US Oilfields: Danger Around the Corner?
An Industry Veteran Looks at Oilfield Materials Before Production – and Risks – Ramp Up.
By Bill Gilliam, General Manager, Energy Division for Anvil International
Irving, TX, (October 2016) As fall approaches oil prices are edging toward $50/bbl, and the industry in the U.S. may soon be producing again in earnest. Once more, we could see production returning to full-scale operation in Oklahoma, the Rocky Mountains, Louisiana, California, Ohio, West Virginia, South and West Texas, and other regions. After years of a down market, it would be a welcome sight.
Or would it? What many people don’t realize is that renewed production may result in tremendous risk. During the current downturn, some producers have responded to pressure to reduce costs by installing inferior, cheaply made fittings and other products. When production ramps up, it will do so quickly, exposing those parts to levels of operation that they may not withstand. Leaks and even blowouts could result, creating potentially huge safety risks to oilfield workers and the environment.
In this short paper, I draw on my lifetime in the oilfield sector, as well as a few statistics from the Texas Railroad Commission, which monitors and regulates oilfield production here in Texas. I also touch on an analysis by another oil-industry professional, who discusses the long-term profitability (or lack of it) for an oil well under different upfront investment scenarios.
A little about me: As a youngster, I rode leases with my grandfathers whom were in the oil business. In junior high school, my first job was working in oilfield construction. I’ve experienced all facets of the oilfield business, and I believe I know its operational aspects as well as anybody.
Here is the main point of this paper: I have seen the current situation before, in the downturns that began in the late 1980s and late 1990s. It wasn’t pretty. Following those down markets, the industry experienced sharp increases in safety and environmental incidents that I believe resulted in no small way from a reliance on cheap, substandard materials. It’s my firm view that history may be about to repeat itself, with possibly tragic consequences including serious injury or even a fatality.
The following graph helps tell the story. The blue line represents Texas oil production beginning in 1998, and the orange line conveys liquid-loss incidents as reported by the Texas Railroad Commission. Even before production recovered, incidents rose markedly, beginning in 2001. What the chart doesn’t show is what I was seeing personally in the oilfields starting in 1998. As prices fell, producers cut production and concentrated on maintenance and repair. (When wells are idle, they need to be serviced more.)
When producers switched over to M&R, however, they often used poorly made materials to save on costs. Those materials didn’t fail overnight, but within one or two years I was receiving numerous calls for help from producers whose pipes and fittings had leaked or blown out.
Can I prove that every incident represented by that orange line in the graph resulted from poor parts? No. But I believe the timing is more than coincidental, and it certainly reflects my experience. I saw a lot of substandard parts being installed during that down market, and their subsequent failures came as little surprise to me.
When I inspected various sites, I found the failed parts typically contained no country-of-origin stamp and no heat number. There was no way to trace the product to a material test report (MTR). In short, no evidence suggested that the product was produced by a reputable manufacturer and was fit for the job.
Cheaper imported products could fail more.
At this point, let me address the elephant that may be creeping into the room. The sorts of parts that I’m talking about are generally manufactured outside the United States. I want to go on the record loud and clear: There are many reputable imported parts that come with certificates of compliance, MTRs, heat codes and country-of-origin stamps. My company competes respectfully with their producers. But there are, quite frankly, some bad parts on the market, as well. Many of these are imported and cost less than others. But it’s my strong belief that their long-term risks greatly outweigh their one-time savings.
Know what you’re buying, and take the long view.
Make sure whatever you purchase – or is bought on your behalf by a distributor – has a country of origin stamp, a heat number and an MTR. The heat number is an identifier that pinpoints the product’s production run for quality control. It also offers traceability to the MTR. The MTR certifies the material’s chemical and physical properties and compliance with the requirements of an international standards organization.
Also, be sure to ask how the product was made. As an example, for swages and bull plugs, ask if the product was heated and spun (the preferred method), or if it was cold-pressed, which reduces strength. Look carefully at the threading. Will the product thread properly into the next part? Or does it have the potential to leak?
These seem like common-sense, buyer-beware types of precautions. Yet I’ve been astonished by the number of people I’ve talked to – particularly after incidents – who hadn’t taken them. In some cases, they didn’t know what to look for. In others, the pressure to cut costs was so great that people simply ignored the absence of what they should have demanded, for the safety of their operations, the environment and, most important, their workers. Because the cost of a leak is not just replacing a faulty part. It’s the environmental cleanup and its associated reporting. And the cost of a blowout can be serious injury or even a fatality. Oilfields are dangerous enough even with the best of equipment. I believe it’s positively foolhardy to save a few dollars today, at the risk of a potential catastrophe in one or two years or less time.
Consider also an analysis of oil-well profitability by Edward P. Cross, P.G., of Becker Oil, Inc., in Illinois. As the oil market turned downward in 1999, Mr. Cross presented a paper at the 6th International Petroleum US Oilfields: Danger Around the Corner? • ANVIL INTERNATIONAL WHITE PAPER 2016 • PAGE 4 Environmental Conference in Houston, hosted by the University of Tulsa and the Integrated Petroleum Environmental Consortium (IPEC). Mr. Cross’s analysis of the economics of a hypothetical Class II injection well showed that higher upfront capital costs (e.g., for better tubing and other equipment) resulted in a long-term profit, versus an ultimate loss for a project with lower startup costs and immediate cost-effectiveness. The paper is available at http://ipec.utulsa.edu/Conf/6thIPEC.pdf
In conclusion: I believe the long-term risks of leaks, blowouts, environmental damage and potential injuries or deaths of oilfield workers far outweigh the short-term cost savings of using substandard materials. Always insist on knowing where your parts came from, as well as their heat properties and the vital information from the material test report. Invest in high-grade materials, and you will be rewarded by safety, environmental stability and profitability in the long term. Let’s not see history repeat itself. As we prepare for what we hope will be a sustained recovery, let’s all make sure we’re set with good, strong materials that will be up to the task of producing oil and gas, safely and securely, far into the future.
About Anvil International Anvil International is one of the largest and most complete manufacturers of pipe fittings, pipe hangers and piping support systems in the world. For more than 150 years, Anvil has provided the highest–quality pipe products and services with integrity and dedication to superior customer service. The company offers expertise and product solutions for a wide range of applications, from plumbing and mechanical, HVAC, industrial and fire protection, to mining and oil and gas. Anvil offers products and services worldwide. Its manufacturing facilities are located in Pennsylvania (ISO 9001:2008 certified), Tennessee (ISO 9001:2008 certified), Texas (ISO 9001:2008 certified) and Rhode Island (ISO 9001:2008 certified). Anvil is a subsidiary of Mueller Water Products Inc. (NYSE: MWA). For more information, please contact Anvil’s corporate offices at 603–418–2800, 2 Holland Way, Exeter, NH 03038, or visit anvilintl.com.
About Mueller Water Products Mueller Water Products, Inc. (NYSE:MWA) is a leading manufacturer and marketer of products and services used in the transmission, distribution and measurement of water. Our broad product and service portfolio includes engineered valves, fire hydrants, metering products and systems, leak detection and pipe condition assessment. We help municipalities increase operational efficiencies, improve customer service and prioritize capital spending, demonstrating why Mueller Water Products is Where Intelligence Meets Infrastructure™. The piping component systems produced by Anvil help build connections that last in commercial, industrial, mechanical, fire protection and oil & gas applications. Visit us atwww.muellerwaterproducts.com.