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Lloyd's Register EMEA 2016. All rights reserved.

Compliance Services Electrical and Instrumentation Lloyd's Register EMEA

Title: Fluid Hammer Operating System (Technology and Risk Assessment Report)

Client: Strada Energy International Limited, 22 Esplanade, St Helier, Jersey, JE2 3QA

Report No: O-33826

Revision: 03

Project Ref: UK2389.1LR

Client Ref:

Date: 07th March 2016

Energy Fluid Hammer Operating System (Technology Qualification – Technology & Risk Assessment Report)

Report No: O-33826 Page ii of vii Date: 07th March 2016 The statements made herein are subject to the disclaimer of liability printed on page iii of this report Lloyd's Register EMEA 2016. All rights reserved.

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Report No: O-33826 Page iii of vii Date: 07th March 2016 The statements made herein are subject to the disclaimer of liability printed on page iii of this report Lloyd's Register EMEA 2016. All rights reserved.

REPORT PROFILE

1. Report No

2. Rev.

3. Report Date

4. Project Manager

O-33826

03

07th March 2016

Winston D’Souza

5. Title and Subtitle

6. Security Classification of this report

Fluid Hammer Operating System (FHOS) (Technology Report & Risk Assessment Report)

CONFIDENTIAL – for Controlled Distribution List only

7. Reporting organisation name and address

8. Client organisation name and address

Lloyds Register EMEA Denburn House, 25 Union Terrace, Aberdeen, AB10 1NN United Kingdom

Strada Energy International Limited 22 Esplanade, St Helier, Jersey, JE2 3QA United Kingdom

9. Project work order reference(s)

10 Client organisation reference(s)

UK2389.1LR

11. Summary/Keywords Technical Qualification; Fluid Hammer Operating System (FHOS); Dual Circulation drilling; Oil, Gas and Geothermal exploration. 12. Author (Name and Signature)

13. Reviewed by (Name and Signature)

Ben Sherwood Graduate Electrotechnical Engineer E&I Compliance, Aberdeen Engineering Group Lloyd's Register EMEA

Barry Holland Engineering Operations Manager Drilling Lloyd's Register EMEA

14. Authorised by (Name and Signature)

15. Assessed by (Name and Signature)

Winston D’Souza Instrument & Communications Engineer London Energy Compliance Lloyd's Register EMEA

Peter Davies Principal Specialist – Renewable Energy London Energy Compliance Lloyd's Register EMEA

16. Client Signoff (Name and Signature)

17. Client Signoff (Name and signature)

Rick Ironside Chief Operating Officer Strada Energy International Limited

Warren Strange Executive Chairmen Strada Energy International Limited

Lloyd’s Register Group Services Limited, its affiliates and subsidiaries and their respective officers, employees or agents are, individually and collectively, referred to in this clause as the ‘Lloyd’s Register’. Lloyd’s Register assumes no responsibility and shall not be liable to any person for any loss, damage or expense caused by reliance on the information or advice in this document or howsoever provided, unless that person has signed a contract with the relevant Lloyd’s Register entity for the provision of this information or advice and in that case any responsibility or liability is exclusively on the terms and conditions set out in that contract. © Lloyds Register EMEA 2016. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, without prior consent of Lloyd's Regiser EMEA.


Report No: O-33826 Page iv of vii Date: 07th March 2016 The statements made herein are subject to the disclaimer of liability printed on page iii of this report Lloyd's Register EMEA 2016. All rights reserved.

DOCUMENT HISTORY

Revision Date Description/Changes 01 29 February 2015 For LR Internal Review 02 03rd March 2016 For Client Release 03 07th March 2016 For Concept Approval in Principle Assessment

CONTROLLED DISTRIBUTION LIST

Name Organisation (including address) Hard copy Electronic copy Barry Holland Lloyds Register EMEA, Aberdeen, UK ✔

Benjamin Sherwood Lloyds Register EMEA, Aberdeen, UK ✔

Peter Davies Lloyds Register EMEA, Aberdeen, UK ✔

Rick Ironside Strada Energy International Ltd. ✔

Warren Strange Strada Energy International Ltd. ✔

Winston D’Souza Lloyds Register EMEA, Aberdeen, UK ✔


Report No: O-33826 Page v of vii Date: 07th March 2016 The statements made herein are subject to the disclaimer of liability printed on page iii of this report Lloyd's Register EMEA 2016. All rights reserved.

