Wellhead & Xmas Tree

Wellheads and Christmas Tree are not the same. Wellhead Systems are required to control the pressure during drilling and production and serve as a point to suspend casing & tubing strings. The main purpose of Christmas Tree is to control the flow of well fluids or gas during production

Casing Head
Casing Spool
Casing Hanger
Mudline Suspension
Tubing Hanger
Master Valve
Wing Valve
Surface Choke Valve
Tubing Head Adaptor

IMPORTANCE

LEVERAGE STRATEGIC ROUTINE BOTTLENECK

BUYER POWER

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WEAK

BUYER POWER

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BALANCED

BUYER POWER

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STRONG

Category Description Image

Category Description

Wellheads and Christmas Tree are not the same. 

Wellhead systems are required to control the pressure during drilling and production, and serve as a point to suspend casing & tubing strings, as well as a connection to the surface pressure-control equipment, i.e. blow out preventer (BOP) ( during drilling stage) and christmas tree ( during production stage). It also allows access to a live well (under pressure), in a safe and controlled manner.  A wellhead consists of heads, hangers, spools and a series of seals. 

Christmas Tree consists of chokes, valves and spools. The main purpose of christmas tree is to control the flow of well fluids or gas during production. Additional functions of christmas tree include pressure relief, chemical injection, a conduit for control systems to monitor and control safety valves in down-hole. 

Both, wellhead systems and christmas tree are manufactured in different sizes and configuration, with various pressure and temperature rating, material class requirements and completion capacity, i.e. single or multiple zone. Standard working pressure ratings classification (in psi) is 2K, 3K, 5K, 10K, 15K and 20K. Wellhead systems and christmas tree (BOP during drilling) are the most critical well component, as the act as a “gate” between subsurface and surface. 

Wellheads are divided by application and types.

  • Land  / Onshore
  • Subsea
  • Surface ( jack-up or platform) 

Christmas Trees are divided by application and type, as well.

Subsea Trees far more complex than Surface Trees, since the Subsea Trees must be designed to allow tie-ins and umbilical connections subsea. 

A christmas tree could be made from a single block of steel ( i.e. machined from a big size steel bar) and called Solid Tree, or a Composite Tree, which is an assembly of valves around a central steel body. Composite Trees are mainly used for low risk and low-pressure wells, as the composite nature of the tree may be prone to leaks. 

API 6A and ISO 10423 are the standards used in wellhead and christmas tree equipment manufacturing. Below is a  quick reference guide for material and temperature classification ( note, API 6A some several qualifications and reference to other standards) 

 

 

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Risks & Opportunities

  • Material selection and fit-for-purpose, as well as design (standard design), would result in significant cost saving and improvement in lead times
  • Used in H2S applications, cladding technology used in the manufacturing process is a very time consuming and slow process. Global cladding capacity is limited and a large proportion of capacity is allocated to other industries more than to oil and gas
  • Limited forging capacity globally allocated to other industries more than to oil and gas 
  • Long lead times for sour services wellheads and christmas trees can reach up to 20 months

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Supply & Demand Dynamics

Demand 
In the long run, demand for wellhead systems and christmas tree is directly influenced by demand growth for fossil fuels. In simple terms, the more wells are drilled, the more wellheads and christmas trees required, although there might be instances where existing equipment could be refurbished and reused.

In the short term, oil price volatility affects the demand for wellhead systems and christmas trees, as fewer wells drilled during the industry downturn. This, however, has limited effect on wellhead and christmas tree manufacturers, due to significant backlogs of orders and limited manufacturing capacities. In general, a 6 to 12 months time lag is required to have a significant impact on the supply side in this category.

The closest and direct indicator of demand for wellhead systems and christmas tree is drilling activity, i.e. rig count and utilization. 


Supply 
Wellhead and christmas tree industry has been dominated by major players. In the surface equipment market, SLB/Cameroon, TechnipFMC and BH are the leaders, controlling more than 60% of the segment. In the subsea segment, Aker,
TechnipFMC, BH and SLB/Cameroon are the key players, controlling around 80% of the market. 

TechnipFMC is the market leader in both segments and has been the leader in the Middle East for many years. Yet, lately, ShlumbergerCameroon has been taking a significant lead in UAE, with BH leading its way in Qatar. In addition, the market is known to be segmented into lower tier and higher tier. While the lower-tier segment might have a large number of suppliers, the higher end is limited to majors, such as FMC, Cameroon, and Baker Hughes. 

 

As a result of decreased drilling activities, lead times in this segment witnessed a marginal improvement. Average lead time varies from 5-10 months for a standard 5k and 10k systems and up to 20 months for complex subsea systems. Trim and material class have a large impact on lead times and may add an extra 30% of timing. E.g. a 10k system for sour services (DD or EE) may take up to 9-12 months to manufacture.

