Somerset company Keystone Drill Services innovates to leave diesel

| Monday, Dec. 30, 2013, 11:39 p.m.

Within the next month, a new electric line will start bringing 23,000 volts of electricity into the headquarters of Keystone Drill Services LLC.

It'll supply the company with the juice it needs for on-site testing for its next generation of equipment — but the hope is really for much more.

The hope is that it's the next big step to a whole new era for the Somerset company.

The electric line is one of the final steps in a $1 million investment that Keystone is making to transform its equipment. Its 50 employees make the machines that help oil and gas drillers cut through the hardest rock they find — and that work is in the middle of an industry upheaval. Drillers want cleaner, cheaper power at their well sites, and Keystone's leaders believe that to keep their company growing, they'll have to innovate with electricity and help drillers shift away from diesel power.

“That's what our future is based on,” said Tom Walker, company president, predicting diesel-fueled power will be phased out from well sites within about five years. “If you want to remain in business and continue on, you've got to find the next wagon to hitch your horse to.”

The wagon Walker is trying to ride has been building up speed for at least two years because of the Marcellus shale drillers drawn to Appalachia. At least six of the biggest Marcellus drillers — including Pittsburgh-area companies Consol Energy and EQT — have started replacing some diesel power with cleaner fuels, according to the Marcellus Shale Coalition. They're often using the very Marcellus gas coming from other wells and pipelines in the same neighborhoods.

Cecil-based Consol announced this month that it plans to go further. For its Pittsburgh International Airport drilling project, it's adopting nearly all electric-powered rig equipment to cut local air pollution in the highly populated area. Keystone executives were there at a workshop after the announcement, one of several vendors that have pitched their services for the project, said Katharine Fredriksen, who oversees Consol's environmental strategy and regulatory affairs.

“Definitely the trend in our industry is to move in that direction,” Fredriksen said. The innovation from contractors like Keystone is just as important an influence as the demand from production companies like Consol, she added. “We can want it all day long, but if it's not a capability that's out there, we can't make it happen.”

Keystone's history has been one pushed by innovation, Walker and other executives said. Walker is a salesman by trade and founded the company in 1985 when he realized he could sell technology from water wells and mining to the oil and gas industry. He adopted percussion tools, pistons that work like large-scale jackhammers, to efficiently pound through the hardest underground rock in vertical wellbores.

The company expanded over the years to design and assemble the air compressors and boosters that power those tools. It has sent that equipment all over the world — including sites in Africa and Australia — and supplies about 80 percent of the market in Appalachia, company executives said. It was on 154 rigs in Pennsylvania, Ohio and West Virginia as of Dec. 20, according to company figures.

Keystone executives declined to give detailed figures about its sales and earnings. Annual revenues fall between $50 million and $100 million, said James C. Cahill, CEO at Keystone's parent company, Keystone Air & Drill Supply Co.

Walker and a business partner sold the companies to Harren Equity Partners in 2008, he said, declining to say for how much. It's expanded since then, adding about 10 employees and opening branches in Washington and Bradford counties to supply and service the shale gas boom. It wants to expand aggressively and add 10 more in the next year, Cahill said.

Keystone's primary products are still those tools and their power systems. Its system makes as much as 900 pounds of air pressure per square inch to push its tools down the drill shaft into the earth, Walker said. Diesel engines have been the traditional source of power for the compressors and boosters in that system, and other equipment and on drill rigs, and that's what's being replaced by alternative power.

Engines that run on natural gas are one option, but Keystone executives believe electric motors, fueled by natural gas-fired generators or the electric grid, are even better.

Using natural gas-fired turbines instead of diesel-driven turbines to power electric rig equipment can save $750,000 to $1 million a year on a large drilling rig, according to the company's initial data research, Walker said. That's primarily from cutting costs with local, cheaper fuel and reduced maintenance.

When the company's electric line gets connected in the next month, it'll give it the power on site to start the engineering testing of its prototype, company executives said. They've got to prove their technology in the shop and then in the field if they're going to win over the drillers who are navigating a quick-shifting landscape, they said.

“Everybody knows there's changes coming,” said Carl E. Foust, Keystone's chief engineer. “But nobody knows yet exactly what kind or to what extent.”

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