Integrated Management and Drill Bit Supply to Companies

of the Oil and Gas Industry

Presentation

September 2003

Smith Eurasia

website: www.smitheurasia.com

Smith Eurasia – Main Areas of Activities

Supply of equipment and technology

Procurement services

Engineering services

Wellsite services

Integrated project management

Smith Eurasia – Supply of Equipment

Drill bits (roller cone, diamond and PDC)

Drilling equipment

Directional drilling tools

Fishing tools

Workover equipment

Completion equipment

Production equipment

Mining equipment

Smith Eurasia – Engineering Services

Well drilling engineering design

Well completion and production engineering design

Technical data review

Technical and engineering recommendations

Field testing of equipment and technology

Development of feasibility studies

Analysis of economic return from introduction

Smith Eurasia – Wellsite Services

Oversight and provision of the following types of services:

Construction

Drilling

Fishing operations

Workovers

Sidetracking

Multilaterals

Milling

Completions

Perforating

Smith Eurasia

NC SDK

ENGINEER ENGINEER

AGREEMENT

DATA информацияDATA

• Computer simulation of physical and mechanical rock parameters

• Optimization of use of roller cone and diamond bits

• Statistical analysis of source databases

• Drilling programs and review of previous performance

• Production of work charts

Drill Bit Optimization ProcessUse ofUse of D B O S software D B O S software

Special Features Special Features of the Wellof the Well

Review of Review of Input DataInput Data

DecisionDecision SelectionSelection

Conditions of Conditions of UseUse

SectionalSectional Analysis ofAnalysis of

RecommendationsRecommendationsDiscussionDiscussion

New Products

New Technology

DBOS

Utilization of Experience

DiscussionDiscussion of Newof New

ProposalsProposals

yes

NewNew recommendationsrecommendations

yes

no

no

BitBitOrderOrder

Csg

Muds

ГОБГОБ

Purpose of DrillingPurpose of Drilling

BHA

Utilization of Experience

DH motors

Drill Bit Optimization ProcessBit Selection

South Oman: Deepwater Exploration

$0

$50

$100

$150

$200

$250

Dasimi 1 Har Deep1H1

Sarmad 1 Ghafeer 1H1Sarmad 2H1Ambrah 1h1Ajeeb 1H1 Sakhiya 1H1

$/m

ete

r

Hourly Rate = $1050Tripping = 6 hrs GTXCP03 used in all wells

ASE in

Oman Oil

Control directional drilling during load variation

Increased load

With new BHA

Used asymmetric

nozzle

Reduced RPM and increased circulation volume

ASE Services Use Examples

12.25" Amin Conglomerate Section PerformanceRig 50 Deep Oil Exploration Oct 98 - May 2000

0

50

100

150

200

250

300

350

Me

dia

n m

ete

rs/b

it

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Me

dia

n m

ts/h

r

Meters/bit

ROP

Meters/bit 98.5 112 117 139 199 304

ROP 2.8 3.7 2.5 2.8 2.8 4.3

Ghafeer 1H1 Sarmad 2H1 Ambrah 1H1 Ajeeb 1H1 Sakhiya 1H1 Ghafeer 2H1

2bits

5 22

7

1

Use harder bits

Limit WOB <20 kdan RPM <80

Use XEM seismic to map sands, conglomerates

Map layers,Trial new bit design

Max WOB, slow RPM

Median bit ROP

Drill ahead

ASE Services Use Examples

Conclusion 1:

1. Optimization of the bit program can significantly reduce drilling time and well costs.

2. A specialized bit company should manage the bit program.

3. Smith Eurasia, an exclusive partner of Smith International, has the expertise and technology required to provide such services in the former Soviet Union.

Specific Features of Drilling Operations in the FSU

а) impossibility to fully optimize drilling parameters due to lack of required drilling equipment;

b) low availability of high-end modern equipment and tools in drilling companies;

c) low quality of drilling muds and their treatment;

d) use of high-RPM turbine drilling;

Conclusion 2:

а) optimal and efficient combination of available equipment and technology with the most advanced Western equipment and technology.

b) optimization of financial and logistical arrangements for equipment.

c) introduction of new types of services and organization of operations.

Services Provided

Establishment and management of drill bit warehouses

Work with bit manufacturers, contracts, placement of orders, financial settlement

Drill bit supply with payment after actual use (consignment basis)

Engineering support

Introduction of advanced technology

Control use and running of drill bits, train drilling contractor’s staff

Logistics and freight forwarding services

Effect from Implementation of the Project

Implementation of the Integrated Drill Bit Management and Supply Project will:

Reduce well drilling time

Reduce well costs

Reduce well construction costs and provide additional oil and gas production

Increase the service life of drilling equipment and services

Improve safety and health status

Additional Effect from Implementation of the Project

Reduction of drilling crews and a corresponding reduction of administrative and operating costs

Improvement of overall drilling technology, reduction of construction time and, as result, quality improvements and start-up of new wells ahead of schedules with receipt of additional

production

Reduction of drilling mud costs due to reduction of the time to drill a well

Reduction of the wear of drilling equipment and its repair costs due to less pipe tripping

Reduction of wear and tear of drilling tools due to less drilling time and amount of pipe tripping

