Project Management Considerations
While all Deepwater drilling projects have certain things in common, each offshore region, each basin, and even individual wells within the same block or field offer different sets of challenges. The success or failure of a well depends on correctly anticipating and responding to these challenges. More than anything else, managing a Deepwater drilling project involves combining knowledge, experience, and information to direct the use of a vast array of technologies and operational capabilities.
As with any offshore project, operators and contractors approach Deepwater drilling from two distinct perspectives. The operator approaches it as a customer who brings the money to the table, assumes the role of overall project manager, sets objectives and priorities, makes the key decisions during the drilling operation, and judges the relative success or failure of the results. The operator maintains a relatively low-profile presence offshore, however, and it is the contractor who manages all tasks during project execution.
Contracts
In general, depending on the rig market at any given time, drilling contracts tend to favor either the operator or the contractor. This has traditionally imparted an adversial element to the operator/contractor relationship.
A more collaborative relationship has developed for deepwater drilling because of the complexity of the projects, the levels of risk involved, and the magnitude of expenditure. However, while both parties recognize the need to align contractor interests with those of the operator, the realities of a tight rig market have favored the contractors from about 2000 to 2007 and given them considerable leverage in the contracting process.
Conventional Day Rate Contract
The conventional offshore drilling contract is based on a day rate lease for the MODU and crew. The lease runs for the number of days required to drill a well or a series of wells. If the market favors the operator, the contractor usually must agree to mobilization, demobilization, and standby fees that are less than the full day rate. Operator and contractor distribute the responsibility and costs for other risks and liabilities based on competitive market factors. But the contract locks in the day rate and other terms only for the single well or series of wells. The cost of the well is not capped. The day rate contract worked, and still works, efficiently for wells in conventional water depths.
Term Contract
When the industry began moving into deepwater, only a small percentage of the drilling fleet had deepwater capabilities. This shifted the market to favor the contractors, who began requiring operators to pay for upgrading existing rigs or building new ones. Instead of paying up front, however, the operator guaranteed that the contractor would receive adequate return on its construction investment by agreeing to pay a day rate for a specified period of time, or term—perhaps anywhere from one to five years, or even longer in a few cases. The MODU might then drill a series of exploration prospects in the operator’s portfolio or drill and complete production and injection wells for a field development project. These contracts require longer-term planning and are generally negotiated at a higher level within the companies than a day rate lease.
This form of term contract has increasingly become the model for deepwater drilling, although as the market expanded into a boom of sorts some contractors began to upgrade existing units or build new rigs without a guaranteed contract. Under the term contract, the contractor is guaranteed a known rate of return, subject to performance criteria, and the operator is guaranteed the availability of a suitable MODU. The operator generally works with the contractor to develop the performance and equipment specifications for the upgrade or new-build and monitors construction closely. A term contract allows an operator to benefit from learning curve effects and build an effective drilling team with the contractor. In exchange for the certainty of the term contract, both parties trade off flexibility and take on the risk that day rates for comparable units will move either up or down.
Turnkey Contract
In a turnkey contract, the contractor agrees to drill one or more well to the operator’s specifications for a fixed cost. The cost cap protects the operator against higher costs that could be incurred under a day rate contract. The contractor takes the risk of cost overruns, but also has the opportunity to earn a high profit on the well if the drilling can be completed in fewer days than are built into the fixed cost. Turnkey contracts are not used in deepwater drilling because of the high costs and risks and the prevalence of day rate-based term contracts.
Operator and Contractor Interests
It is difficult to align operator and contractor interests under a traditional day rate lease contract, apart from incentives and penalties, because the contractor tends to profit more as the drilling time lengthens, whereas the operator benefits from a shorter drilling time. The term contract, with its fixed length and fee, can eliminate this disparity and result in a very close partnership between contractor and operator, particularly if the contract includes contractor performance incentives based on quality, schedule, cost and safety criteria. Effective teamwork is essential for success in deepwater drilling, and operators are focusing more attention on personnel management techniques with both their own employees and the drilling contractor’s.
Health, Safety and Environment (HSE)
HSE management is an integral part of all operations aboard an offshore drilling rig, and new MODUs are generally safer by design than previous generations of rigs. But safety performance still depends on the operator’s and contractor’s values regarding HSE, on how well they communicate their values to all personnel, and on how effectively these values are embodied in rules, procedures, and the structure of HSE programs. Aboard a MODU, safety is always everyone’s responsibility and first priority.