EXECUTIVE SUMMARY

OVERVIEW Strada Energy International Limited has developed a patented dual circulation drilling method. This method is referred to as the Fluid Hammer Operating System (FHOS) which uses percussion drilling techniques. The benefits of this technology over existing in-service alternatives is the higher drilling rate in hard rock, deeper drilling capability (over 6,000 metres) and safety due to down hole condition controllability. The dual circulation drilling method has been proven in Australia to drill in 200 MPa granite rock at a rate of up to 25 metres per hour with a crew of three people. The technology is now entering a stage of commercialisation. At the time of this Technical Qualification exercise, preparations were being made for further drilling operations using FHOS in Finland and Malaysia. Strada Energy International Limited applied to Lloyd’s Register EMEA to provide an independent technology qualification assessment adopting the Lloyd’s Register Technology Qualification process for this technology. As part of this process, a Technology Qualification workshop was held at the Lloyd’s Register Office in Aberdeen to assess the details of the technology as well as risks associated with the implementation of this technology in the field. The participants who attended included drilling specialists from Strada Energy, a Lloyd’s Register drilling specialist and a Technical qualification process specialist. The following is a summary of the outcome of that assessment.

SUMMARY OF ASSESSMENT The primary objective behind the Technology Qualification workshop was to analyse the system components with the view to identify elements which are considered new in terms of technology or operating conditions. The adopted methodology also focussed upon the stated goals and claims of the FHOS technology to ensure that these could be met or exceeded. Concisely, these were as follows:

• Strada Energy’s Drilling Rigs are physically smaller than alternative rigs. • Capable of controlling the down-hole temperature by regulating the

mud/water/air circulation. • The capability of drilling in balanced underbalanced and overbalanced

modes. • Hard rock penetration rates using percussion hammers are generally

higher than 20 meters per hour in 200 MPa rock, such as granite and basalt.


Report No: O-33826 Page vi of vii Date: 07th March 2016 The statements made herein are subject to the disclaimer of liability printed on page iii of this report Lloyd's Register EMEA 2016. All rights reserved.

• Reduced drill pipe wear. • Longer drill bit life. • Capable of reducing drilling costs by up to 70% in comparison to existing

technologies. These costs savings are derived from reduced number of trips, quicker drilling and reduced mobilisation costs.

• Crews of less than 5 required. • Capable of drilling over 6000m.

In the course of the workshop, all components of the system were assessed for the level of technological risk posed. The fluid inlet swivel was the only component identified to contain a higher level of risk. This is due to the fact that the FHOS has higher operating pressures at the swivel head than other mature drilling methodologies. The modification involved adapting the swivel head to accommodate a new seal with suitable pressure ratings. To date these seals have been tested in service and no long term failure statistics have been gathered.


Report No: O-33826 Page vii of vii Date: 07th March 2016 The statements made herein are subject to the disclaimer of liability printed on page iii of this report Lloyd's Register EMEA 2016. All rights reserved.

ABBREVIATIONS API American Petroleum Institute BOP Blowout Preventer DTH Down The Hole FHOS Fluid Hammer Operating System LR Lloyd’s Register MPa Megapascal (measurement of pressure) TA Type Approval TQ Technology Qualification

Energy Fluid Hammer Operating System (Technology Qualification - Technology and Risk Assessment Report)

Report No: O-33826 Page 1 of 20 Date: 07th March 2016 The statements made herein are subject to the disclaimer of liability printed on page iii of this report Lloyd's Register EMEA 2016. All rights reserved.

TABLE OF CONTENTS REPORT PROFILE ....................................................................................................................................... iii DOCUMENT HISTORY .................................................................................................................................iv CONTROLLED DISTRIBUTION LIST ..........................................................................................................iv EXECUTIVE SUMMARY ................................................................................................................................ v ABBREVIATIONS ........................................................................................................................................vii TABLE OF CONTENTS ................................................................................................................................. 1 LIST OF FIGURES ......................................................................................................................................... 2 LIST OF TABLES........................................................................................................................................... 3

1. INTRODUCTION ................................................................................................ 4 1.1. Purpose of the Report.................................................................................................................. 4 1.2. Background .................................................................................................................................. 4 1.3. Structure of the Report ................................................................................................................ 4 1.4. Goals and Claims of the FHOS Technology .............................................................................. 5

2. OVERVIEW OF TECHNOLOGY QUALIFICATION ........................................... 6 2.1. Elements of the TQ Process ....................................................................................................... 6 2.2. Stages in the TQ Process ............................................................................................................ 7

3. SYNOPSIS OF THE TECHNOLOGY REVIEWED ............................................. 9 3.1. Boundaries of the TQ Assessment ............................................................................................ 9 3.2. Overview of the FHOS Technology System .............................................................................. 9 3.3. Components of the FHOS Technology System ......................................................................10

