Do you know your OEM from your CEM?

Historically within the oil & gas industry the repair, servicing or remanufacturing of equipment has been managed by the Original Equipment Manufacturer (OEM). We are increasingly seeing these services, being conducted by companies other than the OEM, i.e. a Certified Equipment Manufacturer (CEM).

To clarify, the definition of OEM and CEM as per the American Petroleum Institute (API), is:

OEM - Design owner or manufacturer of the traceable assembled equipment, single equipment unit, or component part.

CEM - Design owner or remanufacturer of the traceable current assembled equipment, single equipment unit, or component part responsible for the current product definition (CPD).

In our industry we have been established on methods and technology that have not changed significantly for decades and somewhat stuck on the concept that equipment should be referred to by its original name or description, even though the OEM may no longer exist!

There is an opportunity to reduce costs by using non-OEM service providers. With the legal life of major equipment patents expiring and the movement of experience and knowledge base, the industry has seen the birth of smaller service providers which have taken on the servicing of major equipment, and in some cases, the manufacturing of equipment that resembles the original manufactured equipment.

These smaller providers generally have management experience, having worked in the past with the OEM, and are approved to carry out repair and remanufacture of the equipment under license. During various downturns in the industry the OEM has removed the need for a license, as such there has been more opportunities for the smaller providers to step in.?

ModuSpec has found in recent years that the repair and servicing of drilling and well control equipment is an often-controversial subject, some do agree with non-OEM repair and some do not.

We find a key reason for the controversy is the lack of understanding of what is acceptable and what is not in terms of compliance requirements. The latest API repair standards, API 16AR, and API Standard 53 5th edition have made changes that make the requirements clearer.

Within our ModuSpec team, we have significant experience with this issue, OEM vs CEM. Below we provide some guidance around common questions that we hear from our client base:

“All equipment must be serviced, certified, and repaired by the OEM”

Recently ModuSpec completed a project on behalf of an operator, where this statement was made. It’s key to explain under API, if you are a rig owner, the equipment is owned by you and it is your decision who will inspect, service and repair equipment, providing that you prove that the company conducting the work has:

-??Established a quality management system.

-??Gained API registration for the various standards to carry out the work.

-??Relabeled the equipment under its own company name.

-??Meets the requirements of API Standard 53 5th edition section 5.4.4 and 6.5.4.

-??Meets the requirements of API Standard 16AR.

The specifications and standards do state that the inspection, servicing and repair of equipment does not have to be by the OEM, a point we cover next.

“The API states to use the OEM and our management dictates this – also our technical standards state we have to”

A number of our operator clients have raised to us that API historically quoted the use of an OEM and that their own internal technical standards still do state that the OEM should be used.

Our Technical Support team has assisted to raise understanding within our client base of the changes and what that means to them in the context of a current or future rig intake process.

As we know API is the technical body for the oil and gas industry and the updated standards do state that either OEM or CEM can be used to repair or remanufacture equipment.

API 16AR (API - 2017), is the updated version of the API 16A standard specifically for repair and remanufacture of drill-through pressure control/containing equipment built under the API 16A and API 6A standards, where equipment will have typically been API monogrammed.

Key points of the updated API 16AR standard include:

-??The addition of the term CEM.

-??It allows for a non-OEM to take ownership and become the CEM.

-??The definition of “manufacturer” is the OEM or the CEM as per the standard.

-??There is no stated requirement that the OEM is the “remanufacturer” and/or the company carrying out “repair” according to API 16AR.

“There is less risk associated by using the OEM, rather than a CEM”

As an industry, we must recognize that a rig owner can use a CEM and the risks associated with quality are not present where the rig owner follows the rules when selecting the company to undertake the servicing, repair or remanufacture of the equipment.

The rig owner will normally conduct a full audit of the selected company to ascertain what API licenses they have in place, confirm they are in date, review quality of their work and review an example of the final documentation/data package that will be issued with the equipment.

We see that rig owners largely diminish any risk associated with using a CEM by putting in place a robust due diligence process into the selection, and also ensuring that they have a quality management system that meets API Q2 (API, 2016).

API Q2 specification defines the quality management system requirements for service supply organizations for the petroleum and natural gas industries. It is intended to apply to the execution of upstream services during exploration, development and production in the oil and gas industry. This document applies to activities associated with well servicing, equipment repair/maintenance and inspection activities.

The API Q2 specification was established in 2011 and designed for companies servicing oilfield equipment. It was developed as a direct result of Macondo by an API sub-committee that currently includes operators, rig owners and key service companies. API Q2 is similar to the API Q1 quality management standard but with additional sections to cover service and repair aspects.

Conclusion

On balance there is potential cost saving and time efficiency to be gained using a non-OEM and we increasingly see rig owners choosing to do so. The changes in the API regulations allow for use of non-OEM providers.

Understanding in the industry amongst the operators has some way to go before the controversy around OEM vs CEM is clearer. This in itself is preventing the industry from achieving greater levels of performance.

ModuSpec has significant experience in supporting clients around the controversy of OEM vs CEM and we will continue to act as an independent third party to make the picture that bit clearer.?