Top-Co LP

Proper cementing of casing in oil and natural gas wells is essential to ensure well integrity and avoid the dire consequences of deficient cement bonds, as the explosion and resultant oil spill at BP’s oil rig in the Gulf of Mexico last summer demonstrates. This increased attention to sealing wells and concurrent expansion of horizontal, deeper and extended reach wells are creating a spike in demand for products manufactured by Top-Co LP.

“Today, we find the exploration and production companies are paying much more attention to centralization and cementing of wellbore casings to prevent potential gas migration to the surface, which can have catastrophic consequences as it did in the BP Gulf of Mexico disaster,” President and CEO Gerald McLaughlan points out. “Top-Co is currently experiencing exponential growth in response to a 2010 North American drilling turnaround and ongoing penetration of offshore markets.”

Top-Co designs, manufactures and distributes internationally unique primary cementing equipment for oil, gas and geothermal wells utilizing designs that assist E&Ps to efficiently reach bottom (“TD”), particularly in horizontal wells that are becoming deeper with longer laterals. Product support includes custom computer modeling to predict drag, hook loads, optimum placement of centralizers and maximum casing stand-off to seal wells.

Top-Co manufactures two product families: centralizers and float equipment. Centralizers do what their name implies – centers the down-hole casing in a wellbore through and around which liquid cement is pumped to seal off the well. Float equipment contains high-pressure check valves that prevent the cement from U-tubing back into the casing or liner string.

Although Top-Co’s products are not designed for ultra-deep subsea drilling, a recent shift to land-based shale horizontal drilling is taking place, partly in reaction to the Gulf of Mexico oil spill, McLaughlan reports. “This shift is >>accretive to Top-Co’s business,” he says.

The other industry paradigm shift positively impacting the demand for Top-Co’s products is the boom in horizontal and/or deviated wells. “Between 50 and 60 percent of North American wells being drilled today are horizontal or deviated, compared with only less than 25 percent four to five years ago,” McLaughlan notes. “These deviated or horizontal wells consume 50 to 70 percent more in premium casing hardware that we manufacture compared with a conventional vertical well.

“The shift to horizontal drilling combined with hydraulic fracturing of shale plays is having a positive impact on demand for Top-Co’s API-compliant line of products,” McLaughlan says. “Horizontal wells require far more equipment than a vertical well due to long laterals and the forces of simple gravity. Multilateral wellbores may number five to 10 emanating from a single wellbore. This profile has a multiplier effect on the consumption of casing hardware.

“Higher-performance cementing equipment is required to cope with increased torque and drag in reaching TD in a horizontal well in addition to coping with higher wellbore temperatures/pressures and extended cement pumping cycles,” McLaughlan adds. “This wellbore evolution demands more specialized and durable tools, resulting in Top-Co’s specialized engineering resources focusing on extensive R&D.”

Testing
To differentiate itself from competitors in a specialized niche market, Top-Co has developed a state-of-the-art flow loop for dynamically testing new products before they are introduced to the market. “A new generation of tools has been developed to minimize torque and drag in horizontal wells, to manage higher differential pressures and temperatures and reduce protracted and expensive circulating times encountered in extended reach wells,” McLaughlan notes.

Customized software is available to clients to supply optimum centralization for each well profile and recommendations for specialized tools under its “Fit-For-Purpose Solutions” program. The company dynamically tests casing hardware to ensure it performs to or exceeds specifications adopted by the American Petroleum Institute (API).

“It’s a very unique quality tool – a $3 million investment over the past three years,” McLaughlan says. “We extensively test the full range of products in the flow loop simulating actual operating conditions encountered in the field. When tools are introduced to the commercial market, Top-Co and its customers are satisfied they will perform to API standards.”

Tools are tested at flow rates, temperatures and back pressures that would be encountered in a wellbore to API IIIC specs. “Top-Co’s comprehensive, dynamic testing process minimizes or removes any risk that the tool won’t perform to design specifications,” he notes. “It is not uncommon for Top-Co to modify and test tools in response to resolving problems or unique conditions encountered by producers. We have the specialized equipment to replicate or simulate field operating conditions in a controlled laboratory environment.”

Expanding Internationally
Top-Co has a 165,000-square-foot manufacturing facility in Edmonton that was expanded recently by 55,000 square feet; and a 50,000-square-foot manufacturing facility in Weatherford, Texas.

McLaughlan states that approximately 40 percent of the company’s business is derived from Canada’s Western Sedimentary Basin, with the balance generated in the United States and offshore.

The company has service/distribution centers in Singapore; Rotterdam, Holland; Houston; Denver; Dubai; Moscow; and four locations in Mexico, along with agents and distributors in 40 countries. By early 2011, McLaughlan expects to open a sales center in Bogota, Colombia, and be in the final planning stages to open a 20,000-square-foot manufacturing facility in Saudi Arabia.

Gas to Oil
The global recession over the last two years caused a corresponding downturn in the energy industry. “2009 was a challenging year for service companies supplying the drilling sector, particularly in North America,” McLaughlan says. “The market experienced a serious decline in the number of active rigs largely because of uneconomical natural gas prices and demand destruction.”

Natural gas prices at press time were around $4 per thousand cubic feet (Mcf). “The producers need $6 to $7 per Mcf to have an economic return on the commodity,” McLaughlan points out. “Natural gas prices have been ugly, dropping 60 percent since 2008. Oil is trading in a band of $70 to $80 a barrel, very attractive for producers who are shifting from gas plays to oil and liquids-rich targets.”

The volatility in the number of active drilling rigs in North America testifies to the severity of the economic recession and uneconomic commodity prices. In September 2008, approximately 2,500 active drilling rigs were running in North America. By June 2009, that number had dropped to 1,000 active rigs.

“The trough was June 2009, and the turnaround started in July and has steadily improved to today, where we have about 2,100 active rigs in North America,” he reports. “Business has gone from quiet to busy, which is the way this cyclical industry of ours operates.”

The prevailing emphasis on horizontal drilling and fracturing of shale formations with extended reach wells has resulted in a producer switch from dry natural gas to unconventional oil or liquids-rich gas, the latter associated with other high-value commodities like propane and butane. “Producers in North America are returning to older formations, with horizontal drilling and fracturing and finding oil in reservoirs that had been ignored for decades,” McLaughlan points out. “With hydraulic fracturing and horizontal drilling, these wells have become economical again, with oil at $70 to $80 per barrel. It’s quite a revolution, partly driven by technology coupled with improved stable oil pricing and a slow recovery in demand.”

While a smaller market, Top-Co also supplies goods to Japan, the Philippines, Indonesia and the United States for geothermal wells. “When removing hot water from the earth, producers must cement casings in place like they do with an oil or gas well,” he notes. “2010 and 2011 will see significant turnarounds for all service companies, including Top-Co, following a brutal 2009.”