GE pushes further upstream
  from: Offshore Engineer
  by: David Morgan
  Wednesday, March 19, 2008

Already four times the size it was in 2000 following the acquisition of the PII pipeline integrity business and drilling equipment provider VetcoGray, GE Oil & Gas is about to become bigger still via Hydril’s pressure control business. David Morgan reports from Florence.

Just a year after taking over VetcoGray, GE Oil & Gas has flexed its financial muscle in the E&P;sector again, announcing it is acquiring the Hydril pressure control business from Tenaris in a $1.12 billion deal.

Although relatively modest by corporate GE standards, this latest acquisition speaks volumes about the conglomerate’s burgeoning upstream aspirations. The acquired product line, in particular Hydril’s blowout preventer systems, are seen as ‘highly synergistic’ with the VetcoGray drilling equipment portfolio of trees, control systems, wellheads, manifolds and risers.

Commenting on the acquisition at his company’s annual customer meeting in Florence, GE Oil & Gas president and CEO Claudi Santiago described the deal as ‘another major step’ that would ‘accelerate the GE Oil & Gas presence in the fast-growing deepwater drilling industry’.

‘It will expand our existing range of products and services and allows us to provide a broader offering of capital drilling equipment to the increasingly complex offshore industry,’ said Santiago, who expects the deal to complete by the second quarter.

Headquartered in Houston and with over 750 employees globally, the pressure control business is expected to generate over $400 million of sales in 2008.

‘Combining these two platforms will create unique value for our customers,’ he added. ‘The Hydril brand has a lot of value in the industry, so we don’t plan any kind of aggressive integration, especially of the brand, with the VetcoGray portfolio. But looking at the technology, resources, customers, market coverage and so on, it’s clear that the two companies will work very well together. The CEO of Hydril Pressure Control will report to the VetcoGray organisation.’

Certainly, having ready access to a Houston-based BOP specialist with its sights firmly set on deepwater and ultradeepwater applications will do VetcoGray no harm in its quest to boost technology development following a period of underinvestment. Interviewed by OE last year, Santiago admitted that VetcoGray had not had ‘access to sufficient R&D funds for the last few years to develop products for the next decade’.

At GE, he maintained, VetcoGray was on ‘more fertile ground’ (OE May 2007). ‘We are not an investment bank,’ he added. ‘We are in this for the long haul. We understand that it will take some products five years to generate even $1 of revenue and seven to generate $1 of profit.’

Santiago is a man of his word it seems. As well as the Hydril deal, he also announced in Florence that GE Oil & Gas is dedicating a whopping $470 million to research and development in the period 2008-2010, compared with $240 million for 2005-2007. VetcoGray will be a major beneficiary of this enhanced R&D;funding.

Although revenues getting on for $2 billion in its first (10 month) accounting year as a GE company can scarcely be seen as cause for alarm or complaint, VetcoGray chief operating officer Dave Tucker acknowledged that there had been some loss of subsea market share under the previous owners. But he was in no rush to reclaim it, he said.

‘I don’t like the fact that we’ve lost share, but my view is that you’ve got to come out with the best technology and world-class products if you want to survive in this game,’ he explained. ‘Those two things allow you to kind of pick and choose where you play.We’ve got some pretty big and important relationships around the world – either through GE Oil & Gas or Vetco – and we’re going to be smart about which projects we take on.

‘We like technology that makes a difference,’ added Tucker.

As well as getting to grips with the deepwater HPHT challenge and developing its next-generation drilling systems, including the new MS-800 fullbore subsea wellhead system unveiled in Florence (see Drilling deeper), VetcoGray’s work on lightweight risers continues apace, with composite-reinforced drilling risers and composite choke & kill lines high on the development agenda.

VetcoGray technology leader Gary Shaw rates the emerging market for seabed processing systems as a key priority in the company’s forward technology development schedule, with much important work progressing in the areas of high-pressure multiphase pumping and compact subsea separation. ‘Subsea separation and processing are going to be key for us,’ declared Shaw in Florence. ‘We’re filling out the portfolio with pumps; we still have a couple of technologies on the separation side we’re working on to try and improve that solution.’

Already well advanced is a highpressure multiphase twin-screw pump, with pilot testing likely around 2010/11. New helico-axial and centrifugal units are also in prospect as the company seeks to include a wide range of pumping options in its subsea market offering. ‘And we are starting to see the phase out of some of the older control systems – you can’t buy the electronics anymore – so we’ve got a whole new generation of controls coming up,’ said Shaw. He added that he saw a lot of crossover potential in the offshore and subsea sectors for remote monitoring and diagnostics technology embedded in other parts of the GE empire.

