Alcoa Deploys Drill Pipe in Brunei

Zacks

Aluminum giant Alcoa Inc. (AA) has announced that its Alcoa Oil and Gas Division has set up a 1800 meters (5,905 feet) long Aluminum Alloy Drill Pipe (:AADP) in the Iron Duke Well C offshore Seria, Brunei. The company has collaborated with Brunei Shell Petroleum Co. (“BSP”) and AMRTUR Corp. on the project.

The Iron Duke Well is considered to be the most complicated amongst those operated by BSP as it has deviations in the form of three “S” shaped curves and a big horizontal section measuring 5,000 metres. The well was drilled up to 7,485 meters in about 60 meters (197 feet) of water.

Earlier, high cantilever loading, high torque, high drag, high sideforce, and casing wear concerns were the main hindrances faced by BSP. Alcoa’s light aluminum alloy pipes were identified as means to tackle these problems and also help maximizing recovery and minimizing cost.

The Aluminum Alloy Drill Pipe is about 40% lighter than steel pipes and has the potential to significantly reduce drill string hook load. The tube uses a proprietary thermal connection technology that allows steel tool joints to be attached to the aluminum pipe body. The tubes are produced at Alcoa’s Lafayette, Indiana, facility and the finished drill pipes are assembled at its Oil & Gas facility in Houston, Texas.

BSP is planning to deploy AADP on other wells in Brunei and is also planning a drilling project using AADP in New Zealand.

Alcoa is a leading producer of primary and fabricated aluminum as well as the world’s largest miner of bauxite and refiner of alumina. The company reported a loss of $2 million (break-even on a per-share basis) in the second quarter of 2012 compared with a profit of $322 million (or 28 cents a share) in the year-ago quarter. The year-over-year decline was due to lower aluminum prices.

Excluding one-time special items (including restructuring and other charges, litigation expenses and tax-related items), Alcoa earned 6 cents a share in the quarter, in line with the Zacks Consensus Estimate and lower than the year-ago earnings of 32 cents.

Revenues decreased 9.4% year over year to $5,963 million, but were ahead of the Zacks Consensus Estimate of $5,828 million. While weak aluminum prices dragged down revenues, the company witnessed increased demand across aerospace and automotive markets in the quarter. Aluminum prices dropped 18% year over year and 4% sequentially in the second quarter.

Alcoa witnessed strong performances across all its businesses during the quarter, driven by higher utilization rates, process innovations, lower scrap rates and usage reductions. The company expects higher demand for aluminum from automobile, aerospace, packaging and commercial transportation end markets in the near term.

Alcoa competes with Aluminum Corporation of China Limited (ACH) and RioTinto plc. (RIO). The stock maintains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating. We currently have a long-term Neutral recommendation on Alcoa.

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