4. TECHNOLOGY QUALIFICATION WORKSHOP ............................................. 13 4.1. Schedule of the TQ Workshop ..................................................................................................13 4.2. Workshop Participants ..............................................................................................................13 4.3. Structural Decomposition .........................................................................................................14 4.4. Functional Decomposition ........................................................................................................14 4.5. Technology Maturity Level ........................................................................................................15 4.6. Integration Maturity Level .........................................................................................................15 4.7. Adjusted Technology Maturity Level .......................................................................................16 4.8. Experiential Level .......................................................................................................................16 4.9. Risk Assignment and Assessment ..........................................................................................16

5. CONCLUSION ................................................................................................. 18

6. REFERENCES ................................................................................................. 19

7. APPENDICES .................................................................................................. 20



LIST OF FIGURES

Figure 1: Technology Qualification Process 6 Figure 2: Concept Approval in Principle Process 7 Figure 3: Drilling Rig Comparison 11 Figure 4: Dual Circulation Pipe 11 Figure 5: TML and IML Assignment Levels 16 Figure 6: Risk Matrix Chart 17



LIST OF TABLES Table 1: Goals and Claims 5 Table 2: Performance Comparison for Various Drilling Techniques 10 Table 3: Technology Workshop Schedule 13 Table 4: Roles of Technology Workshop Participants 14



1. INTRODUCTION

1.1. Purpose of the Report Strada Energy International Limited (hereafter referred to as Strada Energy) have developed and patented a dual circulation drilling method. Referred to as Fluid Hammer Operating System (FHOS), the drill pipe has an inner tube for injecting mud phase to the drill face and the annulus between the inner tube and drill pipe for the fluid (water / air) driving the percussion drill bit. The pressurised drive fluid and mud phase are then mixed behind the drill face and returned via the bore hole to the drill rig for processing. The FHOS method enables underbalance, overbalance, and balanced drilling and temperature control at the drill bit. Strada Energy engaged Lloyd’s Register EMEA (hereafter referred to as LR) to provide an independent qualification by adopting the Lloyd’s Register Technology Qualification (TQ) process for this technology. As aspects of, or the application of this technology are considered novel and hence not in accordance with current standards, it could not be assessed using the standard Lloyd’s Register Type Approval (TA) process. However, once the technology achieves a degree of maturity, it might be possible to adopt the TA process for certain modules within this technology. As part of the TQ process, LR facilitated a two-day Technology Qualification Workshop (TQ Workshop) at the LR Office in Aberdeen. The schedule of the workshop is described in Section 4.1. The participants who attended the event are listed in Section 4.2. The technology assessment was based on a presentation and data provided by Strada Energy. The objective of this exercise was to complete a Technology and Risk Assessment Report with the view to providing a ‘Concept of Approval in Principle’ upon satisfactory evaluation of the abovementioned technology.

1.2. Background Prior to the TQ Workshop, Strada Energy attended a TQ course delivered by LR on 16th February 2016, also at the LR Aberdeen office. This introduced Strada Energy to the TQ process that enabled them to organise their data in a suitable format for the proceeding TQ workshop. By way of previous experience, Strada Energy had earlier drilled a 1000m test well at 200MPa in hard granite at Merredin, West Australia. This was done at a rate of 25m per hour with a team of three operators.

1.3. Structure of the Report Section 2 of this report begins by offering a high level overview of the LR Technology Qualification process. Section 3 focuses on the boundaries of this assessment and the



technology being qualified. Section 4 dwells upon the details behind the methodology adopted in the course of the TQ workshop.

1.4. Goals and Claims of the FHOS Technology The objective of this report was to capture the discussions through the TQ workshop as well as provide a record of findings made in relation to the agreed goals and claims of this technology.

The goals and claims of this technology are as described in Table 1 of this report:

Goals Claims

Operational flexibility Strada Energy’s Drilling Rigs are physically smaller than traditional technology.

Temperature control while drilling volcanics underbalanced

Capable of controlling the down-hole temperature by regulating the mud/water/air circulation. This enables the control of steam assisted cutting which increases drilling rate. Temperature control prolongs drill bit life.

Safety The capability of drilling in balanced underbalanced and overbalanced modes enables the ability to control the well in the event of a pressure kick in all environmental conditions particularly in hard rock conditions.

Higher drilling rate Hard rock penetration rates using percussion hammers are generally higher than 20 meters per hour in 200MPa rock, such as granite and basalt. In the same geology, the bud rotary method averages 1-3 meters per hour. Percussion rates in softer ground achieved by Strange Drilling have been as high as 100 metres per hour in softer geological formations.

