Category description

A Drill Bit is a tool attached to the bottom of the drill string (assembly of drill pipe and tools) to excavate the earth's rock. Rotation of the drill string and weight provides power to the drill bit that crushes, scraps or grinds the rock at the bottom of the well as drilling progresses. Due to different formations, the drill bit must be changed after a period of time during which drilling operations must stop. 

Drill bits are of various size, ranging from 3.5 inches to 30 inches, with bigger sizes being extremely rare. Drill bits are broadly divided into the following categories. 


  • DRILL BITS
    • Diamond Impregnated 
    • Fixed Cutter
      • PDC
      • Diamond
    • Roller Cone ( Tricone)
      • Milled-tooth
      • Tungsten-carbide inserts

Drill bits of each type maybe of various design and geometry, to cater for a particular field application or drilling practices. Some examples are outlined below:

Roller Cone (Tricone) bits are steel body bits with cutters. The cutters (cones) roll at the bottom of the well, together with the rotation of the drill string. Roller cone bits are mostly used in soft and sticky formations or for top-hole drilling. Two major types of roller cone bits are:

  • Milled-tooth (MT) - conical cutters (cones) with steel teeth that are fabricated as an integral part of the bit. The teeth vary in size and shape. For soft formations, the teeth are long and widely spaced. For harder formations, the teeth are short and positioned very close to each other. 
  • Tungsten carbide inserts (TCI) - conical cutters (cones) with tungsten carbide inserts around them. The size of inserts vary depending on application. In soft formation, chisel shaped and long inserts are used, whereas for harder rocks, rounded and short-extension inserts are more effective. 

Fixed Cutter bits consist of steel or matrix body and cutting elements. Cutters work like an excavator, by shearing the rock. Cutting elements are fixed and these drill bits do not have any moving or rotating parts. Two types of fixed cutter bits are:

  • Polycrystalline Diamond Compact (PDC) - steel or matrix body bits with fixed Polycrystalline Diamond Compact blades. 
  • Diamond Bits are steel or matrix body bits with fixed synthetic or natural diamond blades. These drill bits are made-to-order and designed for specific applications. 

PDC bits have become almost a default selection, unless the expected formation is very sticky or too hard, where other types of bits are used.

Matrix is a very strong composite material whereby tungsten carbide bonded with other metals is used to achieve very high hardness and high resistance to abrasion and erosion. While the matrix material can hold high compressive load, impact loading makes the matrix collapse. Matrix PDC bits are preferred over steel PDC bits, where body erosion is a concern. 


Diamond-Impregnated is PDC type of bits but with fully imbedded diamonds forming a solid matrix. This type of drill bits are used in hard and abrasive formations and proved to be extremely efficient, and able to drill effectively in soft formations as well. Only matrix-body is used for diamond-impregnated bits. These drill bits are made-to-order and designed for specific applications. 


Depending on the rock, a different type of drill bit can be used in any given well, with the selection criteria being driven by type of formation, temperature, well inclination and logging programmes. Association of Drilling Contractors (IADC) has developed a comprehensive classification system that allows engineers streamlining the selection and categorization process. 

Below is some key data on drill bits and the difference between them:

Generally, the cost of drill bits is less than 3% of the well cost. However, performance of the drill bit is vital to drilling a successful well 

Risks & Opportunities

Value opportunities and risks are features or requirements that may add or detract from the overall value offered.

To ensure value is maximized attention should be given to the following areas:

  • Integration of drill bits with a bottom hole assembly (BHA), in many cases may provide more efficient and faster drilling. This, however, would be in favor of big integrated service companies such as SLB, HAL and BHGE, who collectively control more that 75% of the global drill bit market.
  • PDC bits are becoming a default choice in bit selection and used more widely. PDC bits provide a better cost-per-meter performance by having better penetration and having a longer run life, thus reducing operational stops required for any replacement / repairs of the drill bits.
  • A drill bit that can drill various formations and do not require a change-out, would be the most demanded
  • Unconventional wells mostly use PDC bits, as such decrease in unconventional drilling significantly reduced demand for PDC bits
  • Directional wells require special design PDC bits that combine and balances durability, penetration, steering ability and hydraulic attributes

Supply & Demand Dynamics

Demand 

Drilling activities, in particular footage drilled, drives the demand for drill bits. Although rig count would be the closest indicator of the demand, it is still not representative. As an example flat or even declining rig count may be coupled with increased demand for drill bits as drilling efficiency is improved, and longer directional and/or lateral wells are drilled. The size of the global drill bit market is expected to grow around 5% per annum from 2013 to 2019, from 2,600 units to 3,000.

