Category description

A Work-over Rig is similar to a hoist or a telescoping tower secured with wires, that allows pipe and down-hole equipment to be run into and out of a well. Mostly truck-mounted mobile rigs, the onshore work-over rigs are very mobile and can be quickly moved between the fields. Onshore work-over rigs could be of various sizes and capacities and mainly referred to as light and heavy-duty. Service depth, work-over depth and load capacities are the key differentiation factors. 

Work-over Rig is used in the heaviest application, such as complete well work-over operations, whereby a well is killed (production stopped) and tubing and completion equipment is removed. 

Pros

Can do any well intervention job 

Might be more cost effective that snubbing unit, onshore 

Safety


Cons

Costly in certaina applications

Supply & Demand Dynamics

Demand 
Demand for deployment tools is growing worldwide, as a direct result of steady growth in well intervention activities, due to continuous efforts on maintaining and maximizing production within existing oilfields.  In parallel to that, the number of aging wells is increasing; hence more intervention must be conducted. 

Due to continuous investment by NOCs in the Middle East and increased technological challenges, Middle East growth shall witness a steady increase in demand for Well Intervention services. Middle East is considered to be the market with one of the highest penetration rate for Well Intervention, both onshore and offshore.

Performance characteristics of work-over rigs allow it to be a more economical solution than a full drilling rig.  The demand for work-over rigs is directly influenced by well intervention activities and fields' maturity. Older fields would require more heavy intervention. However, with the tremendous progress made in the artificial lift area, the down-hole equipment deployed to lift oil became more reliable. This in turn requires less well intervention work, hence reducing the demand for work-over rigs.

In contrast, due technical complexity in ageing wells and development in horizontal drilling, the demand for onshore work-over rigs is set to increase in the medium and long term. This well intervention method is in direct completion with Snubbing services (Haudraulic Work-over Units).


Offshore, the preference is with conventional drilling rigs, due to a number of reasons. In general, it is commercially unattractive to build an offshore work-over rig, due to less value created.  It is very much applies to Jack-up drilling rigs.  This is why lift barges came to the market, as a lower cost solution, to service this niche.  


Supply 
Outside of Russia and CIS, North America has been historically the largest market for land rigs of any type, followed by the Middle East. Regionally in GCC, around 25% of the units are work-over rigs, with the rest onshore drilling rigs.

Due to relatively low entry barriers and low 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 will be fully integrated to provide the whole spectrum of well intervention services, others would specialize in small segments of it on a regional basis. Providers of work-over rigs are divided into rig manufacturers and providers of services, including the crew. The later tend to be provided by regional / local companies with almost no global and diversified service providers.

The GCC market is comprised of mainly national / domestic rig companies and international players, with domestic prevailing, controlling circa 95 % of the fleet, with most of the domestic players concentrated in Oman. 

External Scanning

The regional market for work-over rigs is heavily dominant by local (or national) companies, whereby governments may give a preferential treatment or mandate to use local (national) service providers. Some of the service providers have grown into highly professional business entities with integrated capabilities and high safety and performance records.  



 
New Entrants is Moderate 
  • Equipment manufactured by 3rd party
  • Personnel available 
  • Medium CAPEX requirements  
  • Local content policies 
 
Supplier Power is Low 
  • Many providers
  • Need volumes 
  • Dependent on oil industry only 
  • Local content policies 


Competitive Rivalry
  • Highly competitive environment
  • Technology is available to many players 
  • Low switching costs 
  • High fixed cost 
  • Alternatives available 


Buyer Power is High
  • Low tech equipment 
  • Many providers
  • Low switching cost


 
Substitution is Moderate
  • Drilling rig is a an option, but more costly alternative
  • Snubbing Unit is the closest alternative
  • Lighter & cheaper  intervention methods are advancing
 


Portfolio Positioning

  • LEVERAGE



High
Low
High


Cost & Price Analysis

Price Analysis
Operating rates for work-over rigs have always been driven by supply and demand, and highly sensitive to oil price and rig utilization. Operating rates vary between USD 6k per day to USD 12k per day, largely depending on the region and rig type. 


Cost Analysis 
The overwhelming majority of the equipment is manufactured by third parties. Service providers build up their fleet based on their requirements. Depending on the company modus operandi, personnel rates may contribute a significant proportion of the costs.

In addition to inflation, below are specific costs that drive the category. This category is a high fixed cost segment; hence sustained revenue generation for contractors is for utmost importance. Key cost drivers

  • Acquisition cost - is one of the biggest costs for service companies, in particular, smaller non integrated players. The average price of a new complete work-over Rig is US$ 500K-US$4M, depending on power capacity, serving depth and pressure rating.  A brand new 350HP rig costs around US$1M, whereas a 650hp with 300,000 lbs capacity would be close to a US$4M mark. The price range is also dependent on the country of origin and operating environment tolerances.   
  • Maintenance costs - Maintenance programs of work-over rigs are geared towards mechanical and hydraulic mechanisms and well control components, which are very critical.  
  • Personnel costs  - a typical manning requirement to operate a work-over rig is between 10-15 people.  Personnel costs may contribute a significant amount of day rates for work-over rigs.
  • Other costs -  Ancillary costs such as diesel fuel, accommodation and meal, may be significant as well

Value Chain Analysis

There is a large number of manufacturers globally, who specialize in work-over rigs. The majority of units are build outside of the Middle East, in countries such as USA, Canada, China, Russia and India. 

Total Cost of Ownership

Procuring a work-over rig services in the Middle East is fairly uncomplicated process. Industry practice is to charge for:

  • Mobizaltion  / Demobilization fees
  • Daily Operating Rate and Standby Rate 


Important considerations

  • Combine your evaluation with other indirect costs, such as accommodation and meal, diesel and power costs
  • Compare a work-over with a snubbing unit 

Strategy

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

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

  • Completive tendering on as and when required basis
  • Aggregate requirements across business units
  • Maximize using campaign based scope aggregation for tendering
  • Assess compensation structure based on guaranteed monthly fee, when campaign-based work is expected
  • Separate fields that require more lighter and cheaper intervention methods