Drilling contractors want to be judged by productivity

Industry experts were short of solutions at this year's SPE/IADC drilling conference in Amsterdam. The speed of the past year's downturn - drilling budgets down by 25%, a 50-year low in US rig activity - seemed to have taken the plenary discussion teams by surprise.

Although not personally responsible for the oil price slump, they appeared at times apologetic. From their parapets, some exhorted the audience not to cut back further on research, safety, or personnel. Others called for yet more radical realignment of business goals between operators, contractors, and suppliers. This did not go down too well with some spectators who had just seen their lifeblood research programs or rig reservations obliterated.

IADC chairman Bernie Stewart recalled how a year ago, the general concerns were where new equipment would come from, and how new personnel could be hired. Now, he said, the challenge was to maintain manpower to respond to an upturn when it comes. "The near-term outlook may be gloomy, but the market has the ability to correct itself at high and low prices."

Prior to leaving Halliburton for Pathfinder Drilling, Tom Stroud gave an integrated services giant's response to recent events. He hoped that small entrepreneurs would not head the fall-out list, since they had generated most of the drilling technology advances over the past 25 years - he cited composite casing, seismic while drilling, and wireline tractors. But it takes a while to adjust to new ideas.

"Fifteen years ago," Stroud insisted, "suggestions of LWD sonic logging were considered impossible. Now it's common. The horizontal wells of the 1980s and the complex multilaterals in the North Sea in the 1990s are evolutions of the original Smith MWD and steerable systems (dating back to the 1960s). Payzone steering today means productive drilling through 1,000 meters of pay, something which was unheard of 25 years ago."

Yet the industry remained strait-jacketed. "Everyone's still waiting to be the second or third to try out a new technology. Making the step changes to new technologies remains difficult, except in deepwater or the North Sea. Oil companies' participation in development is critical to create new systems, yet they're cutting back exploration and production spending. They can't expect service companies to fund everything themselves."

Divergent goals

Gerard Godde, Senior VP Business Development at Pride International, advised operators and contractors to learn to cohabit under one roof in these critical times. "During 1985-96, operators tried to squeeze contractors, while from 1996-98, the contractors tried to recover what they had lost - but the oil price didn't give us enough time.

"How can a drilling contractor identify a value driver, given the reality of sliding demand? The oil industry needs to take a long-term view, but most of us work for publicly quoted companies and are interested only in short-term results. So, each of us is still looking at his own immediate interests."

Operators, Godde reasoned, want to accelerate and maximize cash flow. "Savings can be achieved through cutting personnel worldwide, but they must also look at the technology needed to produce $10/bbl oil. The low-cost producer will be the winner."

A priority for operators, he said, was to apply quality criteria to well construction in order to optimize productivity. "There have been numerous approaches to incentivize contractors in the past few years, such as 'win-win,' but I'm not sure that operators are satisfied with the outcome. Contractors are left looking at immediate results, while operators focus on a well's 10-15 year productivity."

A further issue for oil companies that he listed was the complexity of working in deepwater areas, especially in light of skilled staff shortages. "Operators should be very concerned about the current restructuring, if they want to avoid the same situation that occurred a few years ago."

Turning to drilling contractors, their line, he said, was to make a reasonable return on recent investments in upgrades or newbuild units in order to maintain their cash flow. Given these investments, "the industry must be careful not to treat the contractor the same way as in the past," he pleaded. "The danger now is a lack of cash to buy new technology that will bring savings in the future."

Contractors need to keep experienced personnel to maintain a quality service, Godde said, "yet I get the impression of a race between companies over how to lay off most workers so, then, do you attract young, motivated staff into our industry? Our credibility is at stake."

Godde concluded by stressing the drilling contractor's role in coordinating technologies developed by others that were by and large unrelated. This factor was especially critical to deepwater frontier operations, he claimed.

Vision defects

George Boyadjieff, President and CEO, Varco International, detected a flawed vision. "All sides - operators, drilling contractors, service companies, suppliers - want to grow revenue and make good returns on their capital. But they don't all share the same well values."

If investors ask them why they are successful, "operators will answer that they have the lowest drilling and finding rates," Boyadjieff said. "Contractors will cite their high day rates and long-term contracts. The others will mention big projects and good prices. In other words, there's a big dividing wall. On one side, there are the operators who want lower prices. Those on the other side want higher prices."

Priority divergence also extends to wells, he said. The operator sees the well as a producer or an overhead, while the contractor views it as a construction project. The service company sees a well as requiring its expertise, and the supplier sees it as something requiring his method.

