Too often, operator/drilling contractor relationships are no more than marriages of convenience, arranged to meet objectives which don't account for the full range of talents and expertise each party has to offer. The inevitable consequence of these conventional relationships is divorce, usually amicably at the end of an agreed contract. The ultimate short relationship being the "one-well stand" which can be inefficient for the parties involved and ultimately the industry as a whole.
Recent years have brought a greater awareness of the need to break down traditional operator/contractor barriers and to cooperate in a fashion that has not been seen before. In no part of the industry is this more essential than in well construction.
Considering that in 1998, at least $3.8 out of the $13 required to produce a bbl of North Sea crude was directly attributable to well costs, it is clear that an efficient and effective relationship between operator, drilling contractor, and service company is essential. This is supported by the fact that recent benchmarking studies indicate that the top quartile of operators, in terms of $/bbl performance, are not only maintaining their position, but widening the gap with their contemporaries to as much as 50%.
And, although it would be simplistic to attribute this remarkable situation to a single factor, a commonality among the top performers is the enhanced relationships between the operators and their respective contractors. These successful relationships are built around trust and understanding.
Drilling contractors need to recognize that their client base is currently undergoing significant change. There is no longer an easily defined three-way split between national oil companies (NOCs), oil and gas majors, and independents. In addition, the market now includes "mega-majors" and service providers. This metamorphosis means that although the majority of activity is with fewer potential clients, the total number has increased and their required level of support is much broader.
As drilling contractors, we must invest time and effort in gaining a deep understanding of each operator's specific drivers and capabilities. We must have the flexibility of fleet to meet their individual needs and have the adaptability to deliver services that complement, rather than duplicate, in-house capabilities.
Sustainable relationships are dependent upon communication. Those who have worked on both sides of the fence have first hand experience of the criticisms operators and drilling contractors have of one another. It is therefore essential to find common ground and work toward a framework that benefits not only the operator and drilling contractor, but also the wider family of service companies who have a stake in the industry's success.
One area that delivers benefit to all is "operational excellence." Operational excellence should not be considered as an "add-on," it needs to be at the heart of a company's culture. Traditionally, drilling contractors have been measured (and paid) on their health, safety, and environmental (HS&E) performance, and rig equipment downtime. HS&E performance is core to an operator, but life-cycle well quality, and total well construction performance are more important than rig downtime.
Well cost impacts
The principal negative influences which impact on well costs are non-productive time (NPT) and productive time inefficiencies, or the so-called "invisible lost time" (ILT). These are far more significant than rig downtime. If one considers that rig equipment downtime usually accounts for less than 3% of total time on a well, compared to the combined NPT and ILT which can reach 60% or more, then it is clear how value can be added to the traditional contractor/operator relationship.
There are a number of innovative technical and commercial models, which can be used to better attack costly NPT and ILT to deliver reductions in these factors by up to 20%, but these are rarely exhausted. What is required is an understanding of their root causes and how the models can be effectively applied.
Within drilling contractor organizations, there is a wealth of knowledge and experience which can be brought to bear on these factors, but for the most part usually remains untapped. However, effectively harnessing and utilizing this resource could significantly reduce well costs, but more fundamentally, it could lead to additional activity - beneficial to both parties - that would otherwise be uneconomic.
With communication, trust, commitment, and understanding the operator/drilling contractor marriage can be enhanced and the duration of the relationship need not be bound by contract length.
Our industry's traditional approach creates another form of NPT, which is equally as wasteful - the continuing requirement to constantly court new relationships, even though existing potential is not being fully realised.
The arguments for a new contractual approach are so potent, so why do we stay, for the most part, with traditional rig contracts? The well construction process is strewn with risks which can be mitigated but never eradicated. An operator, by nature of its exploration type business, is used to controlled risk taking, but a contractor less so.
We often talk about aligning our goals but do we really do so? We speak about capturing and importing technologies from other industries, which is undoubtedly essential, perhaps we should also look at introducing different ways of doing business?