Category description

Coiled tubing is one of the methods of deploying various down-hole tools into a well. It is considered to be a more robust and heavier deployment method than the wire-line. Coiled tubing works based on a very simple technology, i.e. long steel or composite pipe, of different sizes, with high elasticity that allows the pipe to be spooled on a reel. Other equipment such as a power pack, a control unit and an injector are generally part of the coiled tubing package and fairly standard. One of the advantages of coiled tubing is that it can be used on a live well with production running. The tubing is pushed into the wellbore, as opposed to using the gravity forces involved with the wire-line alternative.

As a conveyance/deployment method, coiled tubing is used in a number of areas, starting from basic down-hole jobs, to well stimulation, and as part of well intervention programmes. In certain instances, coiled tubing drilling is used to drill a well. One of the major benefits of using coiled tubing in drilling is that it needs less time to trip in and out of the well, owing to the coiled pipe. In conventional drilling, drill pipe joints must be assembled (and vice versa) for tripping. A shorter trip time saves on daily rig drilling and other equipment costs.

The footprint of the coiled tubing unit is larger than that of a wire-line unit, hence it may be more costly or not feasible at all in some of the offshore applications. Onshore coiled tubing is track-mounted, whereas offshore units are skid-mounted.

Below are typical down-hole services where coiled tubing is involved.

  • COILED TUBING 
    • Replaces wire-line in deviated wells
    • Well Stimulation
    • Pumping , Cleaning  & Circulation
    • Perforating  
    • Down-hole Equipment replacement
    • Fracturing
    • Sand Control
    • Cementing
    • Measurements  

Risks & Opportunities

It is important to establish what the main purpose of coiled tubing services is, to understand how it can affect the procurement strategy. Since it is used as a deployment method, the value-adding activity might come from a completely different market segment in which the competition and expertise dynamics are different. It might be prudent to segregate the scope in a way that provides more benefits, e.g. combining well stimulation and coiled tubing vs. renting a coiled tubing unit for down-hole equipment replacement.  

Supply & Demand Dynamics

Demand 
Demand for deployment tools is growing worldwide, as a direct result of the steady increase in well intervention activities brought about by the continuous efforts needed to maintain and maximise production within existing oilfields. In parallel to that, the number of ageing wells is increasing; hence more intervention must be conducted.

The continuous investment in the Middle East by NOCs along with the ever-increasing technological challenges means that, in the  long run, the region will witness a steady increase in demand for well intervention services. This region is already considered to be the market with one of the highest penetration rates of well intervention services, both onshore and offshore.

Close to 50% of coiled tubing services are provided in North America, with the USA being the biggest market. A Micro Market Monitor report estimates CAGR for coiled tubing services in the Middle East as a whole to be circa 12% from 2013 until 2018 and to reach US$ 522m by 2018. Around 70% of the demand for coiled tubing services in the GCC is driven by well intervention activities.


Given the prolonged postponement of well intervention jobs in the region, the demand for equipment is about to go up, as more jobs need to be conducted and the backlog of jobs must be cleared.


Supply 
Owing to the relatively low entry barriers and simple technology, the market is very competitive with a large amount of players, of various sizes, fragmented around the world and across the value chain. While some companies are fully integrated to provide the whole spectrum of well intervention services, others are likely to specialise in small segments of it on a regional basis. The majority of coiled tubing equipment is manufactured by third parties who do not provide coiled tubing services directly.

The GCC market is composed of national/domestic service providers and international players, with the latter being dominant. There are, however, a number of local service providers who are heavily focused in domestic markets and who rarely venture out of the home country, even on a regional basis. Schlumberger and Halliburton are the regional leaders, followed by Baker Hughes, Uni Arab Engineering, NPS , Al Ahlia Services, Nordic Gulf and Gulf Energy, being notable players. There are more than 25 small local outfits owning CT units across the region. (Source: ICoTA 2016)


Below is the growth rate of the units over the last 10 years.  Middle East exhibited the lowest increase (153%). Change dynamics in global count of coiled tubing units, 2005 vs. 2015 vs. 2016 (Source: ICoTA). While most of the regions exhibited either a decline or a small increase in count, Middle East region witnessed the highest increase of 20% in CT units from 209 in 2015 to 258 in 2016.




