Demo

Dynamometer Testing
I. CURRENT CONTROVERSY
A. THE WAY IT HAS BEEN DONE.
B. WHAT IS HAPPENING IN THE INDUSTRY.
II. CUSTOMERS AND COMPETITORS A. OPERATORS
B. MOTOR SHOPS
C. DYNAMOMETER OWNERS
III.
GEOGRAPHIC AND TARGET MARKETS
A. SPONSORS
B. GEOGRAPHIC
IV. FINANCIAL PROJECTIONS
A. CAPEX
B. OPEX
C. REVENUE ASSUMPTIONS AND PROJECTIONS
V. CONCLUSIONS AND DEVELOPMENTS
A. THIRD PARTY STANDARD
B. TECHNOLOGY
C. EQUIPMENT
D. SPONSORS AND TESTIMONIALS


Current Controversies
A. The way it has been done
Operators in the early 1990's contracted with TH Hill with the goal to reduce the risks of equipment failure and consequential non-productive time in drilling and completion operations. TH Hill helped further develop standards of drill string manufacturing, operation, and inspection of specialty tools.
After Deepwater Horizon the government mandated that BP institute third party monitors on its drilling systems. To date use
of third party inspections are still in practice.
B. The future of the industry
With the ever increasing
complexity and cost of today's
drilling systems, operators are once
again looking to improve overall
efficiencies for their drilling programs, while
not forgetting lessons of the past. Operators
such as Pioneer, EOG, and COG are realizing the
benefit of using technology to minimize human error.
For this reason, they are leading the charge by
mandating dyno testing of every motor they put down hole.
We expect this trend to continue as operators are demanding as
close to downhole performance approximation that science continues to develop. Dyno testing is less expensive and more assuring than just a visual inspection, computers never lie and don’t have a bad day. Since Macondo, the requirement to use third party oversight helps to insure the quality , integrity, and safety of each drilling program, pairing technology with oversight to reduce costs.


Customers and competitors
A. OPERATORS

Our information shows COG, Pioneer,and XTO are leading the way to require dyno tests on every motor they put downhole but there are others. Smaller outfits are not requiring it, YET.
B. MOTOR SHOPS
We work closely with most of the motor shops in the Nation and some abroad. They are telling us that are being required to send their motors out to be dyno tested before they are sent to the well site. This expense is being paid by the operator unless the tool does not pass the dyno, in which case the motor provider must pay for retest.
C. DYNAMOMETER OWNERS
There are 4 companies attempting to enter this market that we are aware of.
Texas Dino/R3 Energy- Many of our customers are upset that they are forced to use this company believing their motor was failed unfairly. We’ve heard that the company is in litigation for failing competitor motors and offering their substitute to the rig. This demonstrates the need for third party to prevent conflict of interest. The unit is NOV and can produce up to 648GPM. Midland, Tx.
Bico-Our Contact told us that they are in talks to see if they can make a profit with their dyno in the coming year. He said it needed some additions to make it ready for multiple jobs and that they had only used it in the past primarily for their R&D. We are not sure how they plan to get around the conflict of interest since they provide motors. Not to mention that no motor company wants their motor in their competitors shop. This could lead to their competitor having access to their technology or customer. They have a gen. 1 NOV unit at 648GPM.Houston location.
Qualitas/Phoenix Technologies- Took delivery of their NOV unit very recently. COG/Concho has approved them to provide dyno testing, motors are now being sent to their Houston location. If COG knows Phoenix and Qualitas are related they will realize the same conflict exists as with Texas Dyno/R3 Energy. They have a NOV unit up to 648GPM. Houston location.
VON Drilling-they are trying to perfect their own unit. The test we viewed was halted until the next day after the machine malfunctioned at an attempted 800GMP. Von also sells motors, again with a conflict of interest.
Power section companies such as Dyna Drill, NOV, and Weatherford keep Dyno’s in house. It may become a standard for power section companies to get their final product tested at a third party testing facility rather than using their in- house equipment. Motor companies are aware that power section companies inflate their specifications. Interested parties are going to want to find the true operating parameters. This market could open to us if/when these edicts reach the power section companies in the future.
A true third party provides reassurance to operators and motor shops.


Geographic and target markets
A. Overview
Currently the highest demand for dyno testing is in West Texas and throughout the Permian Basin. This trend is already starting to spread quickly with Operators that have wells in other regions. Motor companies are searching for companies in Houston for an alternative service provider. That will be us.
B. Potential locations
Midland is the staging point for most oil service companies in the United States. We should have a dyno stationed there within 2 years if possible.
Houston, Texas
Houston has more oil service companies than anywhere else in the United states. Several companies have consolidated their resources to Houston in order to save money. These companies are building their tools in Houston and staging them in places such as Casper WY, Morgantown WV, Waaving the machine at our facility will allow us maximum testing and attention until we get the processes down.
The Middle East
We project that the Middle East will be one of the largest markets. Their production has increased year after year and with less return. Quality assurance and dyno testing will be highly sought after in the coming years.
Remote locations
All customers that operate in remote locations will look to have as much quality control as possible. Downhole failures are always costly but especially when the location is not easily accessible. This includes offshore drilling. We can work with the operators to customize their test requirements to better insure efficiency of the tools they are renting. This may help insure long term contracts and partnerships.rs Ww