At the end of it all, Boyadjieff concluded, "the operator wants the lowest cost well. The contractor wants it to be difficult to drill. The service company wants a long lateral section, difficult to cement, and the supplier wants to be able to apply his HP/HT well equipment. Again, they all have different aims."

There is an age-old mantra, he said, about oil and gas demand. When these are harder to find, prices and sales will go up. "So if the oil price rises, we somehow think our objectives will agree. But demand has actually risen by less than 3/4% per year over the last 20 years. It's a vision that never materializes - it's time to change our vision."

Boyadjieff classed the industry's vision as low tech, in contrast to the high tech vision of the information industry. "We think higher oil and gas prices will lead to revenue growth and higher margins, while the information industry - CNN, Microsoft, Internet - seek to lower the cost of their information in order to boost their revenue growth. Guess which has been more successful? The wealth has gone from Rockefeller to Bill Gates.

"It's time for us to learn how to be successful from those who have succeeded. We must stop waiting for oil and gas prices to rise and for demand to increase - instead, use technology to cut the oil and gas price. That will increase the demand."

Reward productivity

Boyadjieff suggested rewarding productivity, not activity; knowledge, not size; and new methods, not old methods. That might lead to a landscape fronted by the following:

• Operators intent on deriving low cost oil at the highest productivity levels
• Contractors chosen for their ability to complete a well quickly and with fewest problems (not on the basis of lowest day rates)
• Suppliers and service companies offering lowest cost/bbl services, but with a high level of expertise.

In his view, developments such as integrated services were not encouraging a climate that allowed innovative ideas to get applied. On the other hand, he felt that the recent wave of consolidations in the industry might accelerate development of a new vision. "Consolidation came about for a reason - there's too much capacity."

Keeping talent

Boyadjieff also suggested that young talent in the industry needed more of a spur. "If you say to people, `you must wait 20 years to manage a drilling division or rig', they won't." Godde added that a big challenge facing IADC was to attract more members from areas of high activity such as the Far East and Africa, "where we're currently under-represented."

Mobil Drilling VP Steve Comstock said the industry needed better tools to quantitatively assess the lifetime of a field or a well. "Such tools are becoming available, but they must also be accompanied by a change in the way we think and work." The keys to success are early planning, metrics and benchmarks of your and others' progress - constantly."

The current environment could have a positive impact in that respect, he added. "We're in a good position now to force implementation of new technologies. As an industry, we've wasted a lot of R&D dollars over the years doing things in secrecy. This should open some doorways."

Image problems, drillfloor issues

Another plenary session at the SPE/IADC conference in Amsterdam covered manpower, training and technology. Jean-Luc Karnik, Deputy Director of the IFP School in France, spoke of the chronic lack of qualified graduates coming into the industry. Image problems in the US - "where brilliant students often 'prefer to study medicine and law" '- have now spread to Europe, he said. Telecommunications, IT (information technology), and aeronautics are a far more popular career choice in France, according to a recent survey.

"Students only hear about our industry in environmental terms, when there is an oil spill or something similar. Even the one positive - the international careers on offer - is no longer seen as a big plus."

Karnik cited a two-thirds drop in the last 15 years in petroleum engineering-related degrees. However, IFP School did achieve 380 graduates from over 40 countries last year, 147 of them in upstream disciplines. "Our program has been successful," he claimed, based on constant adaptation to inter-disciplinary instruction.

Andrew Gould, an Executive VP at Schlumberger Oilfield Services, spoke of the problems of adapting staff to the new deepwater rigs. Sedco Express has been designed for increased efficiency, productivity and HSE, he said, with numerous innovations such as:

• Reduced rig time for handling tubulars
• Parallel operations for tripping and running casing
• Mechanical transfer of tubulars to the drillfloor, cutting risks to personnel
• High pressure mud system to improve hole cleaning.

The overall aim of the design was to cut well time by 25% compared with conventional semis. Control systems are designed to simplify the crew's tasks by managing the interaction between processes.

"As rigs become more sophisticated," Gould continued, "training must start early on in the construction stage. An integrated training simulator has been developed for the Sedco Express - selection and training processes for the crew have been under way for some time. But training adds no measurable value unless there are clear, benchmarked objectives.

"Where necessary, new job and rig hierarchies have been worked out. We've focused on training staff with a proven track-record. Those with manual skills may not adapt well to computer operation."

Preparations include use of the latest Schlumberger kick detection training procedures and instruction on the latest deepwater guidelines. Schlumberger is also evolving a pipe-handling simulator, Gould said, with realistic scenario simulation, in order to minimize potential incidents and to improve hazard evaluation. Special simulators were also being employed to mimic interaction between pipe handling and drilling functions.

However, he saw room for improvement in pipe-handling instruction in general, as well as a need for more task-specific well control simulation.

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