Global CT units count as of July 2017  ( source : ICoTA)


Distribution of CT unites in Middle East, by country ( source ICoTA 2016)


External Scanning


 
New Entrants is Moderate
  • Equipment manufactured by 3rd party
  • Personnel available
  • Medium CAPEX requirements
 
Supplier power is Low
  • A highly competitive environment
  • Technology is available to many players
  • Low switching costs 
  • Local content policies 
Competitive Rivalry
  • A highly competitive environment
  • Technology is available to many players
  • Low switching costs 
Buyer Power is High
  • Low tech equipment
  • Many providers
  • Spend is could be significant
 
Substitution is Moderate 
  • Wire-line is lower cost alternative in certain applications
 

Portfolio Positioning

  • LEVERAGE



High
Low
High

Cost & Price Analysis

Price Analysis

Over the last several years, any growth in prices has been very slow, with patchy downward trends in certain areas. Almost 50% of coiled tubing equipment is utilised in North America (NAM). Owing to the oil price cycle and reduced activities in NAM, the number of available units will grow and companies will search for opportunities in other markets worldwide, with Middle East  being one of them.

In addition, because of lower steel prices (for consumable pipe) and the price pressure on regional service providers, prices of services in the Middle East have declined significantly. Yet, the prolonged postponement of well intervention jobs in the region, the demand for equipment is about to go up, as more jobs need to be conducted and the backlog of jobs must be cleared. Overall, this category has very low price volatility for buyers, as the supply side is large and many units available, inlcuding NAM.


Cost Analysis 

Below is a general map of how costs are rolled up. Most of the equipment is manufactured by third parties, with service companies building up their fleets based on requirements. Below are specific costs that drive the category. This category is a high fixed cost segment; hence sustained revenue generation for contractors is of the utmost importance. In addition, manufacturing costs of coiled tubing equipment and consumables are highly driven by steel prices. 

  • Purchase price- This is one of the biggest costs for service companies, in particular smaller, non-integrated players. The average price of a complete new coiled tubing set is between US$ 1m and US$ 3m.
  • Maintenance costs - Because the tubing used is not repairable, it is a consumable item. Owing to the pressure and stress applied to the tubing during operations, the pipe has a finite number of applications, after which it becomes unusable. Hence, pipe is the most expensive consumable and drives maintenance costs.
  • Personnel costs - Since the segment comprises numerous service providers of various sizes, the call-out nature of the services means that employment patterns are mixed between permanent staff and temporary personnel pools. Personnel rates exhibited a significant downward trend globally.


  • Services
    • Acquisition
      • Equipment Distributor
        • Equipment Manufacturer
          • Raw Materials
      • Financing costs
        • Pay back period
        • Interest rate
    • Operating
      • Personnel
        • In-house
          • Benefits, Training & Development  
        • Temporary
      • Maintenance
        • Personnel, Equipment and Leases
        • Depreciation
        • Parts
          • Pipe
      • Opportunity costs
      • Logistics

Value Chain Analysis

With the exception of a few instances seen with integrated companies, coiled tubing equipment is fairly simple and standard with more than 30 manufacturers available worldwide.  

Total Cost of Ownership

Procuring coiled tubing services is reasonably straightforward, and, generally, the value driver lies outside of the coiled tubing domain (e.g. nitrogen services, stimulation, etc.). The standard rate structure that is common in the industry is:

  • Mobilisation/demobilisation fees
  • Daily operating rate and standby rate
  • Footage/depth rate 
  • Daily rate for the crew
  • Charges for miscellaneous equipment related to the job.

Important considerations:

  • Assess the necessity of primary and back-up equipment, as it costs more, although it would not happen often, calculate the cost of changing from one contractor to another, specifically when units are stationed and require installation work that may result in excessive standby costs for coiled tubing units and an installation itself, mostly applicable in offshore environments when installed permanently or on a longer term;
  • Evaluate the daily operating rate vs. the footage rate based on what drives the activity. Footage rate may look low, but may be a big swinger, if the footage is high.

Strategy

The analysis carried out presents a strong case for a strategy that maintains or further maximises the power of the buyer. There are a number of ways of achieving this; however, we need to consider:

  • Since coiled tubing is only a deployment tool, understanding what value driver is important, i.e. what services it is used for, to improve the sub-category segregation to match the supply market capabilities
  • Aggregating requirements across business units
  • Maximising use of the campaign-based scope aggregation to allow the most efficient utilisation of crew and to minimise the learning curve
  • Providing integrated company expertise for separate fields that require more complex and heavy intervention
  • Buying vs. renting, which might be an option when a large number of wells are being operated. Equipment (reels and coils) could be bought from major manufacturers with maintenance agreements to be in place and provided through local enterprises. The tubing itself could be procured through a bigger and more attractive package to pipe mills, when tenders for OCTG are conducted.