment can be performed inhouse by the whipstockmanufacturer

• Inhouse capabilities can enable localization of other downhole equipment such as packers, liner hangers, wirelines tools, completion tools, collars, etc.

• Precision machining for downhole equipment is highlighted as an investment opportunity in the Kingdom

• Localization efforts are taking place to attract investors to start precision machining shops serving downhole equipment manufacturers

• Several capabilities for CNC machining are existing in the Kingdom

• Local machining shops are advancing their current capabilities and are open to expand their skills to satisfy increasing demand

✔ Target for localization

✔ Value proposition is developed

✔ Engaging with potential investors

CNC machining components manufacturing options




Opportunities

1.Establish a Whipstockdesign and R&D office to develop Whipstockdesigns fit for KSA requirements

2.Opportunity to partner with steel suppliers to produce raw materials, as per the required specifications

3.Establish a fabrication shop to manufacture Whipstock system components

4.Establish a lathe/CNC shop to fabricate metal components

5.Establish local facilities to conduct surface treatment and finishing services

6.Assemble and test Whipstocksequipment prior to use in operations

7.Establish after-sales services center to serve requirements for retrievable Whipstocksconducting multiple trips to drill several laterals from single wellbore


Tier-1/2



Tier-3 Tier-1Tier-2/3



THANK YOU

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