Consequent Incentivizing of Service Contracts and its Long-Term Impact on Drilling Performance (2002)

Consequent Incentivizing of Service Contracts and its Long-Term Impact on Drilling Performance H.F. Spoerker; H.F. Spoerker OMV A.G Search for other works by this author on: This Site Google Scholar W. Ringhofer W. Ringhofer OMV A.G Search for other works by this author on: This Site Google Scholar Paper presented at the IADC/SPE Asia Pacific Drilling Technology, Jakarta, Indonesia, September 2002. Paper Number: SPE-77224-MS https://doi.org/10.2118/77224-MS Published: September 09 2002 Cite View This Citation Add to Citation Manager Share Icon Share Twitter LinkedIn Get Permissions Search Site Citation Spoerker, H.F., and W. Ringhofer. "Consequent Incentivizing of Service Contracts and its Long-Term Impact on Drilling Performance." Paper presented at the IADC/SPE Asia Pacific Drilling Technology, Jakarta, Indonesia, September 2002. doi: https://doi.org/10.2118/77224-MS Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex Search Dropdown Menu nav search search input Search input auto suggest search filter All ContentAll ProceedingsSociety of Petroleum Engineers (SPE)IADC/SPE Asia Pacific Drilling Technology Conference and Exhibition Search Advanced Search AbstractOMV has been drilling for oil and gas in a roughly 5000-km2-area northeast of Vienna for more than fifty years. Since 1999, previously applied conventional type service contracts were gradually changed to performance-based incentive type contracts, which increased drilling performance up to 50% over a three-year period. The impact of generating "ownership" within the service company's and contractor's staff is reflected by both the increased quality of the wells drilled and the enhanced safety record of the rig(s). The paper describes the incentive scenarios developed for a mature operating are, the pitfalls and obstacles that had to be overcome in implementing new contractual concepts in a traditional operating environment and the increases in operating efficiency gained from the new culture.IntroductionThe concept of including service companies and contractors into the overall project risk and awarding exceptional performance with additional bonus payments is by no means new. In one of the first papers on the subject, Cahuzac1 stated that "in most cases, standard dayrate remuneration is not the best way […] due to the differences which exist between the operator's goals and the contractor's incentive to maximize revenue and cash flow". In the contract scenario advocated by the author ("Incentive Dayrate Contract"), the traditional operator/contractor responsibilities remained intact, with the contractor being more closely involved on an advisory basis to enhance performance and allow completion of a well ahead of a previously agreed total well time, which normally would reflect historical average performance. Thus, a shorter well time partially offsets revenue losses due to fewer accountable rig days with potential incentive bonus payments. Over a 40 well and 3-year period of onshore France operations, the author reported average improvements of 35%, with safety records set along the line. In another paper, Oeffner2 presented the concept of "Shared Risk" contracts, where a total well time is negotiated between operator and contractor, and responsibility for potentially influencing risks are allocated to one or both of the parties ahead of spud. The author already introduced a scenario, where time overruns up to e certain upper limit (e.g. 15%) are reflected in zero dayrate for the contractor, while finishing the project ahead of time resulted in 50% of the saved dayrate still paid to the contractor as an incentive bonus.Geehan, et.al.,3 introduced the concept of integrating the solids control and drilling fluid engineering part into the on-site drilling and operations engineering group, and assessing their performance based on key indicators such asEfficiency of Solids Control EquipmentDilution CoefficientMud ConsumptionWhile the authors not yet advocated an incentivized scenario for drilling fluid services, simply addressing the issue of qualifying/quantifying solids control efficiency and drilling fluid services resulted in a reported reduction of chemical/product cost of 32%.Marshall4 addressed the problem of defining incentivized or even turnkey contract scenarios for remote (or better : little known) areas. His paper reflects the downturn prevailing in the drilling market at the end of the 1980s, thus "benefits for the contractor [from accepting an incentivized contract] are the opportunity to gain a contract for a rig that would otherwise be lost […]". The author concluded that "Incentive drilling contracts, including footage and turnkey, are becoming increasingly common. However, the majority of such contracts are limited to the U.S. where most contractors are based and where risk is minimum". Keywords: amsterdam, contract, drilling operation, implementation, responsibility, drilling fluids and materials, spe iadc drilling conference, scenario, incentive scenario, efficiency Subjects: Drilling Operations, Drilling Fluids and Materials, Drilling fluid management & disposal This content is only available via PDF. 2002. IADC/SPE Asia Pacific Drilling Technology You can access this article if you purchase or spend a download.