Longer drill pipe life Drill pipe wear is a result of in use, not metres drilled. This means drill pipe wear per metre is much less than when using percussion drilling methods due to the higher drill rate. Rotation speeds are less than half using percussion drilling methods, resulting in less wear and lower drill pipe expenditure. Lubrication from operating fluids and low torque require for operation also contribute to reduced pipe wear.

Longer drill bit life Drill bit life using mud rotary methods and a typical modern PDC drill bit is typically 10 to 40 metres in hard rock. Typical cost of a typical PDC bit is US$30-60,000. A fluid hammer percussion drill bit is typically US$20,000. Percussion drill bits have achieved up to 1,000m in the same rock. For example Strada Energy achieved over 500m of bit life in 200MPa Granite on the test hole in Merredin, West Australia.

Efficiency Capable of reducing drilling costs by up to 70% in comparison to existing technologies. These costs savings are derived from reduced number of trips, quicker drilling and reduced mobilisation costs.

Wellbore pressure control Capable of drilling in balance underbalance and overbalanced modes.

Reduced manning Crews of less than 5 required. Deeper range Capable of drilling up to 10,000m.

Table 1: Goals and Claims



2. OVERVIEW OF TECHNOLOGY QUALIFICATION Technology Qualification is a risk based methodology that has been developed to provide independent assurance that new technologies can be implemented in a structured and systematic manner, safely and reliably within the specified operating environment.

2.1. Elements of the TQ Process A schematic of the TQ process as practiced by LR is as illustrated in Figure 1 below.

Figure 1: Technology Qualification Process

System Function

Decomposition

Acceptance Criteria

Qualifications Methods,

Activities & Tests

Remarks Recommendations

Issue Statement of Endorsement

Initial screening of Level 2 items

Report and Follow Up

Review Results

Execution

Issue Technology

Qualification Certificate

System Structure

Decomposition

Claims &

Goals

Critical Technology

Element

Technology Readiness

Level

Operating Maturity

Functional Criticality

Integration Readiness

Level Assessment

Initial Screen Level

(0/1/2)

Concept Design Review

Severity Likelihood

Risk Criticality

Hazard

Identification

Assessment Methods

Acceptance Criteria

Assessment

Team

Failure Mode Effects

Analysis

Issue Technology

And Risk Assessment

Report

Stag

e 01

St

age

02

Stag

e 03



2.2. Stages in the TQ Process As described in Figure 1, the process is divided into three stages.

Stage 1: Design Appraisal: This stage consists of a system decomposition process, technology assessment and risk assessment exercises. The outcome of this stage is Technology and Risk assessment report. This report is prepared by LR in agreement with the client at the end of the TQ workshop. Occasionally, if the client wishes to exit the TQ process with a ‘Concept Approval in Principle’, Figure 2 illustrates this departure point.

Figure 2: Concept Approval in Principle Process



Stage 2: Technology Qualification Plan: This stage consists of the preparation and implementation of a TQ Plan. The TQ Plan is based upon the Technology and Risk assessment report and should address the issues highlighted in that report. The TQ Plan is prepared by the client and submitted to LR for approval prior to implementation. If approved by LR, the client is offered a Statement of Endorsement for the plan. Once this has been issued, the TQ Plan cannot be modified without consulting LR and without going through the client’s management of change process.

Stage 3: Performance Assessment: This stage consists of an assessment of the issues highlighted in the TQ Plan that were required to be eliminated or mitigated. If LR is satisfied that the technology and associated risks have been minimised to acceptable levels, a Technology Qualification certificate is issued.



3. SYNOPSIS OF THE TECHNOLOGY REVIEWED At the beginning of the TQ workshop, it was agreed that the boundaries of the technology qualification exercise were to be determined. This was necessary to ensure that only those elements that formed part of the ‘Concept Approval in Principle’ would be reviewed and the rest excluded. These elements are covered in Section 3.1. The remainder of this section provides a high level overview of the FHOS technology being qualified.

3.1. Boundaries of the TQ Assessment During the TQ workshop it was decided that the boundaries of this TQ exercise will be limited to the Dual Circulation piping illustrated in Figure 4. The decision is based on the fact that the dual circulation pipe is that part of the system which is used in an innovative manner in comparison to existing drilling methods. It should be noted that the use of an inner tube inside a drill pipe is not new to the industry and is utilised in re-circulation methods. The impact of ancillary equipment such as pumps and centrifuges have also been considered as part of the assessment.

