Drilling Ahead: A brief history of China

More than 20 years ago, I helped host the first delegation from China National Petroleum Corp (CNPC) to IADC. Times were much different. Our guests, hailing from a massive state-run economy, had no analog for the role of a trade association in capitalistic society. The expectation was that IADC would be IBDC — the International Bureau of Drilling Contractors. In other words, that we commanded powerful regulatory and legislative powers. Alas, were it only so!

During that visit, our guests sought a creative partnership with Western drilling contractors. It was a simple, if unworkable, concept. Western companies would supply the rigs. China would supply the workers. Well, there was no way that was going to work.

Since then, the Chinese oilfield has grown increasingly more sophisticated, if in fits and starts. Step two on the Chinese march toward modernization was to study technology. I organized a couple of expeditions to US rig sites, notably in the Austin Chalk, during the chalk heyday of the 1990s.

I was even invited during 1999 to visit China National Offshore Oil Corp to discuss trends in technology. (One could hear the bottoms of barrels being scraped.) IADC also organized workshops on underbalanced operations.

Having a firmer grasp on technical nuances, the next step was understanding business relationships in the capitalistic economy, which led directly to the study of contracts. The concept of agreements between privately owned entities was alien to Chinese industrialists accustomed to centrally planned markets. But they caught on quickly, rapidly expanding their geographic scope ‑ sometimes controversially.

Still, within China, drilling problems are legion, particularly hole stability and low ROPs. As recently as five years ago, I visited a working land rig that had been making hole for so long the crews had planted and groomed flower gardens around their living quarters.

CNPC is improving its performance, top officials say. “CNPC’s overall drilling speed has increased 10% per annum over the past couple of years,” CNPC vice president Liao Yongyuan told me in an interview for DC published earlier this year.

With 20 years of hindsight as a guide, it’s obvious that the global Chinese drilling business has made enormous strides. My colleagues and I in July had the opportunity to observe the China oilfield scene first hand, visiting with a host of land and offshore operators and contractors, service companies and manufacturers in Sichuan, Beijing and Tianjin.

A centerpiece of our recent trip was  the 2012 IADC/SPE Asia Pacific Drilling Technology Conference in Tianjin, which was officially supported by CNPC. One of the many papers presented is reprised in this issue. The theme of the event was “Catching the Unconventional Tide: Winning the Future Through Innovation.”

It was an apt title. Innovation is the watchword in China these days, not only in technology but in business partnerships. The Shell/CNPC joint venture to advance drilling technology for shale development is a key example.

Chinese oil companies face intense pressure to efficiently increase reserves, both domestically and internationally. As Mr Liao explained, CNPC has been working for more than a decade internationally to build its “overseas Daqing oilfield.” This is to develop international reserves equal to that of Daqing, China’s oldest field. The goal, he said, is to acquire for CNPC’s share alone 50 million tons equivalent. “That should be equivalent to the highest one-year production of Daqing during its peak time.”

We’ve seen Chinese efforts to develop oilfield equipment transform from cheap copies of Western gear to increasingly sophisticated machinery, albeit sometimes with ideas “borrowed” from the West.

Today, Sichuan-based Honghua Group is one of the world’s leading rig manufacturers. Its rig-up yard in Guanghan, Sichuan, is the largest in Asia, we learned during a tour of the sprawling complex. And it is reaping the rewards of a bustling rig market.

“The market has been very good this year,” Honghua chairman and president Zhang Mi told me. “We’ve been averaging eight rigs per month.” The yard’s capacity is half as much, officials said.

The company is introducing an ambitious, minimial-footprint shale drilling system powered not by diesel, but from the grid or from natural gas.

Even more daringly, Honghua is preparing to enter the offshore-rig building business in a huge way. A 20,000-ton crane will be the centerpiece of Honghua’s new yard near Shanghai. The crane will lift whole platforms assembled onshore.

“Ultimately this will allow us to achieve mass production of offshore rigs,” Mr Zhang said.

China’s long history is marked by reticence and isolationism. The oilfield is among those forces transforming China into a global player. The impact is reverberating for all.

Click here to view exclusive video with Honghua’s Zhang Mi and tour of its Sichuan rig-up yard.

Mike Killalea can be reached via email at mike.killalea@iadc.org.