Business, technical survival tactic continues to provide success, growth

Coordination of multiple service and contract companies under a single agreement has become increasingly attractive to operators heading into ever more remote locations and increasingly complex wells.

Business practice changing face of petroleum industry

The recent proliferation of alliances, purpose-built partnerships between complimentary companies, can trace its origins to a Shell study done at the Hague and reported in a paper titled "Drilling in the 1990s." The aim of the study was to describe more efficient ways to manage drilling wells. Inspired by the era's low oil prices, the report called for drilling contractors to serve as general well contractors and assume a measure of risk in exchange for financial incentives.

The conclusions by Shell were widely read and just as widely argued. Most contractors understood the risk they were being asked to assume but were dubious about the incentives offered. Nevertheless, within five years of the report's release, alliance was as common a term to operator, contractor, and service companies as AFE.

Since then the concept has been adopted and adapted. Agreements between operators, service companies, contractors, and every combination thereof are announced daily. Drilling contractors make alliances with bit and mud companies, operators with rig companies, large companies fill holes in their service organizations with smaller "boutique" companies. And in something not far from the intent of the original report, all major service companies have created a division within their organizations to administer integrated services. These umbrella groups draw from all other divisions within the parent company to create a single bundle of services to be covered under a single client contract.

While these integrated services can and do tap into resources outside their own companies, it is almost always to access an expertise not included in their own organization's suite of services though companies have, in rare instances (usually occasioned by a geographic or other non-technical consideration), tapped the resources of a competitor.

The multiple mutations of alliancing, or more accurately, shared resources, has reached the point company spokespersons are wary of invoking the terms. Alliancing has changed because the goals have changed - from vehicles designed strictly as business arrangements to increase profits or reduce costs, to temporary intra- and inter-company agreements designed to resolve shortcomings of all types.

Shared resources - enlightened self-interest

Since the first half of this decade, some alliances have evolved that are based quite literally around sharing resources for mutual benefit. These arrangements between still fierce competitors, once unheard of, are now taking place across every sector of the international petroleum industry.

Two historic competitors, major operators in the Gulf of Mexico and around the world, have recently joined forces to eliminate redundancy by creating a shared land-based, offshore operations support facility in South Louisiana. They coordinate supply and personnel transportation so as to reduce trips, no small part of the expense of support operations. And, when Amoco was stuck with a state-of-the-art training center and not enough attendees or faculty to justify the expense in a commodity business, they invited Chevron to join them in a training alliance that included a melding of drilling philosophies - an action old hands of both companies would surely view as heresy.

And the strange bedfellows of resource sharing is not a phenomenon confined to major operators, whose competitive edges are arguably of only nominal value to their bottom lines, but include the fiercest of competitors from the service sector where impetus is most commonly technical advancements.

For example, no less fierce competitors than Schlumberger and Baker Oil Tools have recently announced their agreement to share expense and expertise to create products for "smart wells," a completion system combining surface and subsurface equipment to minimize well interventions.

Resource sharing in pursuit of new technology is the latest and most virulent strain of the resource sharing movement and is a direct response to the cost-savings decisions by many operators and service companies to greatly reduce research and development efforts whose outcome is not financially quantifiable. Halliburton, for instance, has joined a composite company from outside the oil industry to investigate the credibility of composite coiled tubing rather than create an effort from whole cloth. Likewise, Western Atlas has joined Columbia's Lamont Observatory to bundle Lamont's 4D seismic software into its seismic package and to help advance 4D research at the observatory.

A virtual company for the Gulf of Mexico

In what might be considered the institutionalizing of resource sharing, one-time leader of industry research consortium DeepStar, Curtis Burton, is heading up a company financed by Reading & Bates and Intec Engineering founded on the principle of alliancing. The group, TOPS (Total Offshore Production Systems), is an umbrella group under which five specialty service companies are readied to act as a group for specific projects. Burton's contention is that by having a team ready with basic connections in place before it is needed his group can become efficient enough to make viable projects of marginal fields and to add to the profit margin of better plays.

The TOPS concept is an evolutionary step from the integrated services concept already in place in many of the largest service companies. Like the service companies, TOPS is relying on prior working knowledge to provide a competitive edge. Unlike those companies, however, TOPS has removed the process from the confines of a single organization with a single bottom line concern. TOPS includes Reading & Bates, Intec, Cameron, Kvaerner, and Sonsub.

Burton believes the concept proved itself when his group was able to return to a prospective client a project plan and bid in just more than half the time of a competitor, meaning earlier production and a quicker return on investment.

TOPS and agreements among once-fierce competitors are just the latest responses by an industry forced to continually improve and evolve in order to stay viable. The changes wrought by resource sharing address such basics tenets of the petroleum industry that it is difficult to conceive of it ever returning to the survivalist attitudes of the past. Company boundaries have been opened and the benefits are manifest to technicians and managers alike.

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