3.2. Overview of the FHOS Technology System The traditional method of drilling for oil, gas and geothermal resources is mud rotary drilling. This method has the advantage of hole stability in unconsolidated ground but is slow and expensive, especially in hard rock. A faster and more efficient method of drilling through hard rock is pneumatic powered percussion drilling, also known as Down the Hole (DTH) hammer drilling. It is increasingly being employed in oil exploration with positive results and more than halving the time, and cost of Barnett shale wells in America. However, the disadvantages of pneumatic drilling are its limited ability to control the well along with increased difficulty when drilling through formations containing significant ground water pressures. To overcome these issues fluid powered DTH hammers have been developed and successfully tested to 1000 metres. Although the performance of this method hss improved, there remains an inability to control the well in the event of a pressure kick, rendering the method unsafe in the eyes of many operators. Strada Energy have developed a patented Fluid Hammer Operating System (FHOS) that uses dual circulation with fluid powered percussion hammers to increase well control, drill speed, and efficiency and project cost reductions of up to 70%. The components used for the FHOS are ‘off the shelf’ approved products. Table 2 summarises the comparison between the Strada Energy FHOS and existing drilling technology performance and refer to Appendix D for a more detailed analysis.



Rig Comparison Standard Reverse Cycle Mineral Rig

500 Ton Oil & Gas Platform Rig

Strada Energy Rig With Water Hammer

Drilling depth capacity: Up to 1,200m Up to 10,000m Up to 10,000m

Drilling speed (hard rock): >25 metres/hour ~0.2 to 1 metres/hour >20 metres/hour

Time to drill an average 4,000m well in granite Can only drill 1,200m 600 days 40 days

Cost to drill per meter Up to $1,000 Up to $20,000 Up to $3,000

Operators required: 4 >10 <5

In Country Mobilisation cost: up to €200k up to $2M up to $300k

Rig setup time: 1 day ~1-3 weeks 1 shift

Trailer loads (varies per rig): 6 50 - 130 22

Drilling method: Air Hammer Mud Rotary Air Hammer & Water Hammer

Table 2: Performance Comparison for Various Drilling Techniques

3.3. Components of the FHOS Technology System All the components used for the FHOS method are ‘off the shelf’ products used in the drilling industry. The FHOS drilling method high level system contains all the components that would be expected on a traditional drilling rig. FHOS consists of the following sub-systems and components:

• Mud system – shale shaker, pumps. • Clean fluid system – Storage, pumps, centrifuges, controls. • NUMA Percussion hammer. • Drilling Rig – Control system. Figure 3 illustrates the comparison between

Strada Energy rigs and existing rigs used. • Fluid Inlet Swivel – modified to accommodate seals which can withstand the

higher pressure operation. • Bit retention scheme. • Outer drill pipe. • Inner drill pipe. • Inner tube drill pipe seals. • Quenching/Relief valve. • Blowout preventer (BOP)



Traditional 300 Ton Drilling Rig

Strada Energy 300 Ton GT3000 Drilling Rig

Figure 3: Drilling Rig Comparison The fundamental innovation which distinguishes FHOS from other technologies is the use of a Dual Circulation Pipe. Figure 4 below illustrates the structure and fluid flows with pressures.

Figure 4: Dual Circulation Pipe



The following explains the FHOS dual circulation pipe in operation as shown in Figure 4. The dual flow circulation flows in the drill pipe annulus and within the inner tube. Drilling mud (control fluid) or air enters the top fluid inlet swivel and is delivered via the inner tube to the drilling bit face. Power fluid (clean water) enters the bottom fluid inlet swivel and is delivered via the annulus for the purpose of driving the percussion hammer. Ejected power and control fluid mix in the well bore and the rig control system can regulate the mixture composition depending on the desired drilling mode; balanced, overbalance, or underbalance conditions. The drive fluid is air down to a depth of 300m and can be changed to water beyond this depth depending on down-hole temperatures and formation pressures. The quenching valve is used in volcanics with air drilling. Air is pumped down the inner tube and water down the drill pipe annulus. The quenching valve enables complete control of the amount of water pumped into the well for the temperature management while drilling underbalanced. The air hammer is powered by air, and water hammer is powered by water.



4. TECHNOLOGY QUALIFICATION WORKSHOP An important sub-process within the overall TQ process is the TQ workshop. This exercise offered LR as well as Strada Energy the opportunity to agree on issues of concern with regards to the technology under review and associated risks when implemented in oil, gas, or geothermal activities.

