Category description

Information is required from the reservoir to enable more efficient drilling. One way of collecting this information is using Mud Logging Services. The process involves recording chemical characteristics of drilling fluid (mud) and well drill cuttings that are produced during drilling. By analyzing this information, the presence of hydrocarbons can be identified, and by linking this to the known depth engineers are able to better locate hydrocarbon-bearing formations. In addition to this, Mud Logging Services provide real time drilling information useful to the drilling engineer and well site geologists.

Real time drilling information such as rate of penetration, pump rate and pressure, weight on bit, mud weight and volumes are recorded using sensors on the mud logging equipment whilst samples of fluids and cuttings are collected at the surface for analysis by mud log technicians.  Once collected, visual knowledge of earth geology is a critical skill in order to label and correlate the samples correctly. Liquids on the other hand are analyzed based on fluorescent and chloride content. A gas chromatograph captures gases from the well. If the chromatograph shows any signs of gas, it may serve as evidence of hydrocarbons as well as indicate potential danger. All the information collected provides a useful insight into the well, as to avoid problems and execute the most efficient drilling process. 

Mud Logging Services at the most basic level may be in the form of simple gas detection. At the most complex level a full laboratory and crew may be established on the rig. With a full laboratory and crew valuable data can be collected to impact on the drilling path.

The average cost of the Mud Logging Services are less than 2% 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;

  • Multi-Skilled Mud Logger - Having a multi-skilled mud logger - capable of working as a sample catcher and a data engineer (normally two separate positions) - provides effective source of cost removal,
  • Experience - Highly deviated, directional and complex wells require in-depth knowledge of the well-site - higher complexity equates to higher risk. Accordingly cost benefit consideration should be given to the appropriate personnel with in-depth knowledge of the formation.

Supply & Demand Dynamics

Demand

Demand for Mud Logging Services is driven by exploration and appraisal activities, field development, reappraisal and redevelopment activities. Accordingly the best indicator of demand is drilling activity - best shown by rig count. Since late 2014 there has been a dramatic decline globally in rig count, although the Middle East has yet to see a similar decline.  


Mud Logging Services is traditionally a small, slow growth segment


Supply 

Supply of Mud Logging services is composed of personnel and equipment.  Traditionally, this category has been dominated by smaller service companies, which, over the last several years, have been bought by major integrated oilfield service companies. Despite that, the number of independent, smaller or niche providers is still significant, which makes this category highly competitive. 

Equipment used in the Mud Logging services is mostly low-tech and manufactured by third parties. Personnel experience and knowledge is the key differentiator and the main restraint on supply of services.

External Scanning

The market for Mud Logging Services is highly competitive market. This is driven by the numerous suppliers, few buyers, relative ease of switching and the ease at which new companies may enter the market. 



 
New Entrants is Medium
  • Equipment manufactured by 3rd party
  • Personnel available 
  • Low CAPEX requirement


 
Supplier power is Low 
  • Low tech equipment 
  • Many providers
  • Buyer can integrate backwards 


Competitive Rivalry 
  • A highly competitive environment
  • Technology is available to many players 
  • Low switching costs 


 


Buyer Power is High
  • Low tech equipment 
  • Many providers
  • Quality of personnel is key


 
Substitution 
  • Does not exist
 


Portfolio Positioning

Portfolio positioning is essential in guiding strategy within the category. The category is positioned based upon three factors; 1) supply risk, 2) profit/value risk, and 3) power structure.

Based upon a detailed analysis the sub-category is positioned as a ROUTINE sub-category (ie. low supply risk, low profit/value risk).

  • Low supply risk is supported by; 1) the large selection of suppliers, 2) the ease of switching, 3) the standardization of equipment, 4) low competitive demand with regional buyers.
  • Low/medium profit/value risk is determined by; 1) the low levels of expenditure, 2) medium value generation.
  • Power is strongly favored towards the Buyer (See External Scanning section)

Cost & Price Analysis

Price Analysis
Due to relatively simple technology behind Mud Logging services, prices of steel and active competition in the category, prices for Mud Logging Services stayed flat throughout several years, in some instances, exhibiting a significant price decline. Generally, the sub-category has low price volatility for Buyers. Prices for Mud logging Services can be generally be split 60:40 equipment to personnel.


Cost Analysis 

The overwhelming majority of equipment is manufactured by 3rd parties. With the exception to few instances seen with integrated companies, the equipment in this category is fairly simple and standard with multiple manufacturers available worldwide for the various components.

Key cost drivers 

  • Equipment acquisition cost - a fully equipped mud logging unit costs between US$500,000 to US$2,000,000. The main cost drivers are steel, electronics and computer systems.
  • Maintenance costs - To ensure the integrity of data, mud logging units require frequent manufacturer QA/QC inspection and calibration as well as Original Equipment Manufacturer parts. 

Total Cost of Ownership

  • Mud Logging Services are usually provided on a daily rate basis for both personnel and equipment
  • One area with the potential of having a significant impact on total cost is switching contractors where units are stationed offshore and require installation work that may result in excessive standby costs for (e.g. offshore drilling rig). As such this must be considered in any Total Cost Analysis.   

Strategy

The sub-category analysis carried out suggests a strategy that simplifies that ensures quality and the leverage of the most competitive prices and terms.

There are a number of ways in achieving this however the items should be considered;

  • Competition - ensure the requirements are competitive  tendered at all times
  • Potential to aggregate  requirements across the units with clear segregation between onshore and offshore
  • Standardization - use standard and interchangeable units onshore, so one unit can be used between multiple rigs on as-and-when-required basis
  • Personnel - bring all well site geologist positions in-house, which in turn helps to enhance competition in the market, by removing the risk constraint of Experience

Localization

Given the ease at which equipment may be procured in the general market place and where only low skilled labour is required (geologist provided in-house) the sub-category presents an ideal candidate to be tendered as part of a local company only strategy.