HSE standards and requirements are imposed by host country national governments, and are in force in all offshore areas. They vary from extremely rigorous to relatively lax, as does enforcement. In general, the major host countries in West Africa have modeled their safety regimes on those developed in the North Sea.
All contractors and oil companies have their own sets of HSE standards, which, in many cases, are more rigorous than those of the host country. When a drilling contract is put out for bid, the operator requires prospective contractors to supply information about their safety systems. Before signing a contract, the operator may audit a contractor’s safety system, and it may conduct periodic follow-up audits through the duration of the contract. As part of the contract, the contractor must conform its safety system to the standards and processes of the operator’s system, and the operator may place its own safety manager aboard the drilling rig to ensure compliance and encourage performance.
With appropriate standards and procedures in place, HSE performance comes down to how effectively the values and commitment are communicated to all rig personnel, including those of service company contractors. This process begins with the Captain or Master, who is the top marine officer on board and is ultimately responsible for safety performance and the overall well-being of the crew and the rig itself. The contractor will typically have a safety manager or officer aboard to administer the system, monitor its functioning and establish education programs. Standards and procedures are communicated and enforced by supervisors within the drilling and marine crews. Handoff meetings at shift changes ensure that all drilling personnel are aware of everything about the well situation when they take over.
MODUs are required to hold frequent emergency response drills. The Captain or Master has ultimate authority in an emergency situation and is responsible for making such decisions as to execute an emergency quick disconnect from the well, to leave the drillsite, or to abandon the rig.
Management Structure and Personnel
The operating company provides overall direction for a project, sets goals and objectives and makes key decisions during the drilling process. The operator develops the well plan and presents it to the contractor for execution.
Operators typically have one or two company representatives aboard a MODU (the second to oversee the second shift, or tour). They provide direction to the contractor about execution of the well plan and communicate with shore-based operator personnel.
Although the company representatives have full authority over everything directly related to the drilling of the well, they tend to operate with less autonomy than they had in the past, before real-time communications technology enabled engineers and geologists to monitor and assess drilling progress from a headquarters office and provide advice or solutions when problems are encountered.
The company representatives typically report to shore-based general managers, or to country managers in charge of a support base in foreign locations. They in turn are responsible either to a regional asset management team or to a functional division, such as exploration or drilling.
Without question, the Captain or Master of an MODU bears ultimate authority for the safety and well-being of the crew and the rig. The Captain supervises a marine crew that includes First, Second, and Third Officers, First, Second, and Third Engineers, DP operators (on dynamically positioned units), ballast control operators, and a handful of able-bodied seamen, mechanics, electricians, communications specialists, and medical personnel. The Captain also supervises a domestic crew, headed by a steward, that includes cooks, galley help and housekeepers. The marine crew is responsible for all aspects of supply logistics, including mooring and unloading of supply boats and helicopter landings.
The contractor’s toolpusher (who generally has an assistant to supervise the second shift) is in overall charge of the drilling crews. The toolpusher discusses the status of the drilling operation with the operator’s representatives and gives the orders for the day to the driller. The driller is in charge of all activities on the rig floor and typically has an assistant for the second shift. On rigs with automated pipe-handling systems, the driller can control all routine drilling activities from an enclosed console on the rig floor (Figure 1). Even aboard automated rigs, however, the drilling crew typically includes several floor hands, two derrickmen, and several roughnecks and roustabouts for each shift. A mud engineer monitors the drilling fluid for drilling cuttings and makes adjustments to mud weight and composition. The contractor also provides mechanics and electricians dedicated to keeping the rig and associated equipment functioning, along with one or two crane operators, who may double as derrick hands.
The contractor files daily reports about the status of marine and drilling operations with its local support base or headquarters. Full engineering support for the marine and drilling operations is available from the company’s central engineering department.
Scheduling
The duration of a deepwater drilling project is a matter of considerable uncertainty until some benchmarks have been established for a particular basin or area. Operators place great emphasis on the use of procedures and technologies that allow them to shorten the drilling schedule. In many cases, this will depend on accurate coordination among vessels and equipment, such as the drilling rig and anchor-handling tug. In subsea field developments, careful planning and coordination between the drilling rig and various installation vessels can achieve significant time savings.
A project critical path is a key element in managing a drilling schedule. The critical path assesses every task or operation in relation to other tasks that impact it in some way. A task belongs on the critical path if it must be completed before another task can be performed. The sequence of operations can then be analyzed with the goal of removing tasks from the critical path. For example:
- A rig must be moored (or a dynamic positioning reference established and calibrated) before drilling can begin. Although it is not commonly done in drilling operations, the mooring system can be installed before the MODU arrives at the location, thus taking it off the critical path. The rig then has only to pull in the mooring lines and adjust the tension when it does arrive.
