The actual well
costs are divided into Fixed costs: casing and tubulars, logging, cementing,
drill bits, mobilization charges, rig move Daily costs: contractor services,
rig time, consumables Overheads: offices, salaries, pensions, health care,
travel.
A fairly
significant charge is usually made by the drilling contractor to modify and
prepare the rig for a specific drilling campaign. This is known as a
mobilization cost.
A similar
charge will cover ‘once off’ expenses related to terminating the operations for
a particular client and is called a demobilization cost. These costs can be
significant, say 5–10 million US$.
the actual costs of a well show considerable
variations and are dependent on a number of factors, for example:
type of well
(exploration, appraisal, development)
well trajectory
(vertical, deviated, horizontal, multilateral)
total depth
subsurface
environment (temperatures, pressures, corrosiveness of fluids)
type and rating
of rig
type of
operation (land, marine)
infrastructure
available, transport and logistics
climate and
geography (tropical, arctic, remoteness of location).
Most companies
hire a drilling contractor to supply equipment and manpower rather than having
their own rigs and crews. The reasons for this are threefold:
a considerable
investment is required to build/buy a rig
rig and crew
need to be maintained and paid regardless of the operational requirements and
activities of the company
drilling
contractors can usually operate more cheaply and efficiently than a company
which carries out drilling operations as a non-core activity.
Before a
contract is awarded a tender procedure is usually carried out. Thus, a number
of suitable companies are invited to bid for a specified amount of work.
Bids will be
evaluated based on price, rig specifications and the past performance of the
contractor, with particular attention to their safety record. Several types of contracts
are used.
This type of
contract requires the operator to pay a fixed amount to the contractor upon
completion of the well, whilst the contractor furnishes all the material and
labor and handles the drilling operations independently.
The difficulty with this approach is to ensure
that a ‘quality well’ is delivered to the company since the drilling contractor
will want to drill as quickly and cheaply as possible.
The contractor
therefore should guarantee an agreed measurable quality standard for each well.
The guarantee should specify remedial actions which will be implemented should
a substandard well be delivered.
The contractor
is paid per foot drilled. Whilst this will provide an incentive to ‘make hole’
quickly, the same risks are involved as in the turnkey contract.
Footage contracts are often used for the
section above the prospective reservoir where hole conditions are less crucial
from an evaluation or production point of view.
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.
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 favored 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.
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.
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