For many, the North Sea represents
a rather grey, cold, and turbulent expanse of water separating
the UK from north-east Europe.
However, for suppliers of
bentonite, barytes, and certain other minerals, the North Sea
represents a primary market centre - drilling materials
for oil and gas exploration.
As of early February 2012,
according to Rigzone, there were a total of 97 rigs
active in drilling in the North Sea, and at that time the
region led the worlds main drilling zones in rig
utilisation, at 87.8% (for comparison, the Gulf of Mexico was
Oil companies are constantly
drilling to map concessions, evaluate reserves, develop wells,
and plan production.
In the mineral logistics chain for
this market, specific mineral distributors act as the link
between drilling mineral producers and their intermediate end
market consumer, the drilling fluid manufacturers.
One example is Cebo International
BV, based in Ijmuiden, the Netherlands, which supplies a
combined total of over 150,000 tpa of minerals (mainly barytes
and bentonite), cement and chemicals for the North Sea drilling
These companies source raw material
worldwide, bring it to their own facilities, treat, process,
blend, store, and then ship the mineral to drilling fluid
manufacturers at locations around the perimeter of the North
Sea (see supply chain diagram).
The drilling fluid manufacturers
formulate their products from such imported additives, and then
ship out the drilling fluids to the ultimate end user, the
North Sea drilling rigs.
Drilling fluids and cementing are
the key components in a cost-efficient and environmentally safe
drilling operation (see panel for primary materials
However, as an example of a mineral
logistics chain, the servicing of the North Sea market with
minerals has dynamics like no other supply chain.
Raw material sourcing
Where the real challenges begin are in raw material sourcing.
All raw materials used in drilling fluids must meet standard
American Petroleum Institute (API) specifications, and that is
in addition to any special customer specifications.
For example, barytes, with minimum
4.15 SG, is used as a weighting material in drilling
fluids - the deeper the hole, the more barytes is
The mineral is also used as a
kill fluid when high pressures cause kickback, and
as liquid ballast in ships to improve their stability.
Key among barytes
specifications is a low heavy metals concentration to prevent
pollution of the environment.
Barytes supplied to the North Sea
market is sourced from China, India, Morocco, and the UK. At
present there is tightness in supply and prices are
The other key component in drilling
fluids is bentonite. The bentonite must have a high
montmorillonite content, and thus sodium (swelling) bentonite
When dispersed in water, the
mineral forms a colloidal suspension, setting as a thixotropic
gel. Its key slurry properties are yield, viscosity, filter
cake, fluid loss and plasticity.
These properties enable bentonite
to carry cuttings effectively to the surface, and prevent loss
of circulation mud through adjacent formations.
Bentonite volumes supplied to oil
and gas drilling originate from Mediterranean sources.
In the overall integrated supply
chain from mine to North Sea market, as a share of the total
cost factor, sourcing raw material takes the largest share.
For example, for the cost of supply
of ground barytes, 50-65% accounts for sourcing (purchasing raw
material, shipping to the Netherlands), then 20% for value
added treatment (processing, storage), and 15-20% for transport
onto the final destination.
24/7 supply service
One of the main characteristics of this supply chain, compared
to other mine-to-market scenarios, is that the oilfield demands
a 24/7 hour service at 365 days/year.
And heres the killer -
it is not always possible by any means to anticipate, and
therefore plan in advance, the likely volumes of which
materials are required and when.
In essence, while broad estimates
of likely drilling activity can be projected, the action of
drilling through the earths crust means that it is
difficult for rigs to accurately predict the nature of the
underlying geological formations, such as say, drilling depth,
formation pressure and temperature, and circulation
losses - all critical factors in volume consumption of
This means that such oilfield
suppliers must invest in suitable storage, handling,
processing, and logistics facilities to be able to respond to
this intense demand situation at any time.
