Cost & Price Analysis
Prices for liner hanger systems have always been driven by supply and demand and technological innovation. In the long run, prices for liner hanger systems will not exhibit significant volatility and will remain below 2-3% annual price increase. The recent industry downturn put significant pressure on suppliers, the result of which was a price deflation of up to 40%. 2021 shall see more stabilized prices with limited fluctuations, primarily driven by prices of raw materials.
The liner hanger systems have always been a highly profitable segment for many suppliers, with operating margins being between 12% - 20%.
Prices for L80 liner hanger systems range from $50k to $100k, whereas higher-spec chrome liner hangers systems vary between $300k to $ 700k
The breakdown of an average liner hanger job is as below. As seen, the equipment part is the highest cost. Further on, on complex wells, the equipment is share increases, due to higher grades of materials being used during manufacturing.
Liner hanger systems are made of steel and elastomers/fluoroelastomers (high-quality synthetic rubber for sealing), with steel being more than 90% of the material composition. For packers and plugs, being a part of the system, elastomers contribute around 80% of the cost. Manufacturing costs are the highest contributor to the price of liner hanger systems, in particular for commodity type systems. For higher grades liner hangers, i.e. H2S applications HP/HT, the contribution of materials costs tend to increase.
Depending on the design and application, costs of liner hanger systems may vary by 4 x, due to the selection of materials. Selection of elastomers/fluoroelastomers drives the cost as well and will be a significant element for high pressure and H2S applications.
R&D costs play a significant role as well, as it is a technological innovation that makes manufacturers competitive. In addition, an important factor that drives the cost of liner hangers systems is the design of the system based on down-hole conditions and initial assumptions. Manufacturers tend to design systems with common design and refrain from spending additional R&D costs to “tailor-made” their systems, which in turn makes them more competitive. The moment the liner hanger system becomes unique, R&D share other the system may go as high as 30% of the cost, depending on the buying quantities.
Cost components and its impact:
- Manufacturing & assembly costs:
- Metal and process related, hence steel and metal prices
- Capacity utilization of manufacturers
- Cost of elastomers/fluoroelastomers (high-quality synthetic rubber)
- Machining costs
- Research & development costs - for most liner hanger systems that are designed for standard applications, the R&D costs spread over a longer period and larger markets. For any “tailor-made” systems, the R&D costs are expected to go up significantly.