Financial Projections
A. Capex
Some decisions and concessions must be made when considering a dynamometer. When sizing a dyno one must consider the cost to benefit ratio. It is too costly to test ALL motors so the ability to the majority of motors is our target. NOV units are $1.3M but only produce 648GPM and require 10 months to build, arguably inadequate for 8” motor endurance testing. In our opinion NOV produced Dynamometers leave to much on the table as far as abilities are concerned. Not much has changed since they produced the first one many years ago,yet much has changed in the demands from the industry. Their unit can function test but not endurance test because their flow rates cannot meet the requirements to reach the torque curve of many motors. We are suggesting 900GPM as the break point for cost vs capability metric. At this point we can function test AND endurance test when required. This will set us apart from everybody else.
We are looking hard at working with Southwestern Research Institute on this project. They have worked with the Petroleum industry in the past on dynamometer projects as well as with government and aerospace. They have expressed excitement to undertake this project and work with us to get it completed. Their proximity to Houston will facilitate meeting, planning, and shipping. Time frame of 6 months possible if we push. Of course, Mccoy and ACE could partner to build this machine ourselves as another possibility.
-Projected costs for the unit are $1.6M and 6 months turnkey from SRI. We can save 20%+ of this cost if we take advantage of the surplus of oilfield pumps and motors on the refurbished market.
-Facilities improvements (ingress and egress) and overhead crane to aid full production are needed-$200K


Financial projections
B. Opex
$100K- Marketing and sales
$75K- Diesel for motor and forklift
$3K- Electricity for crane/lights
$8K- Dirty water/glycol removal and disposal
$60K-Building and facilities rental (proposed offset from ACE)
$300K-Labor and administrative (proposed offset from ACE)
$100K-Service/Parts (first year warranty should be negligible, ACE assists when necessary)following year estimated costs 100K
Total Capex=$1,280,000 (1.6M -20%)
Total Opex-$646K (without ACE contribution)


Financial Projections
C. Revenue Assumptions and Projections
The following projections are based on a 8 hour workday and 6 day work week for projection purposes. A 24/7 scenario is entirely possible.
-3 motors per hour (10 min function test) includes load time 10 min per motor.
-$750-$1000 per motor industry standard price
3 x $750 x 8 hours=$18K x 6 days=108K/week x 52 weeks=$5,616,000*
*additional revenue can be generated by endurance testing and can be done after hours for customers with special needs, higher rates could apply and are not included in these projections. This does not include any deals we may have to cut for quantity or exclusive contracts. Power section companies may be required to use us in the future but this projection does not assume such. These numbers are based during the downturn of the market, prices and demand will increase with the next upturn in the industry.


Conclusions and developments
A. With oil prices low, and profit margins decreasing, energy companies are looking beyond the obvious reductions in spending budgets and overall operating costs. Reducing non productive time (NPT)and human error are huge cost saving measures. Operators are looking to science and technology to reduce these costs. Having a third party dyno test a motor before it enters hole is the best and most cost effective assurance available. Having a third party with a conflict of interest is no assurance at all.
B. Proper equipment and expertise will give us the edge, and by proxy, our customers. Becuase we will have a larger and more sophisticated dyno with better software and tech, we will be able to test a larger variety of motors under a wider range of parameters. The increased pump and motor size will allow us to run at less than WOT, which will help with maintenance costs.
C. Our experience in torque engineering and software design, coupled with our drilling knowledge and experience with downhole technologies will allow us to develop in house algorithms to simulate and extrapolate conditions better anyone else in the industry. The data we acquire during these tests could be used to give us an insight that few have when advising our clients. The in-house software will create the new standard and will allow us to leap ahead of our peers into the future of third party monitoring and testing.


Sponsors and Testimonials
On 09/28/16 we received a phone call from one of the largest oilfield service companies and downhole tool providers in the world. They asked if we could provide them with dynamometer testing for their motors as early as January. Our customer Ryan Energy (also known as Nabors & Canrig) informed us that they are having issues meeting the proper torque and differential specifications during the the third party testing of their motors. These tests have been performed with new and rebuilt drilling motors. The dyno company in question also rents drilling motors of their own in the same region. Our contact then informed us that the dyno company used that efficiency failure as a selling point to the rig to get their own tools rented. This egregious conflict of interest and breach of confidentiality will give them an unfair advantage. Ryan told us their policy is that every drilling motor will be tested before it is shipped to the well site. We have a close relationship with about 10 companies who have stated verbally that they would give us their dyno business. We started last week collecting customer sponsorship letters, we have 7, one of which is Leam Drilling and a verbal from Canrig.
The petroleum industry is moving in the direction that will classify dynamometer testing as a standard practice. There was a time when NDT testing was thought to be frivolous but time has shown that QA/QC cannot be ignored and the benefits far outweighs the cost. Dynamometer testing is spreading at a rapid rate despite the downturn. When the rig count rises these procedures will still be in place. The near future of the industry is unsure but there is already a market for dynamometer testing and we should be prepared to be on the forefront of this QA revolution when the industry picks up again.