Walking, 'talking' drilling rigs aim to modernize fracking

The backbreaking life of a roughneck, the iconic worker bees of oilfield drilling rigs, is getting a little easier.

Schramm Inc, which built the drilling rig that four years ago helped rescue 33 trapped Chilean copper miners, has designed a 500,000-pound rig for the oil and natural gas industry that can walk, rotate 360 degrees, be operated with a remote control, and load pipe automatically.

The T500XD rig's futuristic control room has touchscreens and joysticks, rather than the valves and dials on conventional rigs, appealing to a generation of oilfield workers raised on video games. More than 200 sensors monitor pneumatics, oil flow and myriad other processes, "talking" via satellite or Wi-Fi to Schramm's Pennsylvania headquarters and signaling any problems.

Riding the global boom in fracking - the practice of injecting sand, water and chemicals deep underground to release oil and gas - Schramm's latest rig, although pricey, allows producers to sharply reduce labor costs, the company says.

It's all part of what Schramm, controlled by private equity firm GenNx360, says is an attempt to make the process of drilling a new well safer and faster.

So far, selling the rig to the slow-to-change drilling industry has been a challenge, and the risk of technological theft looms over much of the energy sector. But executives say they are pushing forward regardless, and some analysts say the company could be an appealing acquisition target, especially if its new rigs start selling.

"We designed the rig to have lots of automation and to be simpler to run," said Ed Breiner, Schramm's president. "That means less fatigue and fewer injuries for oilfield workers," who often have 12-hour shifts.

SELF-ASSEMBLING RIGS

Conventional oilfield drilling rigs must be assembled in pieces, often requiring a crane. To ship parts to an oil well, it typically takes 40 truck loads of supplies. Time is wasted building and breaking down such rigs, especially if the next well to be drilled is only a few hundred feet away.

Schramm's T500XD ships in roughly half the amount of loads, can assemble itself, and walk to the next well. At 30 feet per hour, the speed is not exactly a jackrabbit's pace, but it reaches a new well in a quarter of the time and is faster than the few other rigs on the market that can walk.

On a conventional rig, a roughneck needs to stand on top of the derrick tower to guide and move oil pipe into a well. Schramm's rig lets the operator sit in the control room and, with joystick controls, guide an automated arm to pick up and load pipe.

"Pipe handling is probably the biggest area of injury in the oil industry," Breiner said. "This rig removes that risk."

Highlighting the risks, a Chevron Corp natural gas well in eastern Pennsylvania exploded earlier this year while roughnecks were preparing to run tubing down the well, killing one.

SAFETY VS. JOBS?

Schramm's new rig, which took three years to develop, also uses about 40 percent fewer workers than traditional rigs. For remote regions with vast energy supplies but few workers, such as North Dakota or west Texas, the T500XD could be a welcome relief. But in regions with workers hungry for jobs, such as Pennsylvania, Ohio or even China, with its rapidly growing population and thirst for oil, the T500XD could be seen as a job-killer, analysts said.

It's an assertion that Breiner rejects, saying new technology in the industry will boost production and reduce injuries.

Energy Drilling Australia, a subsidiary of Ausdrill Ltd , is paying $8 million for Schramm's second T500XD in order to frack in Australia's Cooper Basin, which the U.S. Department of Energy estimates has the world's seventh-largest deposits of shale oil.

The company picked Schramm's rig, rather than buy from rivals that include Sweden's Atlas Copco or Italy's Trevi Group, because of its safety features and also because "you need fewer people on the rig," said Allen Pais, a manager with Energy Drilling Australia.

"This rig can move faster and drill deeper," Pais said. "It's got a high-tech kind of design, which makes it as easy as possible to run."

Energy Drilling Australia spends about A$1 million ($940,200) every time it tears down and moves existing rigs, meaning that, in time, Schramm's walkable rig should help pay for itself, Pais said.

Even so, the new rigs are expensive - nearly three times the cost of Schramm's earlier model, the TXD - and that has caused some prospective buyers to hesitate. Schramm, which customizes each rig it builds, has yet to ink new agreements to build more T500XDs.

Still, Schramm considers the T500XD a big step up, technologically speaking, from its TXD model, which has far fewer electronic controls and weighs less than half than of its larger sibling, meaning it has far less power.

Many contract drillers - companies like Ensign Energy Services Inc hired to do the actual drilling of wells for oil and natural gas producers - have a fleet of oil rigs that, while older, do the job perfectly fine. Rig companies are often reticent to make quick changes given the long life span of rigs and the immense capital that must be invested up-front.

Ensign Energy, for instance, had 238 North American rigs operating at the end of 2013, compared with 356 for Nabors Industries Ltd, which operates the world's largest land drilling rig fleet.

"The oil industry is saturated with old technology," Breiner said. "It has to, eventually, transition to new technology."

AMERICAN-MADE

In may ways Schramm's success during its 114-year history belies a series of modern myths about the inferiority of American manufacturing. Its breakneck growth in the energy industry since building its first natural gas rig in 2000 has shown how American dominance in the fracking sector extends beyond energy companies to include technology-driven manufacturers.

Sales to the energy and mining industries are the largest chunk of the company's revenue, taking up roughly 48 percent each of the company's 2013 sales, though Schramm does have a small business building rigs for water wells.

All of its rigs are built by its roughly 200 workers at a 26-acre suburban Philadelphia campus, nestled amidst a high school football field and cookie-cutter houses.

The company achieved international celebrity when its drilling rig reached the trapped Chilean miners before two rival rigs, an achievement touted widely in company literature.

GenNx360, founded by former General Electric Co executives, bought its majority stake in the company two years ago from the Schramm family, eyeing the company's "diverse blue-chip customer base" around the globe. Breiner and other executives retained a small stake. Terms of that deal were not disclosed.

GOING PUBLIC?

Schramm, analysts say, clearly punches above its weight-class, making it an attractive prospect either for a stock market listing or outright sale. Roughly half of the company's $100 million in revenue last year came from exports, a geographic diversity that many corporate leaders would covet.

Now may be the best time for GenNx360 to make a move, as the market for niche suppliers to the rapidly growing energy market is white-hot. It was only last year, for example, that GE bought oilfield pump maker Lufkin for nearly $3 billion to bolster its shale business.

Schramm isn't for sale today, said Breiner, who sits on the company's board along with several GenNx360 executives. GenNx360 did not return phone calls seeking comment.

Schramm also retains value from its intellectual property rights, and it stores patent data and other material at offsite servers to keep thieves from eroding its market lead.

While Schramm has applied for some patents, including one for a feature that allows pipe to be lowered into an oil well automatically, Breiner said the company strategy is to focus on innovation rather than suing potential copycats.

"If somebody in China wants to steal a rig design, all they have to do is come to the United States and buy one on the secondary market," Breiner said.

Schramm even commissioned a model of the rig used to save the Chilean miners from a Chinese artist, who crafted it with extreme accuracy using only a photograph. The model sits in Schramm's lobby.

Breiner brushed aside concerns about the company's intellectual property and said the most effective defense against theft is a good offense.

"The best way I know how to compete on the global market is to continue to advance our technology," he said. "If you think you've got it figured out and stop innovating, you've probably made a mistake."

Reporting by Ernest Scheyder