The two-day Technology and Risk Assessment Workshop was held in Aberdeen on 17th-18th February, 2016. The scope of the workshop was limited to the specification of the boundaries of this TQ assessment (see Section 3.1) and the identification of associated risks. In the course of this workshop, assessment measures such as Technology Maturity Levels (TML) and Integration Maturity Levels (IML) were also discussed.

4.1. Schedule of the TQ Workshop On the 16th February 2016 the Strada Energy representatives attended a pre-workshop Technology Qualification presentation delivered by LR explaining the TQ process. The TQ Workshop was subsequently held at the LR office, Aberdeen from 17th - 18th February, 2016. The schedule of this workshop is listed in Table 3. The participants and their respective roles at this workshop are listed in Section 4.2.

The format of the TQ Workshop was as follows:

TQ Workshop 17th February: 09.00 – 10.00 Introductions of the Participants and their Roles.

Outline of Workshop plan. 11.00 - 12.00 Presentation on the FHOS technology and questions. 12.00 – 12.30 Lunch at LR office 12.30 – 16.00 System Decomposition and Technology Assessment exercise

(includes identification of goals and objectives; system structural decomposition; system functional decomposition; high-level appraisal units and sub-units; TRL; Operational maturity; Functional criticality; IRL assessment).

TQ Workshop 18th February: 09.00 – 12.00 Discussions around the production of the Technology

Assessment Report and clarifications of issues arising from the previous day’s discussions.

12.00 – 13.00 Lunch at LR Office. 13.00 – 14.00 Workshop concluded.

Table 3: Technology Workshop Schedule

4.2. Workshop Participants The individuals listed in Table 4 participated in the TQ workshop held at the LR office, Aberdeen.



Name Company Role Barry Holland Lloyd’s Register Drilling Specialist Ben Sherwood Lloyd’s Register TQ Workshop Scribe Rich Ironside Strada Energy Drilling Specialist Warren Strange Strada Energy Drilling Specialist & F.H.O.S. Designer Winston D’Souza Lloyd’s Register TQ Process Manager

Table 4: Roles of Technology Workshop Participants

4.3. Structural Decomposition Based upon the goals and claims made with regards to the FHOS technology (see Section 1.4), the TQ workshop began with a Structural breakdown of the overall system into its constituent subsystems, equipment and components. The outcome of this step was used to provide the basis for subsequent stages within the TQ workshop and to narrow down the scope of the TQ review taking into account the operating conditions, functions and sub-functions, and process and control sequences. A Structural breakdown of the modules within the FHOS system are as follows:

• NUMA drill bit and percussion hammer • Dual Circulation pipe – Includes the outer API drill pipe, the certified inner

tube, and the sealing system on the inner tubes. • Clean fluid Polishing unit – Centrifuge, pumps and storage tanks. • Drill rig – control system. • Fluid inlet swivel. • Quenching valve.

4.4. Functional Decomposition Once the main functions and the related sub-functions were identified, a closer examination of each component and its influence on the wider system was reviewed in detail.

List of components was as follows:

• Air pump: provides uncontaminated drive fluid to the percussion hammer at a maximum of 2500 psi. The Air hammer operates at an optimum level at 300-500 psi.

• Mud pump: Provides pressurised drilling lubrication. Produces a maximum of 4500 psi for depths up to 7500 metres.

• Clean fluid pump: provides uncontaminated drive fluid to the percussion hammer. Produces a maximum of 6500 psi.

• NUMA Percussion hammer: Drive fluid works on a piston to provide a reciprocating motion applying repetitive force on the drill bit. Requires replacement after 200 metres.

• Bit retention scheme: Purpose is to recover the drill bit following a failure and disconnection from the drill string. Used for depths over 500 metres.



• Polishing unit: clean fluid pumps and mud pumps have 100% redundancy. • Outer drill pipe: Purpose is to transmit torque from rig to the drill bit and

transport drive fluid. Complies with API standard. The additional weight of the inner tube does not surpass the limitations of the outer pipe. An internal recess accommodates the inner tube in situ.

• Inner drill pipe: purpose is to transport drilling fluid to the drill face. The inner tube is certified and does not undergo any torque forces.

• Inner tube drill pipe seals: these are designed to operate during failure. This is acceptable because the pressure differential means only clean drive fluid will leak and no contaminants will ingress to the percussion hammer drive system. Drill pipes are inspected before use and discarded if faulty or at the end of life.

• Quenching valve: Purpose is to relieve overpressure in the drill pipe. Minimal risk and redundancy in place.

• Fluid inlet swivel: This component fosters the connection from the topside fluid processing systems to the dual circulation pipe. The FHOS has higher operating pressures at the swivel head and the swivel head has been adopted to accommodate a new seal with higher operating pressure limits.

