Page 94 - Hydrocarbon Exploration and Production Second Edition

Drilling Engineering 81

4.8.1.3. Incentive contract
This method of running drilling operations has been very successfully applied in
recent years and has resulted in considerable cost savings. Various systems are in
operation, usually providing a bonus for better than average performance. The
contractor agrees with the company on the specifications for the well. Then the
‘historic’ cost of similar wells which have been drilled in the past is established. This
allows estimation of the costs expected for the new well. The contractor will be
entirely in charge of drilling the well, and cost savings achieved will be split between
company and contractor.

4.8.1.4. Day rate contract
As the name implies the company basically rents the rig and crew on a per day basis.
Usually the oil company also manages the drilling operation and has full control
over the drilling process. This type of contract actually encourages the contractor to
spend as much time as acceptable ‘on location’. With increased cost consciousness,
day rate contracts have become less favoured by most oil companies.
Actual contracts often involve a combination of the above. For instance, an
operator may agree to pay footage rates to a certain depth, day rates below that
depth, and standby rates for days when the rig is on site, but not drilling.

4.8.1.5. Partnering and alliances
In recent years, a new approach to contracting has evolved and is gaining rapid
acceptance in the industry. The concept has become known as partnering and can be
seen as a progression of the incentive contract. Whilst the previously described
contractual arrangements are restricted to a single well project or a small number of
wells in which a contractor is paid by a client for the work performed, partnering
describes the initiation of a long-term relationship between the asset holder (e.g. an
oil company) and the service companies (e.g. drilling contractor and equipment
suppliers). It includes the definition and merging of joint business objectives, the
sharing of financial risks and rewards and is aimed at an improvement in efficiency
and reduction of operating costs. Therefore, a partnering contract will not only
address technical issues but also include business process quality management. The latter
has proven to result in more efficient and economic use of resources, for instance
the setting up of ‘joint implementation teams’ has replaced the practice of having
separate teams in contractor and operator offices, essentially performing the same
tasks.
The industry is increasingly acknowledging the value of contractors and service
companies in improving their individual core capabilities through alliances, that is a
joint venture for a particular project or a number of projects. A lead contractor, for
example a drilling company, may form alliances with a number of subcontractors to be
able to cover a wider spectrum of activities, for example completions, workovers and well
interventions.