This notion of in-house, cross-sector technology transfer was a recurring theme during January’s customer meeting in Florence.

‘This is what GE Oil & Gas is all about,’ said Santiago. ‘We are a technology company that values innovation, domain knowledge and application experience. The fact that we have access to other parts of GE, which has over a century of engineering innovation behind it, will give us a significant advantage.

‘We are globalising the company, trying to decentralise our decision-making and get closer to our customers by establishing more expertise in remote locations,’ he added. ‘Kuala Lumpur, Moscow, Rio de Janeiro, Beijing, Aberdeen – these are now big centres of our resources.We also have access to GE’s global research centres where we are working on new capabilities, not necessarily for oil & gas applications but for other industries where GE has a presence, whether it’s aviation, power generation or transportation.We have a continuing appetite to innovate and to leverage different pieces of technology that we have inside the company to create unique value solutions for our customers and solve their most difficult problems.

‘We can take an aircraft engine, with all the system reliability and quality that have been developed for it, and put it on top of an FPSO to drive one of our compressors and generate power. Only GE can do that, because we can cross-fertilise these large pieces of technology,’ he concluded. ‘My aspiration as the CEO of this business is to give to the oil & gas industry the same levels of technology, reliability and safety that we have accomplished in our aviation products. This is where we are going.’

Santiago’s goal of exploiting groupwide expertise to arrive at ultra-high reliability offshore solutions chimed with sentiments expressed by Paul Tooms, head of subsea discipline at BP and one of the industry luminaries invited to address the Florence meeting.

Bemoaning the poor reliability record often associated with new subsea kit, and the ‘huge amounts it costs to recover equipment from the seabed,’ Tooms observed: ‘Whenever we step out into a new arena and push technology just a little bit deeper, higher pressure or hotter, we seem to have quality problems. All operators say this, not just us, and it’s very frustrating. It’s something we’ve got to change.

‘We have quite good reliability in the midlife period once things are up and running, but the depressing part is that early reliability, particularly when using new technology, is often very disappointing with a lot of failures occurring in those first days. It’s crippling if this happens once the equipment is on the seabed.’

BP was now adopting a sophisticated reliability approach to components ‘right from the get-go’, he said, with the aim of bringing ‘aerospace mentality’ to engineering applications.

‘I want our subsea projects to have the same kind of reliability as GE has with its aircraft engines,’ Tooms added. ‘But we can’t do this kind of thing alone; it has to be done in conjunction with our suppliers, vendors, contractors and partners.’ OE

Drilling deeper

The MS-800 full-bore subsea wellhead system introduced in January by VetcoGray offers increased casing load and higher pressure capacities. Targeting deepwater regions such as the US Gulf of Mexico and Brazil, the MS-800 has the capacity to withstand eight million pounds of load on the wellhead.

Developed and tested at VetcoGray facilities in Houston, the new system increases the casing load capacity to two million pounds for the 16in casing hanger and all hangers in the high-pressure housing, while also increasing the pressure capacity for the 16in hanger from 6500 to 10,000psi.

VetcoGray’s Gary Shaw said the load ring configuration on all three casing hangers of the MS-800 had also been improved for added capacity and reliability.

‘We believe all these capacity and performance improvements will enable the MS-800 to set new standards for the deepwater drilling industry,’ added Shaw. ‘We have developed this product in response to the growing industry need for technology to exploit subsea oil and gas fields at depths of 30,000ft or more.’

A 15,000psi version of the system is expected to be available for commercial applications in 2Q 2008, with a 20,000psi version scheduled for release later in the year.

VetcoGray also confirmed last month that the latest version of its MR-6 riser system – which combines its proven MR-6 dog style marine riser system with the H-4 subsea wellhead connector locking mechanism – has been ordered by driller Pride International for use on a new deepwater drillship due for delivery in 2010. The order involves two MR-6H SE marine riser systems rated for water depths of 12,000ft.

Featured among the OTC ‘Spotlight on new technology’ selections at OTC last year, this system provides fully automated connection capabilities. Hydraulic units on the spider engage a cam ring on the box to actuate six dogs into the profile of the pin, creating a full pre-loaded connection with an efficient and effective load path.

According to VetcoGray, the MR-6H SE can eliminate the need to place people in a potentially hazardous situation. The pin is lowered into the box and guided back into place with an internal guide pin; then the spider automatically makes the connection.

‘The connection can be made or broken in less than a minute,’ says VetcoGray, ‘and the string can be made up in about half the time of a conventional flanged riser system.’

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