Sometimes large volumes are
required in short periods of time - during drilling
losses - such as 350 tonnes of barytes in bulk in two
days, or 1,000m3 brine in 24 hours. commented
Sergio Sarafopoulos, managing director, Cebo International
Other required tasking includes
loading of supply boats at the fastest possible rates (for dry
bulk or liquid), to enable quick turn-around; special export
packaging (double shrink wrap, special strapping, jungle boxes,
plywood caps); laboratory analysis; and overall ability to cope
with sudden changes in delivery schedules or
Industry specifications and customer requirements demand a
certain degree of further mineral processing prior to supplying
Cebo, for example, operates
grinding facilities with a production capacity for combined
barytes and bentonite products in excess of 200,000 tpa.
Large bagging facilities are also
needed of sufficient capacity, such as around 200-300 tpd, as
well as a packaging line for 25kg and 50kg bags of some 150
Demand for custom-made formulations
necessitates facilities for the blending of minerals and
Although most of Cebos
drilling minerals are supplied to drilling fluid
manufacturers sites for making up the drilling muds, Cebo
also does substantial mixing itself.
An 8,000m3 capacity mud
plant at Ijmuiden includes mixing stations and shear units for
oil based muds, brines, and standard mud systems.
Equally important are Cebos
cement dry-blending facilities and silo parks in the UK.
As well the unpredictable nature of
rig demand for materials, Sarafopoulos cites the maintenance of
consistent product quality as among the greatest challenges in
the logistics supply chain.
There must be no hiccups in
regular shipments. There are very tight specifications for end
users, and you can never take risks in having low
With raw material sourcing
accounting for such a large part of costs, Cebo uses its own
staff to inspect mineral quality prior to shipping from source.
A sound knowledge of freight rates is also beneficial to
Adequate storage facilities are a key part of ensuring prompt
response to market demands at any time.
Cebo operates silos in five
locations in the Netherlands and Scotland, with total combined
storage capacities of 5,000 tonnes dry bulk,
10,000m2 indoor, and 55,000m2
High importance is attached to
reducing contamination of different materials in storage, and
segmentation of different grades is paramount.
Proppant materials, such as frac
sand, require high volume indoor storage, and individual
shipments might be as much as 1,000 tonnes per vessel.
Cebo has additional indoor storage
for specialised products for the drilling fluids such as
caustic soda, calcium chloride, guar gum, and sodium
bicarbonate, as well as outdoor storage for commodity products
like potassium chloride and salt.
Drilling fluids require big tanks
and Cebo has over 100 tanks for different muds (water-, oil-,
and brine-based) in storage requiring continuous circulation.
Special warehousing also includes drum storage facilities.
One of the main challenges for any
North Sea mineral supplier is to minimise the potential of
congestion from one silo park to another, since they represent
considerable a cost.
Ijmuidens proximity to the North Sea enables good access
to ports in the UK, Norway, Denmark, Holland, France, and
Germany, where the drilling fluid companies have their rig
supply plants for onshore and offshore drilling.
At Ijmuiden, Cebo has quayside
facilities for the quick turn-around of supply vessels. This
includes a 1,200m2 quay and jetty with 15 loading
lines for dry and liquid products.
Typical raw material shipments are
in the range 1,200-2,000 tonnes, and perhaps going to two or
three different ports, with various deliveries to silo
Cebo also owns two specially
designed dry bulk vessels with pneumatic self-discharging
equipment with the capacity to transport and handle about
Specific handling facilities at
Cebo include those for loading proppants, and cold and heated
brines, and separate pressure silos for mixed cargoes.
Outlook - Norway buoyant
The main demand drivers of this market are the price of oil and
gas, the number of rigs, their utilisation rates, and then
operation-specific factors such as drilling depth, formation
pressure and temperature, and resultant circulation loss.
At present, the near future is
looking good. Although the UK has been slow for the last year
and a half, there are new discoveries in Norway, and as long as
the oil price is high there will be development of new
Deloittes North West Europe
End of Year Review released in January 2012, which analysed
trends in exploration and oilfield activity in the region
throughout 2011, highlighted a 34% decrease in drilling
activity year on year for the UK Continental Shelf (UKCS).