The consequences of drilling mud contaminating the hammer drive fluid system due to a faulty inner tube seal is highly unlikely due to differential pressure gradient; these are illustrated in Figure 4. For this reason the system has 100% redundancy on for the drive fluid pump to minimise the risk of loss of drive fluid pressure. During the connection of drill pipe lengths the inner tube coupling seals begin to engage one another after the threads of the outer drill pipe have aligned the inner tubes to avoid damage. There is a 10mm gap at the moment alignment of the inner tubes and the engagement of the inner tube threads to further reduce the chance of damaging the coupling.

4.5. Technology Maturity Level Following on from the above, the participants reviewed each element identified during the system decomposition stage to qualitatively evaluate their technological maturity for the intended application. The Technology Maturity Level (TML) ratings scheme as suggested by API 17N [Ref. 1] was used to assign each element with a technology maturity level as shown in Figure 4 (see Appendix B).

4.6. Integration Maturity Level Items of equipment can provide technology challenges when integrated together in a system even though the equipment may be mature technology. During this stage of the workshop, the participants identified what was the known or documented experience of integrating the various elements into the system in accordance with the configuration illustrated in Figure 5. Performance issues including potential issues of risk were also discussed as part of this stage. The outcome of this stage was a number



assigned to each element identified during the system decomposition stage based upon an IML scheme as described in the LR Technology Qualification Guidelines [Ref. 2] (see Appendix C).

Figure 5: TML and IML Assignment Levels

4.7. Adjusted Technology Maturity Level Having agreed the TML and IML for each individual element, an adjusted TML was then obtained for each element based upon the formula from the LR Technology Qualification Guidelines [Ref. 2].

4.8. Experiential Level Upon obtaining the adjusted TML for each element, the next stage was to identify the level of experience for each element identified in Section 4.4. The assigned level would be based upon the experience of using each element in similar environments to that of their intended use within this technology. Following agreement amongst the participants, each element was then assigned one of three levels: New, Limited Experience and Proven in Use.

4.9. Risk Assignment and Assessment A Risk assessment exercise was then conducted based upon the data obtained from Sections 4.7 and 4.8. These were introduced into a risk matrix chart as shown



in Figure 6. The outcome of this exercise resulted in colours being assigned to each of the elements identified in Section 4.4. However, while the mathematics behind the formula determined the assignment of the colours for each element, the participants at the workshop then reviewed the results obtained to identify if some colours could be modified based upon other evidence or experience not considered during the TML and IML stages. The result of this iterative process of re-assigning colours resulted in the agreed table as described in Appendix A.

Figure 6: Risk Matrix Chart



5. CONCLUSION Strada Energy have developed and patented a dual circulation drilling method, referred to as Fluid Hammer Operating System (FHOS). As part of a process of having an independent body review this novel drilling method, Strada Energy engaged LR to perform a technology and risk assessment with a view to obtaining a ‘Concept Approval in Principle’ in accordance with the latter’s Technology Qualification process. This report highlights the Technology Qualification process as well as the elements covered during the ensuing Technology Qualification workshop. In the proceedings of this workshop, all components of the system were assessed for the level of technological risk posed. The fluid inlet swivel was the only component identified to contain a higher level of risk. This was due to the fact that the FHOS has higher operating pressures at the swivel head than other mature drilling methodologies. The modification involved adapting the swivel head to accommodate a new seal with suitable pressure ratings. In the course of the workshop Strada Energy indicated that these seals have been tested in service and long term failure statistics have yet to be obtained.



6. REFERENCES

[1] API 17N - Recommended Practice for Subsea Production System Reliability and Technical Risk Management [2] Guidance for Technology Qualification, Lloyd’s Register, Dec. 2014.



7. APPENDICES

Appendix A: Technology Screening Calculation Summary

Appendix B: Technology Maturity Level Appendix C: Integration Maturity Level Appendix D: Detailed Analysis of FHOS against Existing Technologies


Appendix A: Technology Screening Calculation Summary

Id. Component TML TRL Adj. TML

Final TML Exp. RYG

1 NUMA 8 1 5.583 6 Proven

2 Clean Fluid Polishing unit

8 1 5.75 6 Proven

3 Quenching Valve 8 1 5.75 6 Proven

4 Drill Rigs 8 1 5.75 6 Proven

5 Fluid Inlet Swivel 6 0.75 5.083 5 Limited

experience

6 Dual Circulation Drill Pipe

8 1 5.583 6 Proven

Note 1: The numbers for the TML are the numbers used in Appendix B+1. For example the TML 8 used in the above table represents the TML 7 in Appendix B.