Historically, North America accounts for the largest share of the drill bits making up more than 30% of the market closely followed by Europe. Together these two segments account for more than 50% of the global market. North America is expected to stay the leader for the next several years although Asia Pacific and Middle East are expected to be key sources of growth in coming years. 


Supply 

The top 3 suppliers of Drill Bits are Schlumberger, Baker Hughes GE and Halliburton who have dominated the market for many years. More than 75% of the market is supplied by these companies.  There is a visible trend of integrating drill bits with the bottom hole assembly and in many cases may provide more efficient drilling. This would be in favor of big integrated service companies such as Schlumberger, Baker Hughes GE and Halliburton. There are more drill bits suppliers available, such as NOV, Varel, Tercel and more. 

Although Oil & Gas industry is the biggest user of Polycrystalline Diamonds Compact material that is used in PDC bits, it is widely used in other industries, such as precision cutting (non-metal), hard rock mining and construction. Increase in demand for PDC material in those industries, may have a significant impact on PDC bits prices. Yet, this may be balanced out by increasing production capacity of PDC material, as PDC bits are gradually taking away the share from Roller Cone bits. 

External Scanning

       


 
New Entrants is Low
  • High CAPEX required
  • Expertise and know-how is key
  • Many  Players
  • Battle for marker share
 
Supplier power is Medium
  • Many providers
  • Some Product differentiation
  • Can solve customer problem
Competitive Rivalry
  • Competitive environment
  • Battle for market share
  • Some product differentiation
Buyer Power is High
  • Many providers
  • Spend is small
  • Can be critical to buyer revenue
 
Substitution
  • Does not exist

 

 

 

Portfolio Positioning

Due to relatively high spend, high competition and ease of securing the services, this category falls into being LEVERAGE. Yet, some technology issues may place this category into the BOTTLENECK quadrant, due to proprietary design of drill bits that are critical to the buyer.

  • LEVERAGE



High
Low
High

Cost & Price Analysis

Price Analysis
Prices for drill bits have always been driven by fundamentals of supply and demand. In the long run, prices for drill bits will not exhibit high volatility and will remain below 2-3% annual price increase, if any, due to competition and the nature and design of the drill bits, i.e. size, basic technology and design do not change. Steel prices and oil price would have the highest impact on drill bits prices. The major driver that may significantly change the prices for drill bits is technological breakthrough that makes the bits more expensive, i.e. different type of materials.

Price skimming is a very common approach by service companies, i.e. a service company would charge a premium for a drill bit that produces significant benefits for an operator, with profit margins reaching up to 50% mark.  

 

Cost Analysis 

Drill bits are made of steel and other commodity materials, with steel being more than 80% of the material composition. As such fluctuations in steel prices impacts the cost of manufacturing the bits. R&D costs play a significant role as well, as it is technological innovation that makes drill bit companies competitive.  Engineering new designs and material selection for a particular application is manpower intensive, hence increases R&D costs significantly.

Total Cost of Ownership

TCO model for drill bits has always being challenging to determine, as expected performance of drill bits is driven by many factors, which are beyond simple performance statistics. Yet, when it comes to drill bits based on a proven technology, historical data coupled with drilling spread costs are very accurate indicators. Whereas for new technology drill bits, where performance data is limited, establishing total cost of ownership could be very subjective. What to consider may include:

  • Historical bit performance data to understand the bit efficiency 
  • Purchase & repair costs and its correlation
  • In many occasions, the cost-per-meter ( per foot) is a more accurate evaluation methodology and may provide better results in standard design wells during development and production stages. Hence, a balance between usage of rate of penetration rather than cost-per-meter (foot), as a comparison method is important.  
  • Toughness of cutters and resistance to abrasion, as well as torque management & vibration resistance are common differentiation factors
  • Geometry of the drill bits and cutters have a significant impact on drilling efficiency. Conical bits proved to add a significant contribution to increased drilling speed
  • In the Middle East, most of the fields are less-abrasive and hard-carbonate formations, hence the balance between TCI and PDC bits is important 

Strategy

  • Wider utilization of rental models, i.e. US$ per meter/ foot drilled, with performance risk / reward system, would provide significant benefits to operators and service providers. It will allow operators to have access to a wider selection of drill bits available at a relatively short notice, provide better stock management for service companies and ensure that commercial objectives of both parties are aligned. 
  • A traditional pay-if-used is also effective approach in certain applications. 
  • Ensure access to various service providers, as some (brands) bits work better in certain formations than others. 
  • Maintaining the traditional approach of having multiple service providers to enhance competition and secure the technological know-how, is expected to continue bringing benefits to operators, in most of the applications.