Optimizing Contract Management and Cooperation Between Operator and Service Company
Authors: Torsvoll Arne , Grotmol Øyvind 
Published: June 2014

This paper (SPE 54447) was revised for publication from paper SPE 49182, prepared for the 1998 SPE Annual Technical Conference and Exhibition, New Orleans, 27–30 September. Original manuscript received 1 June 1998. This paper has not been peer reviewed.

Summary
This paper discusses the added value obtained in a joint business development (JBD) between an operator and a service company. The JBD is founded in a joint operations agreement that both parties formalized and signed in early 1996. This JBD is unique because of its structure; because of its systematic approach to improving quality and communication and to developing technology jointly to meet needs; and because of the resulting added value to both parties.
The project was started in 1994 when the operator restructured its contract portfolio to achieve improved cost-efficiency and closer cooperation with suppliers and to reduce overall contract administration. This was to be done by both reducing the overall number of contractors and transferring increased responsibility to the service company. As a result of the contract award, a joint operations agreement that focused on extensive cooperation was formalized and signed by critical suppliers and joint organizational structures were put in place.
For a cooperative business structure to succeed, the ability to measure progress is critical. As a result, initial focus was put on developing a novel measuring system, a "quality rating system" (QRS). This system, together with other nonconformity and health, safety, and environment (HSE) systems, is used by both parties to focus on quality and to optimize resource use. A system to identify gaps in behavior, communication, and expectations also was put in place.
Once the measuring systems were operational, a large-scale cooperative survey was conducted that focused on both technological and cooperational improvement opportunities. The results of this survey were used to establish project-specific quality action teams with representatives from both parties.
This way of working together has resulted in demonstrated improvements that have given the parties added value in several critical areas. The process is under continuous development, and, on the basis of experience to date, the parties are preparing to take appropriate elements of the JBD process to the international arena.

Why JBD
One of our industry&apos;s main challenges is to obtain increased oil and gas recovery through optimum use of available resources while maintaining high HSE standards. This challenge is especially critical in the North Sea because of very high operating and development costs. Close cooperation between all parties involved in a development project can create synergies that contribute to achieving this objective. In well construction, the service industry contributes up to 90% of the manpower and total cost. By developing close cooperation with selected suppliers, the operator can create efficiencies that provide value.
Improved cooperation and the resulting quality normally result in a long-term business relationship that benefits both parties. The key to success lies in improving the use of resources through improved communication, a systematic approach to technology development, and improvement of quality. This has been achieved through joint management commitment and willingness of both parties to dedicate and re-evaluate resources to fulfill the objectives in the cooperation agreement.
The foundation for this cooperative project was laid when the operator revised its contract philosophy. The aim was to obtain more efficient contracts and also to reduce the overall number of contracts and suppliers. The following are the five key drivers of the process.Centralization of contract administration, resulting in large tenders covering the entire scope of work across all fields.Long-term contracts, with a scope of 4 to 10 years.Close cooperation with select strategic suppliers.Ability to address technology needs.Volume discounts and total cost benefits.
To position itself to handle the challenge, the supplier established new product lines of strategic importance. The supplier also focused strongly on capacity and capability to meet the operator&apos;s requirements. As a result, the supplier was awarded a major part of operator&apos;s work.

Cooperation Strategies
The company strategies were compared and good compatibility confirmed. The focus at this stage was on a long-term relationship, optimum use of resources, and willingness to invest in each other. Once the contract foundation was established, the parties started the process of establishing a common cooperation agreement. This was initiated through two workshops where senior management exchanged current and future technological and operational challenges and suggested solutions.
The main focus areas identified were quality, technology development, organizational development, competency, and HSE. These areas formed the foundation for the cooperation agreement, which was signed by senior representatives from both companies. This cooperation agreement was used to build a bridge between the various contracts. After the agreement was signed, the mission statement, strategy, and initial goals were established and presented. (Figs. 1 through 4)