National Oilwell Varco sees big business in blowout preventers

In the frantic days and weeks after BP’s Macondo well exploded, killing 11 people and sending more than 4 million barrels of crude oil into the Gulf of Mexico, blame focused on a piece of equipment to which, under ideal circumstances, people don’t give much thought.

Bulky, heavy and designed for redundancy rather than beauty, blowout preventers are the last line of defense against a runaway well. But the collection of valves and shears sitting atop the BP well on the bottom of the Gulf failed to stop the flow of oil in 2010.

Three years later, Pete Miller, CEO of National Oilwell Varco, still bristles at the suggestion that the blowout preventer was at fault.

Never mind that his company didn’t make it — competitor Cameron International built the device — and wasn’t involved with the Macondo well.

Miller has staked a piece of his company’s future on expanding production of blowout preventers and exporting them around the world.

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The safety devices, however, are only part of a surge in U.S. manufacturing driven both by the energy industry’s demand for equipment and by the bounty of oil and gas the industry produces.

U.S. exports of manufactured goods increased by 47 percent since 2009, according to the Commerce Department, reaching a record $1.35 trillion in 2012 — and both are linked, in part, to increased domestic energy production.

“We’re actually exporting manufactured products to China from Houston,” Miller said. “Most politicians, whenever you tell them that, they’re surprised.”

So he takes criticism of the blowout preventer used on the Macondo well almost personally, and says the device doesn’t deserve blame for the disaster.

A federal judge agreed last month, dismissing charges against Cameron six weeks into a civil trial in New Orleans, saying evidence relating to the blowout preventer pointed not at Cameron itself, but rather at Cameron’s customers.

Local plant bustling

Drillships, offshore platforms and 500-foot-tall jack-up rigs get most of the attention when it comes to offshore equipment, and the Offshore Technology Conference at Reliant Center has both exquisitely detailed models and the real thing on display this week.

Through acquisitions, Houston-based National Oilwell Varco has expanded to build everything from big drilling rigs to the flexible pipe used to connect subsea systems to floating production vessels.

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The company has manufacturing facilities all over the world, with revenue projected to top $22 billion this year.

But most of its blowout preventers are built in Northwest Houston.

Production has expanded dramatically over the past eight years — workers built just one stack of blowout preventers in 2005 but are on track to build 24 stacks this year, said Melvin Lehmann, director of operations for the company’s pressure control group. (Each stack typically contains several blowout preventers; every drilling rig has at least one stack.)

Revenue for the plant has grown accordingly, from $85 million in 2005 to a projected $1.2 billion in 2013, Lehmann said.

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The expansion of U.S. manufacturing, including oil field equipment, is just one example of the impact shale oil and gas production has had on the nation’s economy, said William Arnold, professor in the practice of energy management at Rice University.

In addition to lowering imports of oil and natural gas, the lucrative shale plays have convinced energy companies to invest a bigger share of their capital budgets in North America, Arnold said.

That has meant more jobs in Texas, Louisiana, Colorado, North Dakota and other states with booming shale production.

Petrochemical companies along the Gulf Coast and elsewhere are expanding to take advantage of low-cost natural gas, adding to the country’s manufacturing base.

“People have been making all kinds of oil field equipment, trying to keep up with that boom,” said Paul Bommer, a senior lecturer in petroleum engineering at the University of Texas at Austin. “Just like the surge in jobs, people need all kinds of equipment.”

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Blowout preventers are used on offshore and onshore wells. Miller said virtually all of National Oilwell Varco’s increased production will go overseas, mainly to Singapore, South Korea and China, where major shipyards build drilling vessels.

Ultimately, the devices could end up on rigs in the Gulf of Mexico, evidence of the global nature of the oil business.

Clay Williams, president and chief operating officer of National Oilwell Varco, discussed the Houston plant’s expansion during a conference call after the company released its first-quarter earnings in late April, saying much of the increase was due to “much higher … demand post-Macondo. Think replacements for old stacks that could not be recertified. Second (blowout preventers) on rigs, all up sharply since 2010.”

‘Just a machine’

A blowout preventer can weigh close to a million pounds and cost several million dollars.

And if everything goes right, it’s never used.

“The best wells never do anything but test a blowout preventer,” Miller said during a tour of the National Oilwell Varco plant last month.

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Frank Springett, vice president of engineering for the company’s pressure control group, said the devices start as forgings — enormous blocks of steel brought in from the East Coast, Canada or Italy, machined and heat treated as each component is manufactured, pressure tested and assembled.

Requirements for blowout preventers have been tightened since the Macondo oil spill, said Bommer, the UT engineering faculty member.

Attitudes have changed, too, he said.

“I don’t think anybody who has been paying attention could possibly think those are failsafe mechanisms, that those will always work,” he said. “That’s just not true.”

But he said the Macondo incident went beyond the blowout preventer.

“They’re gigantic, and if you don’t use them right, they’re just a machine and they won’t work,” he said. “The human element has got to be right.”