Page 298 - Drilling Technology in Nontechnical Language

Chapter 12 – MANAGING DRILLING OPERATIONS 289

say in how the well is drilled. The operator designs the well, writes the
drilling program, and supervises the work at the wellsite. This allows the
operator control over the quality of the well. However, the incentive to the
contractor is to take as long as possible to drill the well.
In the mid- to late 1980s, incentive contracts started to be commonly
used. With incentive contracts, a dayrate contract is still in place, but the

contractor gains an incentive to organize the work well so as to finish the
well faster. Now the objectives of the contractor and the operator start to
be aligned—they share the same objectives. How well the objectives are
aligned depends entirely on how the incentive portion is structured.
In a dayrate contract, the operator usually contracts separately for all
of the other services required. To drill a well might involve 30 different
contracts for the provision of services ranging from aircraft to wellsite
supervision. However, it is also possible that the drilling contractor provides
some of these services under the rig contract, reducing the number of
contracts and services that the operator has to manage.

One of the drawbacks to this type of dayrate contract has been that
each time a drilling campaign for exploration or development wells
was planned, a complete set of tenders was issued, which then had to
be evaluated. The evaluation in most cases was based primarily on cost
comparisons, with little regard for the quality of services provided. This
can lead to below-optimum performance, and in some cases (drilling

fluids being a prime example), reduced production potential of the well
and a seriously reduced ROI from what was possible. The more forward-
looking operating companies such as Shell now take a longer view and

form long-term contractual relationships that can give greater benefits to
both parties—a win-win relationship.
In the early 1990s, Shell developed a contracting strategy called
Drilling in the Nineties (DITN). The basis of this strategy was that most of
the drilling activity could be contracted out to a favored or lead contractor
by contract strategies that rewarded the contractor for taking on board
a large share of the responsibility for planning and drilling wells. One
necessary feature of this is that contracts are long term.
From Shell’s DITN strategy lead, other operators started to look into
similar contracting strategies. One development of this was integrated
service provider contracts, whereby one company with all of the required
capabilities (some in house, some subcontracted) would effectively

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