Posted 16.10.2017 13:16 by Magnus Tvedt
Turnkey contracts for drilling and well operations can generate revenues north of 100 million USD/year
The first well drilled on a turnkey contract will be cheaper, faster, and slimmer. When you get a digital well plan, you are able to control more risk factors and operate with higher margins on equipment, logistics and drilling parameters.
The rig market is dominated by two factors: day rates and personnel cost. In combination, these put a lid on the performance jar and closes it tight. The day rates promote average performance, and the numerous workers create inefficient decision patterns. In sum they cause an investment aversion for advanced and robotic drilling technology.
The day rate contract strategy is flexible and sports a simple administration, but has few incentives for performance. Perhaps the contract strategy can’t be blamed for the stagnant performance in the rig market. But in pair with a long history of manual experience transfer and a rough mix of operational and technical reporting, the day rate regime has provided a safe haven for mediocre performance for rigs on rate. Very low-detail drilling plans, primarily last minute decisions and reporting in prosaic form, makes this 400.000 $/day beast hard to tame when it first is on contract. For bad times, the personnel strategy comes to play.
Half of all expenses for rig owners are people. People in operations on the drill floor, maritime professionals and overhead. Most rig jobs require a low level of education, and the good vages attracts plenty of young people to the drill floor. In bad times, when the rigs goes of contract, the operational costs are cut by reducing the headcount on payroll. A good fit for a flexible rate structure. But not a good match for increasing performance demands.
As operators are opening their eyes to other industries, it becomes evident that the technology implementation on drilling rigs have been bypassed by other industries. It’s widely accepted that people directly involved in physical operations and real time decisions cause operational mistakes and can cause danger for workers, but this is still the operating model for our business. Cheap equipment and plenty of people is not a good match when we want a premium pay for our services.
So how can we profit on this gap in technology and performance? The first rig company who contracts for turnkey wells will be able to offer these with a small discount compared to current well costs. Then the rig company will have to deliver the wells with better quality and lower cost. Which isn’t that hard when we let modern technology spin the bit. The most significant component is the backbone of the operation, the well and operations plan.
The real enabler for turnkey contracts is to reduce the operational risk and improve the decision making in planning and operations. Most operators are stuck in manual planning which starts from scratch in every well. Similar to the rig companies, the operators have a hard time adjusting to modern technologies. A fresh rig owner paired with a modern well planning software will increase the contract scope of work, to fill the gaps where the oil companies have shortcomings.
To offer a turnkey contract, we must reduce the uncertainty and speed up the operations. By reducing operational risk through stronger planning, and eliminating human errors in operations by bringing robots or automated machinery to the drill floor, we can significantly cut the time from spud to completion.
Speaking of completions, this operation traditionally involves lots of manual operations, with control lines, pressure test, and make up of special bha's. Solving this is a straightforward task of automation. By including this in a turnkey contract, we can standardize on equipment and machinery, and run this safely and precisely in hole, with a minimum of operational risk.
There are plenty of low hanging fruits to take out of a modern rig / well plan operation. First, we can cut down on unexpected behaviour and cut the cost of logistics. Secondly, we can cut some contingency in the well design, by drilling slimmer wells. If we can safely assume we will not get stuck, we can start with a slimmer well and drill faster. With slimmer wells come less equipment, and a big win is to drill with a 13 3/8 BOP. The BOP stack itself will be lighter, the riser will be lighter, and the deck load is reduced. Third, we can operate with much fewer people, reducing the pay rolls, and avoiding human error. The technology we can implement over time will further boost our performance and increase our margins. Technologies like electric subsea components and closed loop control are ready to go when we are.
Following this strategy requires some investments in technology and people, but will surely be a boost for the bottom line in a rig budget, as the well count per year can be doubled, while the cost level stays the same.