Category description

Liner Hanger is a tool/system that is used to hang a liner in a production well. Liner is similar to casing, but it is not run through the full depth of the well, as casing is. Key reasons of using liners are:

  • Open hole is cased off faster
  • Less weight for a wellhead
  • Better cementing 
  • Rig capacity 
  • Cost advantage over a full casing string 

A modern liner system (also called liner hanger system) consists of a liner hanger, polished bore receptacle (PBR) and a liner-top packer. Liner hanger systems can be mechanical or hydraulic, premium or standard, rotating or non-rotating, conventional or expandable and pocket slip. Each of the systems is used in different applications. 

  • Mechanical liner hanger systems are used in vertical onshore wells. Its mechanical mechanism is actuated by rotation of the drill pipe. The liner is set when it is attached to the cone of the well.
  • Hydraulic liner hangers are mostly used in offshore wells, horizontal, deep and HP/HT onshore wells. A hydraulic liner hanger is a heavy duty system and allows simultaneous lining and cementing operation. These systems are attached to the well cones by the forces of hydraulic pressure. 
  • Expandable liner hangers are premium systems and widely applied when long liners are run and hung, as well as to provide a better cementing job when required.

A lot of engineering studies go into the design of any liner hanger system. A large number of parameters affect the system design and its components. Pressure, temperature, depth, stresses, well geometry, to name a few, all have a significant impact on the liner hanger system costs and lead times. 

Generally, costs of the liner hanger system and its installation is less than 1% of the total well cost. 

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;

  • Liner Selection - Selection of a appropriate liner hanger system presents a huge opportunity to reduce the cost of a well through the decrease rig time required and the reduction in casing. Care must be given to carefully engineer a solution that is fit for purpose to ensure well costs are managed however well performance is not restricted.

Supply & Demand Dynamics

Demand 

Demand for liner hanger systems is directly influenced by the number of wells drilled and completed. As such rig count is and relatively good indicator of demand.  Well intervention and work-over activities have little effect on the demand.

In the short term, oil price volatility will affect the demand for liner hangers systems, as fewer wells will drilled during the downturn. Historically, North America has had the largest share of the market, followed by Asia Pacific and South America.  Together these 3 regions account for more than 70% of the global liner hanger market. In Middle East, Oman and Saudi Arabia are the biggest markets for liner hanger systems.  Drilling activity, i.e. rig count and utilization is the closest indicator.


Supply 

Supply of liner hanger systems has been historically dominated by Baker Hughes, Weatherford, Halliburton and Smith (Schlumberger). There are smaller players like DrillQuip, Chancellor, PT Sagatrade Murni, Peak Completion and Sovonex in the market, each specializing in a particular segment(s).

Manufacturing plants are spread around the world with a number of facilities in the Middle East, manufacturing commodity / standard liner hanger systems. Although standard design systems might be available off-the-shelve, more complex systems would require a lead time between 15 to 45 weeks.

External Scanning

 



 
New Entrants is Medium
  • Moderate CAPEX required
  • Many  Players
  • Battle for market share
  • Low entry barriers
 
Supplier power is Medium
  • Many providers
  • No alternative for buyers 
  • Some Product differentiation
  • Can solve customer problem 


Competitive Rivalry
  • A competitive environment
  • Technology is available to many players
  • Battle for market share
  • Some product differentiation
Buyer Power is High 
  • Many providers
  • Spend might be significant 
  • No switching cost
  • Basic to medium technology


 
Substitution 

Alternative is too costly 

Portfolio Positioning



  • ROUTINE

High
Low
High

Cost & Price Analysis

Price Analysis

Prices for liner hanger systems have always been driven by supply and demand and technological innovation. In the long run, prices for liner hanger systems will not exhibit significant volatility and will remain below 2-3% annual price increase, if any. In the medium run, in 2016 and 2017 prices shall go down due to lowers steel prices and deceasing demand for in the category.  The liner hanger systems have always been a highly profitable segment for many suppliers, with operating margins being between 12% - 20%. 


Cost Analysis 

The breakdown of an average liner hanger job is as below. As seen, equipment part is the highest cost. Further on, on complex wells, the equipment is share increases, due to higher grades of materials being used during manufacturing. 


Liner hanger systems are made of steel and elastomers / fluoroelastomers (high quality synthetic rubber for sealing), with steel being more than 90% of the material composition. For packers and plugs, being a part of the system, elastomers contribute around 80% of the cost. Manufacturing costs are the highest contributor to the price of liner hanger systems, in particular for commodity type systems. For higher grade liner hangers, i.e. H2S applications HP/HT, the contribution of materials costs tend to increase.

Depending on the design and application, costs of liner hanger systems may vary by 4 x, due to selection of materials. Selection of elastomers / fluoroelastomers drives the cost as well and will be a significant element for high pressure and H2S applications.

R&D costs play a significant role as well, as it is technological innovation that makes manufactures competitive. In addition, an important factor that drives the cost of liner hangers systems is the design of the system based on down-hole conditions and initial assumptions. Manufactures tend to design systems with common design and refrain from spending additional R&D costs to “tailor-made” their systems, which in turn makes them more competitive. The moment the liner hanger system becomes unique, R&D share other the system may go as high as 30% of the cost, depending on the buying quantities.

Cost components and its impact:


    • Manufacturing & assembly costs:
      • Metal and process related, hence steel and metal prices
      • Capacity utilization of  manufacturers
      • Cost of elastomers / fluoroelastomers (high quality synthetic rubber)
      • Machining costs 
    • Research & development costs - for most liner hanger systems that are designed for standard applications, the R&D costs spread over a longer period and larger markets. For any “tailor-made” systems, the R&D costs are expected to go up significantly. 

Total Cost of Ownership

In general, liner hangers systems are provided on sale basis. In addition, costs of running tools and personnel contribute to the total cost of ownership. On many occasions, the cost of rental equipment and personnel may be higher than the actual prices of purchased linger hangers systems.  Hence, consider:

  • Purchase price 
  • Rental of running tools
  • Costs of Damaged Beyond Repair ( DBR) and / or Lost in Hole (LIH)
  • Personnel rates 


Strategy

Maintaining the category as Routine could be easily achieved via number of strategies:

  • Always maintain active competition in commodity / standard liner hanger systems
  • Secure multiple access to higher-grades systems from key suppliers
  • Minimize lead-times by sharing demand plans with key suppliers for higher-grades systems
  • Assess purchasing a fleet of running tools, with maintenance agreements in place, to cover multiple rig operations


Technical Insights

  • Quality and material selection of the liner-top packer is vital to ensure well integrity
  • Entire liner hanger system and each component must be function-tested to ensure a 100% functionality of the liner hanger system (and running tools) and integrity. All inspection and testing generally conducted in-house by manufacturers, whereby very rigid procedures are followed. Yet, sometimes additional QA/QC may be required.