Valerus CEO: Modularization is key to gas industry evolution

Steve Gill, CEO, Valerus

Valerus, headquartered in Houston, Texas, is a key player in natural gas wellhead production, handling, compression, processing and treating. The company provides integrated service and distribution solutions for gas producers and consumers worldwide. In this viewpoint interview, Valerus CEO Steve Gill discusses gas processing in the age of shale, and how modular and mobile gas processing trends are transforming the energy landscape.

GP. How has the shale boom in North America transformed the business models and offerings of oil and gas handling companies?

SG. Much like our peers in the downhole services sector, the need to develop these resources quickly and efficiently is driving a need for lean manufacturing, “plug-and-play” designs, and modularization—a standardization mindset, if you will. There has been much talk of this model being applied during drilling and production, where a bulk of CAPEX [capital expenditures] is spent.

Handling and processing also allow for a standardization mindset, especially in terms of optimizing facility development time lines and the ability to deploy facilities with flexible, plug-and-play designs. After all, it is the handling and processing facility that stands between production and getting gas to market.

GP. There has been much attention recently on modular and mobile gas processing solutions. How is Valerus responding to this trend? Does the company plan to add to or modify its services to fit the changing gas processing landscape?

SG. For Valerus, this is not a trend, but rather a core operating model. As producers continue to build processing and gathering infrastructure in oil and gas plays throughout the world, the focus has changed to expediting cash flow, which has challenged the industry to focus on designing and building facilities that meet a wide range of process conditions, enable quick installation and have scalability.

As one of the only companies in the world that not only fabricates comprehensive surface facility equipment but also engineers, procures, constructs and commissions full facilities, this is the Valerus sweet spot: standard, modularized facilities that can be engineered and constructed more quickly and efficiently.

Modularization means that we reduce the amount of stickbuilding and welding in the field, which improves safety and quality; it also means design flexibility, where processing and handling capacities can be adapted over time. We believe a move toward modularization will also drive innovation in a sector that has been largely commoditized over the last two decades in terms of process engineering and lean manufacturing.

There is, however, a caveat to the progress of modularization. Adding another layer of complexity is that facility standards are nonexistent or vary widely among countries, regions and even operators. As a result, the traditional approach has been to conduct extensive front-end engineering and design studies, and to implement rigorous and complex specifications that often mean standardization and a modular approach are not possible. This approach has a significant impact on project cost, scope and time line.

It will be imperative across the industry to try to change, as the economic benefits to move toward modularization can be significant.

GP. How do you see the North American and South American markets evolving for oil and gas handling, operations and services over the next 5–10 years?

SG. According to most sources, the outlook for North America and South America over the next few years is strong. ExxonMobil’s latest energy outlook indicates that North America and Latin America, combined, will provide approximately 15 million barrels of oil equivalent per day (boepd) in liquids production between 2010 and 2040, which is over half of all global projected liquids production; and that North America will become a net exporter of natural gas in the next few years. Latin America’s success in this area will also be strong, but will be more dependent on geopolitical factors in terms of success.

Due to these factors, producers will continue to spend money to build the necessary processing and handling infrastructure required. In the US, where producers often partner with midstream companies to handle and process hydrocarbons, the outlook continues to show processing capacity additions over the next 5–10 years. As a result, compression requirements will continue to grow as additional infrastructure is added and aging facilities are updated.

In South America, the challenge will be building new infrastructure, often in remote locations, to accommodate production. This requirement means that service companies must be equipped to handle not only the facility itself but often the associated infrastructure required.

GP. How do you see the North American NGL market changing over the next decade?

SG. Most industry analysts believe that NGL demand is expected to continue to grow in North America, which is one of the few markets outside of the Middle East where most steam cracking facilities are designed to use NGL over the more expensive oil-based feedstocks used in Europe and Asia. This scenario will likely drive growth in the North American chemicals industry, boding well for the upstream and midstream natural gas sectors. In fact, according to some industry analysts, tight oil and NGL will account for almost 35% of liquids production in North America by 2040.

GP. What factors will shape CNG fuel markets going forward?

SG. Economics will always be the main influence. It is still more economical to use gasoline in terms of the driving range, cost of vehicles and access to refueling. Even in the US, where natural gas is produced, it is still more expensive to purchase a CNG vehicle than a gasoline-powered car; however, we do see signs of change in the near future.

GP. How has the integration of Valerus’ oil and gas handling services into parent company Kentz’s portfolio broadened the two companies’ business opportunities?

SG. Kentz is a global engineering specialist solutions provider, and it has provided engineering, construction and technical support services to clients for more than 90 years. As a result of the acquisition, we can now leverage additional engineering and project management capabilities from Kentz to complement our existing portfolio of equipment and services to develop surface facilities globally.

In addition, Kentz and Valerus have tremendous synergy geographically. Valerus has experienced great success in North and South America, while Kentz has a large presence in the Eastern Hemisphere. This joining of forces will benefit our customers across the globe and create additional opportunities.

GP. Health, safety and environment (HSE) is a priority for Valerus. How does the company integrate HSE principles into its operations?

SG. It is not just a priority, but the priority. We have consistently maintained a total recordable incident rate well below the industry average for the last few years, due to significant vigilance, implementation of standard work procedures, and, most of all, culture. Our “target zero” mentality starts with me and is driven into every employee from day one. We have manufacturing facilities that have operated for years without an incident. We pride ourselves on this track record, as we believe we have one of the best track records in our sector, if not the best. GP

Steve Gill is the CEO of Valerus. He has worked for the company since 2008, serving as senior vice president for the international and product lines segments, followed by senior vice president of the commercial segment. Prior to his employment with Valerus, Mr. Gill spent over 13 years with Hanover and Exterran as vice president of international and vice president of total solutions. Previously, he spent 15 years with Dresser-Rand, specializing in rotating equipment sales. Mr. Gill holds a BS degree in mechanical engineering from Texas A&M University.