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October 31, 2007

Cementation rally: who will challenge the newcomer?


By Kirill Parfenov, Special Correspondent

Several experts believe that domestic companies dominate in the Russian cementing machinery market.  However, cementing facilities that operate at new and existing wells have similar technical properties and prices.

The market presence of foreign majors such as Schlumberger and Halliburton has so far been insignificant.  Foreign manufacturers occupy 2 to 5% of the Russian market, due to high costs of this machinery and smooth cooperation with Russian suppliers.  However, the main reason is on-site maintenance.

A combination of the above factors make domestically made products more attractive.  As a result, the price for the final product goes up, and this always incorporates an enormous risk for any manufacturer, a risk that is not equal to its advantages.  In this article we did our best to present the viewpoint of professionals. We asked them to assess the prospects of the new machinery by analyzing one specific example.

A number of factors have an impact on the cementing machinery market and its development.  In mid 2000s, the number of new wells drilled and constructed went up.  Demand for cementing machinery has also grown. Experts give different figures when they analyze the cement pump market capacity.

Izhneftemash representatives believe that the annual production is equal to 250 – 280 cement pumps, whereas the experts employed with Tambovpolymermash think that the Russian market will consume about 230 pumps per year.

According to the estimates made by Pervomaiskkhimmash, the market consumption will be a lot smaller.  They think that the domestic market will merely consume 110-150 pumps, including both portable and fixed items.

In any event, all manufacturers believe that local production capacities are sufficient to meet the growing demand for the above items.  Therefore, no major trouble should be expected in this respect.  Evidently, consumers of domestic cementation facilities are worried about their capacity to perform the required operations rather than the number of domestically made items available on the market.

Stimulation and complication of crude oil recovery, together with the development of advanced well cementation technologies have created new requirements, which cementation facilities must satisfy.  They include improved capacity of cement pumps, versatility of their operations, automation of the whole set of items.  Some of the items manufactured in Russia are inferior to foreign ones.

Many specialists believe that domestic manufacturers of cement pumps need to meet the growing demand for their products, whereas the products should satisfy the requirements set by consumers, their serviceability should be improved, and prices should go down.  In this connection, presentation of UNBS2-600X70, a new mobile pump manufactured by Stromneftemash Concern, member of Integra Group, attracts particular attention.

Gazprom Offers Assistance

The main feature of the new pump is based on cooperation between Stromneftemash and Burgaz, a subsidiary of Gazprom, which has provided its research effort for the project.  This  is not the first time that the factory invites Gazprom to cooperate in design development of drilling facilities.  Back in 2002, regular manufacture of KTsS-40 cementation facility, a predecessor of UNBS2-600X70, was initiated under the patronage of Gazprom.

However, this time, according to Stromneftemash representatives, the enterprise was facing a more complex challenge: they were to design a facility that would perform the whole set of cementation-related operations, including the injection of grouting mortars and unagressive process liquids into wells, flushing and squeezing operations in the course of the well workover, as well as sand jet perforation and flushing of sand plugs.  “Nonetheless,” said Stepan Yuskevich, general director, Stromneftemash Concern Open Joint Stock Company, “Our company has no intention to discontinue the manufacture of KTsS-40, which will still be available on the market.”

Now UNBS-2 is undergoing the final stage of testing held on the factory premises.  After they are completed in early November 2008, when the final adjustments are made, regular production of the unit will start.  Stromneftemash has already signed two contracts for the supply of complete sets.  Nine pumps will be supplied to Gazprom to satisfy the needs of Burgaz, and fourteen pumps will be supplied to service departments of Integra.

Earlier Gazprom cancelled a tender for the purchase of five cementation facilities, and now, according to the representatives of the manufacturer, Gazprom awaits completion of the UNBS-2 tests.  In the event that they are successfully completed, the monopoly is likely to enter into a supplementary agreement with Stromneftemash for the supply of several pumps.

What Is Under the Hood?

One of the principal issues is the price of the new pump.  Unfortunately, Integra representatives are not ready to quote an approximate price of the new unit, although they have assured their customers that the price will be lower than the one of  any similar unit made by a foreign manufacturer.

It is likely that the cost efficiency is caused by the fact that a substantial portion of the pump components are designed in Russia (piston pumps, piping, mortar mixers, etc.).  Nonetheless, foreign manufacturers, including Alison and Caterpillar, were still involved into the project.

Meanwhile, the manufacturers of UNBS-2 pump do not deny that the set of equipment to be mounted onto the pump will be altered.  This means that several components will be replaced by those designed by external designers and manufacturers.  “We are not inclined to cooperate with particular companies,” says Yury Karpov, first vice president, Uralmash-VNIIBT, “The vast choice of potential partners is not scary; it makes us happier.  Our key objective is to ensure independence of the pump from any foreign-made constituents.”

There is no doubt that the pump maintenance requires special attention.  According to Karpov, the company has already initiated negotiations of maintenance contracts. They need to be integrated into a single system.  “This is how we are planning to rid our customers of the need to establish their repair works on sites, and to undertake any service work and maintenance, including minor repairs,” said one of Uralmash-VNIIBT top managers.

Projections

As for the forecasts concerning the cementation pump, its manufacturers consider it impossible to make any sales projections, as this is a new product on the Russian market, and it is too early to make any demand-related projections today.  However, Integra Group representatives have made a statement that potential customers have expressed interest in the purchase of the new pump (the list of potential customers includes NK Rosneft, BK Eurasia, and SSK).

What projections are made by other industrial groups?  According to Oleg Kalmykov, deputy general director in charge of marketing and sales, Izhneftemash Open Joint Stock Company, discussions of sales before completion of tests and any regular productions are too premature.  “The unit may find its customer in the process of its adaptation.  However, I would not project any market changes, particularly in the coming one or two years,” said the expert.

“It looks like a technically advanced solution was developed in Kostroma,” says Alexander Matveyev, chief of department of Oil Recovery Facilities, Tambovpolymermash Factory Closed Joint Stock Company. ”However, one should never forget that any customer would like both to obtain a perfect power-driven machine, and to save money.  I believe that small service companies will not be able to purchase this pump.  Therefore, in our assessments of its sales, we can project that its market share will be 3 to 8%.  Nonetheless, if this item becomes popular, other manufacturers will start its production.”

The following conclusion can be made: today there is no single opinion on the potential sales of the new pump.  Experts tend to be conservative in their estimates. On the other hand, this is not surprising: whenever one’s competitors are discussed, one should either make compliments or keep silence.