Additional Effect from Implementation of the Project

Savings of considerable amounts of money through reduction of “frozen” warehoused inventory

Improved drilling efficiency through constant engineering control, implementation of new technology and creation of a broad database

Reduction of downhole problems during well drilling through a reduction of drilling time and amount of pipe tripping

Reduction of bit transportation costs an as result a smaller overall amount

Reduction of injuries due to less pipe tripping

•Discussed with the Client• The goals and objectives of the Project• A meeting with the local technical group to establish working contacts. Input Data

• Technical and geophysical data packages on basic operations. (E Logs, Mud logs, Bit run data, Daily Drilling reports, End of well reports)

Selection and Review of Input Data• Processing of input data by D B O S software .• Review of basic bit and drilling programs.• Statistical analysis of base data to determine their average level and development trends• A review of the use of products and bits of different manufacturers.

Proposals• Review and select bits offered by various suppliers. • Select optimal types of bits for specific well sections. • Complete bit program for the well and its discussion with the local technical service.• Introduction of revisions and changes to the proposals of the local technical people.• Approval of the bit program.

Daily Services• Provision of daily engineering support to drilling crews.• Direct involvement in the process of optimization of drilling.

Review of Drilling Results.• Review of “immediate” drilling data.• Identification of required changes• Provision of a report on each drilled well and its discussion with the local technical group.

Bit Optimization Process

Scope of Services Under the Actual Project

1. Smith Eurasia has established offices and consignment

warehouses in each area of NC drilling operations.

2. Engineering groups are operational in each region; a drill bit program is being produced for each well covering both Western and Russian drill bits.

3. An inventory of both Western and Russian drill bits is being maintained at warehouses on a consignment basis.

4. The drill bits are delivered individually to each well and are paid for at the time of their use.

5. The engineering group provides engineering support of the drilling process, studies used bits and issues the necessary recommendations.

Time-basis comparison of technical and economic drilling performance calculated on the basis of the current Bit Program and the Bit Program

Proposed by Smith Eurasia

4734

3614

2618

2255

732

189

75

18

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1 2 3 4

Цикл строительства скважины, час.

Время бурения, час. Время СПО, час. Количество долот на

скважину, шт.

Фактическая Предлагаемая

Comparison of Technical and Economic Drilling Performance Estimated on the Basis of the Actual Drill Bit Program vs.

the Drill Bit Program Proposed by Smith Eurasia, in $ Value Terms

$213029 $215950

$318,01

$245,67

$1 590 535

$1 267 683

$ 0 , 0 0

$ 1 0 0 0 0 0 , 0 0

$ 2 0 0 0 0 0 , 0 0

$ 3 0 0 0 0 0 , 0 0

$ 4 0 0 0 0 0 , 0 0

$ 5 0 0 0 0 0 , 0 0

$ 6 0 0 0 0 0 , 0 0

$ 7 0 0 0 0 0 , 0 0

$ 8 0 0 0 0 0 , 0 0

1 2 3

Стоимость долот на скважину,$$

Стоимость метра проходки, $$

Стоимость бурения, $$

actual proposed

Bit Costs, US$Costs per Meter, US$ Drilling Costs, US$

Economic Benefits Achieved On Drilling SectionsWith Service Support on Completed Wells

Well No.Field

986 Growth

1026 Growth

3813 Леб

188 Ток

2713 Давыд

           

Well Depth, m 4320 4520 4160 2356 4620

Depth at Start of Provision of Services, m 1200 2915 2549 0 3615

Length of the Section Serviced by Smith Eurasia, m 3120 1605 1611 2356 1005

Drilling Time for the Well Section as per NC’s Plan Schedule, days 149 120 96 82 92

Actual Drilling Time for the Well Section Serviced by Smith Eurasia, days 107 92 52 37 68

Time Savings Relative to the NC’s Plan Schedule, days (%) 42 (28%) 28 (23%) 44 (46%) 45 (55%) 24 (26%)

Cost Savings vs. NC’s Plan Schedule, доллары США $293 328 $195 552 $307 296 $314 280 $167 616

           

Bit Costs on the Section Based on NC’s Earlier Wells $143 520 $73 830 $74 106 $108 376 $46 230

Actual Bit Costs on the Section $98 211 $118 964 $88 285 $83 326 $41 416

Actual Additional Savings / Overspend, $ $45 309 -$45 134 -$14 179 $25 050 $4 814

           

Actual Savings on Drilled Sections of Wells, $ $338 637 $150 418 $293 117 $339 330 $172 430

Smith Eurasia

Selection of the optimal range of bits

1. Bit Life

2. Rate of Penetration

Drilling Parameters

Drilling Mud Quality

Quality of pay-zone tapping

Working culture

Drilling operations economics

Increased overall oil production due to quicker introduction of wells into production

Smith Eurasia

THANK YOU FOR

YOUR ATTENTION

USA: 11767 Katy Freeway, Suite 645Houston, Texas 77079phone: + 1-281-556 9596fax: +1-281-556 9277e-mail: info@smitheurasia.com

Russia:65/4 Leninsky ProspektMoscow 117917 phone: + 7-095-135 0163fax: +7-095-935 8621e-mail: info@smithea.ru

Smith Eurasia – Contact Information: