Maximizing Profitability Through a Unique Partnership in an Active Development Program
Authors: Walker R.N. , Schumacher M.D. 
Published: December 2007

Throughout the industry, operators now recognize alliances as a new way to increase profitability. This paper will describe a unique arrangement that has been in place and operating efficiently for more than three years. This arrangement has been both effective and efficient in an extremely active development program directed at the Cotton Valley formation of East Texas. The alliance involves two separate and unique partnerships with major service companies operating simultaneously in the same area for the same operator. How this arrangement was designed, and why, will be presented. Organizational structure and responsibilities of the alliances, along with work flow and design processes, will be provided.

Introduction

The drive to produce more for less requires better and more efficient methods to accomplish our goals. Each and every company is continually striving to be a leader in the industry. Everyone realizes the importance of creative and non-traditional solutions to common problems. An alliance with a service company is definitely a creative solution and requires a serious shift in paradigms. Immediate concerns for loss of control, lack of trust, and long term commitments become paramount. Many inefficiencies were associated with previous procedures for dealing with service companies. Support from management allowed a commitment to a partnership with two major service companies. From the beginning of the partnerships, the work was awarded on a one-third and two-thirds split, thus eliminating harmful competition and promoting a teamwork approach toward lowering our finding costs, developing new technology, and improving work processes. Experienced people were placed in key leadership roles and given specific goals and responsibilities to guide the alliances. Concerns for proprietary technology and pricing issues had to be addressed and managed. There was a recognizable need to take advantage of multiple sources of technology, processes, equipment, and personnel. Each of the companies offered unique opportunities for research, engineering and development, and field coordination.

Description and Application of Processes

Like many companies, service work was previously awarded in yearly bids with prices submitted for typical completions. The bids were evaluated and the work awarded by percentages among all the bidders based on the prices submitted. This process was time consuming and difficult. Often several submittals from each service company were required in order to effectively evaluate the bids. Due to differing computer designs, different chemicals, and different methods of pricing, much analysis was required from the operator. The service companies had little incentive to introduce new or untested technology and certainly could not afford to fail. The service companies were entirely motivated to get the work by submitting the lowest price. Inherently, it became difficult and time consuming to monitor work during the year to ensure pricing structures and services were indeed comparable to submitted bids.

Failure on a particular job often resulted in a loss of work for that service company as a punishment for failure. This prevents the service companies from taking any risks or introducing any new product(s) without first eliminating any chance of failure. Another of the inefficiencies of the previous arrangement was the duplication of effort. Both, the operating company and the service company, always had engineers designing the same treatment, and foreman supervising the same work simultaneously. Other inefficiencies such as communication, planning, service company budgeting, and addressing customer needs were recognized as important issues.

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