Category description

Snubbing/use of a hydraulic work-over unit (HWU) is a rig-less ‘heavy duty' technique used when lighter deployment methods such as wire-line and coiled tubing are not workable. Snubbing can be described generally as using created force to snub the pipe string into a well against the pressure in the wellbore. The pipe string consists of the pipe itself and a bottom-hole assembly (BHA) of tools, very similar to the set-up used in drilling operations. The snubbing intervention technique does not require removal of the christmas tree or the wellhead, hence it can be done on a live well.

HWUs come in different sizes with various strength ratings. The majority of the units used in the GCC are the 340K type (K here means pull capacity), although some are 460K. On average between 7 to 10 personnel per shift are required to operate a snubbing unit.

Generally, snubbing is used in heavier applications and/or complete well work-over jobs. Snubbing technology offers a more cost-efficient approach to well intervention when compared to drilling/work-over rig options. The footprint of the snubbing unit is compact, hence it can be installed on an existing platform, subject to load-bearing capacity, or deployed using a lift boat, when done offshore. In onshore applications, the snubbing unit is track-mounted, so it may require a tug truck to transport it.

A number of safety risks are associated with this intervention approach, so a comprehensive desktop study must be done prior to using this deployment method. The rig-up process is quite complex, which sometimes renders this intervention method uneconomical. Yet, this technology is still much more cost effective than a drilling/work-over rig. 

As a rule of thumb, an HWU is used when there is both a high-producer well and a high oil price, unless no other option is available owing to technical reasons (e.g. space/access constraint).  

Pros

Can do a full work-over job

Can be done in a live well 

Cost effective solution than drilling rig in offshore applications

Plugging & Abandonment 

Cons

High HSE risk 

Too heavy, platform structural changes may be required

Long rig-up time

Require a lift barge offshore, if existing platform is not used 

Risks & Opportunities

  • There is high risk when dealing with live well operations
  • When working offshore, on an old platform in particular, load-bearing issues are common, both for platform installation and for the well conductor load, meaning that a snubbing unit cannot be used
  • Until very recently, snubbing services were not present in the GCC, hence expertise and supply chain are located outside of the region. There is only one manufacturer of snubbing units in the GCC

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 GCC by NOCs along with the ever-increasing technological challenges means that, in the long run, the region will witness a steady growth 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.

Coupled with cost efficiency and performance characteristics, an HWU represents a viable alternative to a work-over/drilling rig. While the demand for well intervention in general is going up, demand for snubbing services may be hampered by low oil price, i.e. some of the producing wells are uneconomical to work-over.

In onshore applications outside of North America, snubbing units have not gained any particular popularity, owing to their long rig-up time, and high risks and costs. In certain cases, using an onshore work-over rig is more cost effective than using HWU. However, offshore, snubbing units may be a more economical solution to a drilling rig. 

Key demand drivers

  • Onshore, the demand may come from work-over requirements where lighter intervention methods are not effective and heavy intervention is required, coupled with there being limited availability of work-over rigs  
  • Long horizontal wells could be a major demand driver for snubbing services onshore, as well
  • Owing to the technical complexity involved in maintaining ageing wells and developing horizontal drilling, global demand for snubbing units is set to increase in the medium and long terms, unless dedicated work-over rigs become more cost efficient


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. 

As of the middle of 2017, in the GCC, there are around 5 snubbing units available from : Cudd Energy Services, Halliburton, Nordic Gulf, ISS-SNUB and Superior Energy. 

External Scanning

The regional market for snubbing services is competitive with relatively large number of players, accessible technology and available to all, with power within the buyers.  One of the key characteristics of the market in the Middle East is availability of the units locally.  High mobilization fees make some service providers less competitive. 




 
New Entrants is High 
  • Equipment manufactured by 3rd party
  • Personnel available 
  • Medium CAPEX requirements  
 
Supplier Power is Low
  • Many providers
  • Need volumes 
  • Dependent on oil industry only 
Competitive Rivalry 
  • Highly competitive environment
  • Technology is available to many players 
  • Low switching costs 
  • High fixed cost
Buyer Power is High
  • Low tech equipment 
  • Many providers
  • Spend might be significant
  • Low switching cost


 
Substitution 
  • Work-over rig is an option, but more costly alternative


 


Portfolio Positioning

  • LEVERAGE



High
Low
High

Cost & Price Analysis

Price Analysis

Currently, there are around 5 snubbing units available in the GCC from various service providers. With various approaches to pricing, daily rates for a fully equipped and manned HWU range from US$ 25,000 to US$ 45,000 per day. Pricing of units is heavily dependent on amortisation and depreciation policies, as well as revenue visibility. Short-term contracts therefore result in higher prices. Other factors such as market conditions, asset pay-off time and alike may have a significant impact on pricing. 


Cost Analysis 
Most of the equipment is manufactured by third parties, with service companies building up their fleets based on requirements.  Snubbing services are more of a niche market and are limited to fewer than 5 manufacturers globally. The majority of units are manufactured in North America, with only 1 manufacturer in  UAE.

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 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 HWU is between US$ 3m and US$ 5m, depending on pull capacity and pipe requirements. A typical 460K unit costs around US$ 3.5m, without pipes, tanks and other auxiliary equipment. 
  • Maintenance costs - Maintenance programmes of snubbing units are geared towards hydraulic mechanisms and well control components, which are very critical, owing to the dangers of live well operations. Depending on who provides the pipe and other supporting equipment, the maintenance programme may extend towards it.
  • Personnel costs - With crew requirements of 7 to 10 people, personnel costs may constitute around 50% of the daily rate of the HWU. Snubbing units require personnel with special skills and experience to use the units. 

Total Cost of Ownership

Procuring HWU services requires a more detailed analysis of their application benefits. Timing is an important factor as well, owing to regional availability of the units and high mobilisation fees for any equipment that is taken outside of the GCC. The standard rate structure that is common in the industry is:

  • mobilisation/demobilisation fees
  • daily operating rate and standby rate (with and without crew)
  • onshore cold stack rate, unmanned
  • campaign mobilisation/demobilisation fees
  • daily rate of crew

Important considerations include the need to:

  • combine evaluation with vessel requirements and costs, when used offshore
  • combine evaluation with requirements for accommodation, meal, diesel and power
  • access equipment redundancy - auxiliary equipment required may be available at the location already
  • compare with the option of a work-over rig when used onshore

Strategy

The sub-category analysis carried out presents a strong case for a strategy that maintains or further maximises the power of the buyer.

Although there are a number of ways of achieving this, we need to consider:

  • providing completive tendering on an as-and-when-required basis
  • aggregating requirements across business units
  • maximising use of the campaign-based scope aggregation for tendering
  • providing integrated company expertise for separate fields that might require more complex and heavy intervention