Incentive Drilling Contracts: A Logical Approach for Enhancement of Drilling Efficiency
- C.A. Moomjian Jr. (Santa Fe Drilling Co.)
- Document ID
- Society of Petroleum Engineers
- SPE Drilling Engineering
- Publication Date
- March 1992
- Document Type
- Journal Paper
- 9 - 14
- 1992. Society of Petroleum Engineers
- 1.5.4 Bit hydraulics, 3 Production and Well Operations, 1.6.6 Directional Drilling, 1.1.2 Authority for expenditures (AFE), 1.6.10 Running and Setting Casing, 2 Well Completion, 1.7 Pressure Management, 1.14 Casing and Cementing, 1.10 Drilling Equipment, 2.4.3 Sand/Solids Control, 1.6 Drilling Operations, 2.4.5 Gravel pack design & evaluation, 1.12.6 Drilling Data Management and Standards, 1.10.1 Drill string components and drilling tools (tubulars, jars, subs, stabilisers, reamers, etc), 1.7.5 Well Control
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Incentive drilling contracts historically have been based on the footage and turnkey concepts. Because these concepts have not been used widely in the international and offshore arenas, this paper discusses other innovative approaches to incentive contracts. Case studies of recently completed or current international and offshore contracts are presented to describe incentive projects based on a performance bonus (Case 1), lump sum per well (Case 2), target time and "cap" for a specified hole section (Case per well (Case 2), target time and "cap" for a specified hole section (Case 3), and per-well target time (Case 4). This paper concludes with a review and comparison of the case studies and a general discussion of factors that produce successful innovative incentive programs that enhance drilling produce successful innovative incentive programs that enhance drilling efficiency.
Incentive drilling contracts have been used with varying frequency during the past several decades. By definition, an incentive is something that encourages one to take action, or to work harder. In the drilling industry, incentive contracts (sometimes called "risk contracts") traditionally have been based on footage or turnkey concepts emphasizing several objectives and characteristics, including financial inducements for good contractor performance, cost predictability for a given well or series of wells, transfer of operational control and risk from operator to contractor, and transfer of responsibility and administrative burdens associated with ancillary services and procurement of well consumables from operator to contractor. procurement of well consumables from operator to contractor. Traditional incentive contracts have emphasized work on a footage or turnkey basis. Footage and turnkey work lends itself to the foregoing objectives and characteristics but has been used primarily for shallow to medium depth land drilling in the U.S., often for independent operators. While much has been said about incentive contracting, the vast majority of international and offshore wells Me drilled pursuant to a day-work contract. Increased application of incentive contracts in these environments may require a departure from the footage and turnkey concepts and implementation of an innovative "tailored" approach to contracting on an incentive basis with emphasis and priority placed on increased drilling efficiency. This paper discusses innovative approaches to incentive contracting internationally and offshore. After general concepts for innovative incentive contracting Me considered, four case studies of recently completed or current incentive projects are reviewed with emphasis on the background, contract structure, and actual work performance. The paper concludes with a review and comparison performance. The paper concludes with a review and comparison of the incentive projects described in the case studies and a general discussion of common characteristics of successful incentive programs that enhance operational efficiency. programs that enhance operational efficiency. Implementation of an Innovative Approach to Incentive Contracts
Departure from the traditional footage and turnkey forms of incentive contracts may be apropos, especially internationally and off-shore where operators and contractors historically have been reluctant to implement these approaches. In many circumstances, an incentive program can be tailored to suit the particular nature and duration of the contemplated drilling program. As illustrated by the following case studies, multiwell term development programs seem to be particularly adaptable to innovative incentive contracting. During implementation of an innovative incentive contract, a free and open exchange of historical field and offset well data is essential. Incentive contracting almost always is based on a performance threshold or target, and an open exchange of historical performance threshold or target, and an open exchange of historical drilling performance and well data is essential to the formulation of appropriate performance targets.
The best incentive programs are based on trust and understanding between the operator and the contractor. An innovative incentive contract should promote participative problem solving and provide an equitable sharing of promote participative problem solving and provide an equitable sharing of savings achieved through good performance and efficiencies. Successful programs involve operator and contractors who are mutually dedicated to programs involve operator and contractors who are mutually dedicated to reducing drilling time while conducting safe and efficient operations. Although a sometimes elusive goal, the best incentive programs are those that Me simple in concept and easy to administer. When the operator and contractor share the common objective of reducing drilling time by optimizing performance for each aspect of rig operations consistent with safe practice, a team spirit is created that permits the contractor to provide a better quality service and to implement efficiency measures. The traditional day-work contract does not advance productivity or innovation because the contractor often is not encouraged or permitted to be proactive in optimizing performance of each segment of rig activity. Although the contractor strives for quality service while working on day work by furnishing a properly maintained and equipped rig with capable crews, the contractor often is not a participant in the planning stages of the drilling process and generally does not have access to the historical well and performance data that would allow sound recommendations for efficiency enhancement. When working on an incentive basis, the contractor becomes a proactive participant in the drilling process whose objectives match those of the participant in the drilling process whose objectives match those of the operator because contract revenues will increase as a result of good performance. This creates a new working relationship with the operator in performance. This creates a new working relationship with the operator in that the contractor has both the objective and motivation to maximize efficiency and address potential problems in each phase of well operations.
Case Study 1-Performance Incentive (Bonus) Program, Offshore Argentina Program, Offshore Argentina In Feb. 1989, the Class 116-C jackup Key Manhattan began a multiwell development drilling program for Total Austral in the Hidra field in the Cuenca Marina Austral Area 1 concession offshore Tierra del Fuego, Argentina. This program involved drilling of highly deviated directional wells from Total's Hidra North and Hidra Center platforms, and delineation wells in the same concession area. Total's concept of performance incentives is .... to motivate the Contractor and the Contractor's personnel to achieve, as efficiently as possible, the Operator's goal (i.e., a well, safely drilled and completed). The actual mechanics for implementation of Total's incentive concept are flexible in that they allow tailoring to specific situations. These range from circumstances when the contractor provides the rig and crews with a suite of related services and supplies, similar to a turnkey operation, to situations when the contractor merely furnishes the drilling rig and crews, as normally provided under a day-work contract. For Total's Tierra del Fuego work, the contract contemplated the provision of drilling services only. Total provided logging, directional surveys, cementing, and related third-party services.
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