A total of 49 wells were drilled,
compared to 74 wells in 2010. This was the lowest level since
2003 and represents a 37% drop on the average number of wells
drilled each year for the last decade.
Possible reasons are considered to
be the current economic climate, delays in rig availability,
and maturity of the UKCS Ð all negative to drilling
The UKCS is subject to some
specific factors which have also contributed in part to the
decline in drilling activity.
These include the Supplementary
Charge Tax imposed in March 2011, that may have affected
business confidence, given the lead time required for planning
and drilling of exploration and appraisal wells. Although it is
thought that the full effect of this tax change may not be
evident until from end-2012.
Also, the regions
increasingly complicated geology, with deeper, high-pressure,
high-temperature characteristics, means that wells are taking
longer to drill than in previous years.
However, the UK trend contrasts
with that of the rest of North West Europe, with the
Netherlands, Denmark, and Greenland experiencing levels either
above or equal to the previous year.
The number of new field start-ups
decreased in 2011 compared to 2009 and 2010 for both the UK and
Norway. However, the number of field development approvals has
risen in both countries with a number of significant projects
announced in the UK. These include the BP-operated Kinnoull,
Clair Ridge and Quad 204 projects.
In January 2012, Drilling
Contractor reported that exploration and potential
recovery opportunities remain strongest in the Norwegian sector
of the North Sea.
Estimates of recoverable assets for
the Avaldsnes/Aldous oil and gas field, discovered on Norwegian
Continental Shelf last year, have increased from 1.2bn to 2.6bn
bbls, making it potentially the third-largest North Sea find
and the largest since the mid-1980s.
Deal activity in 2011 remained
positive with a total of 73% of the 118 deals recorded
throughout North West Europe taking place in the UK (52%) and
However, at the end of the day,
geology and weather ultimately dictate rig activity whatever
the projections and operations schedule, making North Sea
mineral supply an exciting business for the likes of Cebo.
As Sarafopoulos observed on rig activity: Often
theres not more planning than just a week ahead, despite
a year plan.
Cebo International BV
Cebo is a leading European supplier of
industrial minerals, chemicals, and services to the oil
and gas industry and other industrial markets.
The company supplies a
combined total of over 150,000 tpa of minerals (mainly
barytes and bentonite), cement and chemicals for the
North Sea drilling market.
Cebo was established in the
early 1970s by Cementbouw Bindmiddelen & Logistiek
BV, and in 1976 was restructured as a 50:50 joint
venture with Halliburton Corp., of the US.
In April 2007, Cementbouw
sold its 50% stake in Cebo to Greek industrial minerals
group S&B Industrial Minerals SA, a major European
supplier of bentonite.
Since 2005, Cebo has been
the main distributor of Baroid International Drilling
Products, a subsidiary of Halliburton, for the European
and Eastern region.
The companys headquarters is in the port of
Ijmuiden, the Netherlands, which is also site to
Cebos main production facilities and logistics
centre - smaller operational sites exist also in the
Key oil and gas drilling raw material
High performance drilling fluids are required
- cool and lubricate the
drill string and bit
- support part of the
- remove cuttings,
hold in suspension, and transport them to the
- control subsurface
- stabilise the well
- seal the
- prevent circulation
Water and oil-based muds
and brines, composed of:
- accessory minerals:
attapulgite, haematite, dolomite, gypsum, mica
- mud chemicals,
salts, CaCl2 and KCl brines
Proppants used in hydraulic
fracturing for well stimulation
- silica sand (frac
- rapid hardening
Source: from North Sea drilling materials &
logistics, Sergio Sarafopoulos, presented at IM
Roundtable Moving Minerals, 1 December 2011, Amsterdam.
Find out about the latest trends and developments
at the upcoming IM Roundtable: Oilfield Minerals Outlook, 20-21
June 2012, Houston.