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Key Players

Major manufacturers, suppliers, and vendors of wellhead equipment and Xmas trees  are:        

Company  Location  Markets served 
TechnipFMC Global Global 
Schlumberger Cameroon Global  Global
Baker Hughes  Global Global
Aker  Europe  Europe, Africa, Latin America 
Solar Alert  Malaysia  SEA
Delta Corporation  USA USA, Middle East
World Wide Oilfield Machines (WOW) USA  USA, Middle East 
ITAG Germany  Middle East, Europe 
Weir Group  Global Global
Drill Quip  Global Global
Kingsa Industries  Global Global
Stream-Flo Industries Canada North America, Middle East, SEA
NEFTEPROMMASH Russia  Russia and CIS
Plexus  UK Global
Gusar LLC Russia Russia and CIS
Konar LLC Russia Russia and CIS
Cactus  USA USA, Australia 
Shangai Wellhead Equipment / Pang Tong Wellheads  USA / China   

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External Scanning

The balance of power is almost equally spread between buyers and sellers, as the suppliers might have unique technologies that are critical to buyers. However, coupled with the competitive environment and potential for new players in the lower-tier market, the buyer is in a stronger position than the seller, especially for the lower technology segment. Yet, the high technology sub-category ( HT/HP and sour applications) is limited to a smaller number of suppliers, but still making it competitive.


 

New Entrants is Low 
  • Hi-tech market
  • Engineering and design is key
  • Access to the quality suppliers and steel forging companies is vital

 

 
Supplier Power is Med
  • Many suppliers available
  • Heavily dependent in Oil & Gas 
  • Need revenue to cover fixed costs and have access to the right suppliers


 

 

Competitive Rivalry 
  • Completive & established market 
  • Highly regulated by standards
  • Product differentiation
  • Lower and Higher-tier segments

 
 


 

 

Buyer Power is Medium
  • Balanced market 
  • Might be forced to buy from a certain supplier
  • Spend is significant 

 

 
Substitution 
  • Do not exist
 

 

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Cost & Price Analysis

Price Analysis 

Prices for wellheads and christmas trees have witnessed a consistent increase over the last 10 years. Post 2009 prices showed a significantly higher increase, than the prices from 2012 onwards. Partly, the reason is a direct result of long-term raw material orders made by manufacturers, during the high times ( 2007/2008), with a pressure being released post 2009/2010, when the steel industry went through a significant downturn.

In addition, prices vary significantly, depending on the type, pressure rating and application. A standard configuration wellhead and christmas tree would be in the area of US$100k , whereas a hi-end subsea wellhead with working pressure rating of 20K, would be priced in the area of US$ 3M. Sour services equipment and non-standard size increase the prices significantly.

Material selection is a distinct price driver. A sour service ( e.g. sour gas) application will result in up to 5x difference in prices for wellheads and christmas trees. Order size plays a major role in prices and leads times. With bigger orders, better prices and shorter lead times are likely to be obtained, as a result of priorities assigned by suppliers.

 In the remainder of 2020, prices for equipment are expected to stay where they are or may demonstrate a marginal decrease for lower tier and standard equipment, as a result of reduced demand

 
Cost Analysis
The price of the Wellhead or X-Mas tree is comprised of the following major elements (percentage variance may exist with around 5-10% variances) 


Major cost drivers are:

  • Steel and metal prices - directly impact the cost basis. In particular, carbon steel, stainless steel, corrosion resistance alloys ( CRA) and Nickel.  
  • Personnel costs -wellhead personnel is a very skilled job and lack of highly experienced personnel is always evident.  
  • Manufacturing process - robust manufacturing process is a significant cost driver, in particular for higher-end equipment, HP/HT and sour applications.
  • Capacity utilization - this element, being a variable cost, is a significant cost contributor. 

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Total Cost of Ownership

Procurement of wellheads and christmas trees is always driven by technical requirements that are regulated by common API standards (API6A). All manufactures are obliged to comply with the standard. Hence, the manufacturing process is very prescriptive. What that means is that wellheads and christmas trees could be treated as commodities, unless special applications (HPHT, sour services) are required.  


Important factors to consider when looking at the total cost of ownership:

  • Suppliers track record and traceability of materials, equipment and manufacturing process is of utmost importance
  • Access how your existing stock of wellheads could be refurbished and reused
  • Maintain contracting relationship with suppliers for spares and services
  • Access cost-benefit of standardization through reduced inventory, interchangeability with incumbent equipment and reduced service cost
  • Check your current inventory for spares and estimate what would be additional costs to switch
  • Compare the rates for running tools, service personnel, and spare parts. You may be looked into high “services” costs, once lower-priced wellheads and Xmas trees are purchased

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Strategy

Category objectives

  • Timely availability of equipment and security of supply
  • Access to expertise and high-quality products in higher-tier segments (i.e. Sour Services and HP/HT)
  • Shorter lead times and Reduced inventory
  • Ensure a high level of competition in the lower-tier market
  • Ultimately localize the bottleneck production process ( e.g. cladding)

Strategies

  • A long-term relationship with up to 2 suppliers for higher-tier segments
  • Mandate requirements for building manufacturing capacity in - country ( in any sensible form)
  • Always maintain active competition in the lower-tier market
  • Develop and grow domestic enterprises to manufacture the equipment for lower-tier segment in-country
  • Although long-term frame agreements might in place, a further integration with manufacturers may be externally beneficial. Options to explore:
  • Reserve production capacity for the certain type of  wellheads and Christmas trees ( higher-tier subcategory)
  • Local manufacturing that would include a complete cycle or majority of it
  • Local finishing plant to include treatment and machining for the higher-tier subcategory
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