Appendix B: Technology Maturity Level

TML Development

Stage

Definition of Development Stage

CO

NC

EPT

0 Unproven concept

(Basic R&D, concept on paper)

Basic scientific/engineering principles observed and reported; concept on paper; no analysis or testing completed no design history.

PR

RO

F O

F C

ON

CEPT

1

Proven concept

(Proof of concept as a paper study or R&D

experiments)

a) Technology concept and/or application formulated

b) Concept and functionality proven by analysis or reference to features common with/to existing technology

c) No design history; essentially a paper study not involving physical models but may include R&D experimentation

2

Validated concept

(Experimental proof of concept using

physical model tests)

Meets all requirements of TML 1; concept design or novel features of design is validated by a physical model, a system mock up or dummy and functionally tested in a laboratory environment; no design history; no environmental tests; materials testing and reliability testing is performed on key parts or components in a testing laboratory prior to prototype construction

PR

OTO

TY

PE

3

Prototype tested

(System function, performance and reliability tested)

Meets all requirements of TML 2.

a) Item prototype is built and put through (generic) functional and performance tests; reliability tests are performed including: reliability growth tests, accelerated life tests and robust design development test programme in relevant laboratory testing environments; test are carried out without integration into a broader system

b) The extent to which application requirements are met are assessed and potential benefits and risks are demonstrated

4

Environment

tested

(Pre-production system environment

tested)

Meets all Requirements of TML 3; designed and built as production unit (or full scale prototype) and put through its qualification programme in simulated environment (e.g. hyperbaric chamber to simulate pressure) or actual intended environment (e.g. subsea environment) but not installed or operating; reliability testing limited to demonstrating that prototype function and performance criteria can be met in the intended operating condition and external environment

5 System tested

(Production system interface tested)

Meets all the requirements of TML 4; designed and built as production unit (or full scale prototype) and integrated into intended operating system with full interface and functional test but outside the intended field environment

FIE

LD

QU

ALIF

IED

6 System Installed

(Production system installed and tested)

Meets all the requirements of TML 5; production unit (or full scale prototype) built and integrated into intended operating system; full interface and function test program performed in the intended (or closely simulated) environment and operated for less than three years; at TML 6 new technology equipment might require additional support for the first 12 to 18 months

7 Field proven

(Production system field proven)

Meets all requirements of TML 6; production unit integrated into the intended operating system, installed and operating for more than three years with acceptable reliability, demonstrating low risk of early life failures in the field


Appendix C: Integration Maturity Level IML Definition

1 An interface (i.e. physical connection) between technologies has been identified with sufficient detail to allow characterization of the relationship

2 There is some level of specificity to characterize the interaction (i.e. ability to influence between technologies through their interface)

3 There is compatibility (i.e. common language) between technologies to orderly and efficiently integrate and interact

4 There is sufficient detail in the quality and assurance of the integration between technologies

5 There is sufficient control between technologies necessary to establish, manage, and terminate the integration

6 The integrating technologies can accept, translate and structure information for its intended application

7 The integration of technologies has been verified and validated with sufficient detail to be actionable

8 Actual integration completed and mission qualified through test and demonstration, in the system environment

9 Integration is mission proven through successful mission operations


Appendix D: Detailed Analysis of FHOS against Existing Technologies

Can the method be used with a BOP for well control?

Does the method allow a pressure kick to be killed by mud injection immediately?

Can the method be used for both overbalance and underbalance drilling methods?

High consistent penetration rates at great depths (5000m+) in hard formations?

Is the tooling to be used down the hole proven in the field?

Is the method at least as safe as or safer than current best practice in the oilfield?

Can the method drill effectively in hard formations 250MPa and harder at depth?

Will the tools last for long periods in operation in hard formations?

Oilfield rotary mud drilling

Yes Yes Yes No Yes Yes No No

Deep diamond coring

Yes Yes Yes No Yes Yes Yes Yes

Wireline diamond coring

Yes Yes No No No No No Yes

Down hole hammer using compressed air or gas/es

Yes No No No Yes No No Yes

Coil tubing drills using down hole motors

Yes Yes Yes No Yes Yes No No

Liquid hammers powered by drilling mud

Yes No No Yes Yes No Yes No

Liquid hammers powered by water

Yes No No No No No No Yes

Cable tool No No No No Yes No Yes No

Strada Energy’s Dual fluid liquid hammer

Yes Yes Yes Yes Yes Yes Yes Yes

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