Tubular Solutions Alaska and Unique Machine Team Up in the Alaskan Market

OCTG Logistics and Machine Shop Partners Keep the Alaskan Oil and Gas Rigs Pumping

In the lower 48, Canadad and now Alaska, the OCTG (Oil Country Tubular Goods) unit of of SCOA has seen big gains and increased business and profits since the last downturn in the oil and oil services business in 2000.

Today with rising geopolitcal tensions, and increased demand from growing countries like China, 2000 almost seems like a lifetime ago. As oil companies try to keep the supply flowing with increased oil and gas exploration and active drilling in North America, they will increasingly need the expertise of OCTG companies like SCOA subsidiaries Premier Pipe, Pyramid Tubulars, Pipeco, and Summit Tubulars.

The most promising area might be Alaska, which SCOA entered just three years ago when they won a contract to provide tubular goods and logistical services to BP on the North Slope.

The contract with BP came about through shared projects with SC around the globe (including the UK and Norway) and led to the founding of Tubular Solutions Alaska (TSA) in June 2003.

Modeled in a manner similar to other SC supply chain management OCTG businesses, TSA provides complete supply chain management services to oil wells as far as 700 miles north of their main offices in Anchorage, Alaska.

"TSA is unique in that it's embedded in its customer's business and can provide BP with support for all types of oil related products and not just tubing," said John Harris, General Manager of Tubular Solutions Alaska. "We manage both TSA and BP's inventory and are integral to the supply chain operations of BP in Alaska."

The BP contract that originated in 2003 was for a total of seven years including options. TSA has already doubled their original sales estimates and now account for about 65-70% of the total OCTG business in Alaska.

Tubular Solutions Alaska and Unique Machine

Teaming up with TSA is Unique Machine LLC (UML), the largest machine shop in Anchorage, Alaska. SCOA purchased UML in November 2004 because of their strong relationships with the two main oil companies drilling in Alaska, BP and ConocoPhillips.

UML has been in business 35 years and in addition to their work with oil companies has done a variety of interesting jobs over the years. These included projects like manufacturing bread baskets, making the pooper scoopers used in Anchorage parks and building elephant dentures.

While TSA supplies the casing and tubing for the pipe, UML provides services like the repair of pipe connections and the manufacturing and threading of essential components for the pipe assemblies. UML has blanket agreements with BP and ConocoPhillips to provide these services. Additionally, UML has designed and developed a number of products on their own. While these products are primarily used in Alaska, they have been exported to the North Sea and other areas.

UML uses a variety of threading technology with patents as far away as France, England, Indonesia and Houston. "A good portion of our work is the synergezing of threading that really allows us to work closely with TSA and helps our teamwork and wil help grow the business for the future," said Pat Hanley, General Manager of UML.

The machine shop, which has 35 employees in Anchorage, also has strong relationships with oil service companies like Baker Hughes and Halliburton. The company provides around the clock support to all companies working in the Alaskan oil industry.

TSA provides support ot the wells in a 24/7/365 operation. In addition to the workers in their Anchorage office, they have five full time workers on the North Slope where the drilling takes place and one in Fairbanks, the intermediate stop before the OCTG goods are sent by truck to their final destination on the North Slope.

The Alaskan Oil Industry

The oil and gas industry in Alaska goes back to the 1940s when the U.S. Navy did their first exploration of the area for oil and gas. The major oil companies began to explore in 1957 and Alaska became a major producer in 1967 with the construction of the Alaskan pipeline.

The pipelines has the capacity to pump 2 million barrels of oil a day and runs a total of 700 miles from the wells in the North Slope to Anchorage. It currently pumps about 700 to 800,00 barrels per day.

With the recent rise in oil price, more exploration is taking place on the North Slope. The Prudhoe Bay Field on the North Slope alone has been calculated to have reserves of 10 to 13 billion barrels.

There is also drilling in the southern part of Alaska in the Cook Inlet Area, which is where the oil industry first discovered and drilled for oil. In recent years, there has been increased activity in this area with companies like Shell and Chevron now looking to start operations there.

About 4000 wells have already been drilled in Alaska and about a third of them may be re-tapped for a extract more oil. There are 300-400 wells currently slated for a work-over, the term for repairing damaged wells. Currently, Alaska has 18-22 active rigs.

In the Alaskan oilfields, to reduce the footprint, companies often build a small pad, where they can drill 40-100 wells at very high angles. Though most wells are about 9,000 feet vertically down, ths method can cause the actual pipe needed for wells to be as high as 23,000 feet. They drill this way to reduce environmental impact and maximize the leases for oil companies. Future plans include drilling from shore to offshore locations where the actual footage or length of a single well may be over 30,000 feet, or six miles.

Though Alaska is a major supplier of oil to the world, the OCTG in Anchorage is relatively small due to the large amount of oil and gas produced by each well. This has worked to the advantage of TSA and UML who have been able to attract the most experienced personnel.

Most of the pipe that TSA provides is what is called down-hole pipe - casing and tubing - that goes into the drilled well. But they also do supply product to the operators of the pipeline, who use line pipe.

The Pipe Journey

The pipe that TSA provides to BP comes to Alaska via Houston or Japan. Pipe from Houston is railed to Seattle; pipe from Japan is shipped via ocean vessel and it goes through the Seattle port where it is loaded into rail cars. The rail cars are then put onto barges and brought up to Whittier where they are loaded onto the Alaska railroad. From Whittier, the pipe is either shipped to Anchorage for work by Unique Machine or to Fairbanks where it is then stored. When the rigs call, the pipe in Fairbanks is put onto trucks for its final destinations: the North Slope. It takes about 45 days to move pipe from Houston to its final delivery to a rig in Alaska.

Each job is tracked with the iTimes software that was originally developed by the OCTG group in Houston. The pipe from Houston comes from a variety of steel mils incuding V&M Star, Koppel Steel, Lone Star Steel, U.S. Steel, and Sumitomo Metal. TSA maintains independent status so they can have the flexibility to buy from different mills.

Althoug prices have been rising for pipe the past three years, TSA's contracts and agreements allow for price adjustments. TSA's main source of profit from BP is for the logistics and inventory management services that they provide.

TSA and UML keep up with latest developments in the OCTG market by meeting about three times a year with the OCTG people in Houston and Calgary. This allows them to share information and get a larger perspective on the larger OCTG business in North America and around the world.

The Future of Alaska

Another potentially lucrative market for the long term will be the construction of a proposed natural gas pipeline from Alaska to Chicago. With 35 trillion cubic feet of gas in the North Slope and the rising price of energy, the once prohibitive cost of the proposed pipeline (estimated at 20-25 billion dollars) makes ot a more attractive business proposition.

"As new companies come into the market, they will be looking for experience and products in this market. Operating in Alaska with arctic conditions and high level of environmental sensitivity is different than any other area. TSA and UMA have the relationships and the experience companies will need to succeed."

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