- Use an MODU with dual-activity capabilities. This allows a number of tasks to be performed simultaneously rather than sequentially, thus removing them from the critical path. For instance, the second rig could be used to spud a new well and set the 30-in. conductor and 26-in and 20-in. casing in riserless mode, while the primary rig hangs off the riser and BOP.
Scheduling becomes more important for an operator that has leased a MODU on a long-term contract. The sequence of drilling projects must be scheduled carefully to ensure that the rig is used efficiently and cost-effectively. Any schedule gaps are pure waste.
International Operations
A contractor working in a country outside of the one in which it is based (e.g., a U.S. contractor working in West Africa) faces additional hurdles and challenges. Fortunately, the contractors working in these areas are familiar with the additional requirements, and are usually working for a national oil company or an international company that is familiar with how things are done in the host country. Nonetheless, contractor personnel mobilizing a MODU to drill in a different country are well advised to become familiar with the pertinent laws, regulations, and expectations of the host country.
The following listing is for illustration purposes only, to alert contractor personnel to some of the hurdles they may face when given a foreign assignment. Again, it is incumbent on the contractor to determine the specific requirements set forth by the host country.
- Obtaining the correct identification and entry papers for the host country. With most contractors, personnel will be guided by a unit of the human resources department, which may carry out many of the tasks for them.
- Establishing an office (and perhaps a subsidiary company) in the host country. This is a task for lawyers and an experienced expatriate.
- Importing the MODU and all other equipment. Developing nations have large, complex customs bureaucracies with many rules, requirements, and procedures. Unless the operator client lays the groundwork for the contractor, the contractor personnel will have to master this labyrinth and learn to navigate it.
- Establishing an onshore support and supply base.
- Understanding the relevant laws and regulations – such as for safety and environmental protection – and knowing how to comply with them.
- Meeting requirements for local content. In a drilling operation, this will probably be limited to hiring and providing training for a specified number of native workers, but may also include purchasing provisions from local sources.
- Ensuring the availability of adequate support equipment, such as anchor-handling tugs, supply boats, and helicopters. Lack of equipment with adequate capabilities at a critical time will lead to costly delays.
- Understanding the host country culture. More international postings are derailed by an inability to understand and adapt to the local culture than by any other cause.
Service Companies and Suppliers
A deepwater MODU will have service company equipment and often personnel onboard. For certain services, the basic equipment will be installed permanently aboard the rig. A cabin and winches will be in place for well logging and wireline services. The drilling fluid supplier may have its own facility onboard. A control cabin and launching system will be installed for the dedicated remotely operated vehicle (ROV), which is onboard at all times. If the MODU is engaged in development drilling, facilities may be placed onboard to support the work of various companies supplying completion services.
When an operator enters a long-term contract for an upgraded or new-build MODU, they typically select logging and ROV contractors so that their facilities can be installed during the latter stages of construction. Management of these service providers is usually the responsibility of the company representative aboard the rig. The ROV contractor, however, works very closely with the drilling contractor’s marine personnel and may thus be supervised by one of the marine officers or engineers.
Other services may be supplied under long-term contract to a preferred supplier. In development drilling, the oil company will probably have worked with one or two suppliers on the design of completion equipment, and will certainly have contracted with a single supplier for provision of subsea wellheads and production trees. This will also be true for other specialized services, such as cementing casing and formation fracturing if the geology of the pay zone requires it.
Technology Management
Offshore drilling, and deepwater drilling in particular, are to a large extent technology-driven. The development of new technologies has made it physically possible to drill and produce in progressively greater water depths and has brought sub-marginal oil and gas resources into the realm of economic viability. This makes it mandatory for oil companies to stay familiar with the leading edge of technology development, which is occurring more and more these days in the R&D divisions of specialized suppliers and service companies rather than within the oil companies themselves. It is, of course, often very efficient for an oil company to identify a problem or new requirement and then work with a drilling contractor and the service industry to develop the solution.
Technology management occurs mostly at several removes from the rig floor among oil company engineering staffs and internal consultants. It is one thing, however, to be aware of a new technology and quite another to understand when to use it and how to make it cost-effective. This requires systematic efforts, often involving the technology suppliers, to communicate new technical information and educate personnel in its relevance and applications.
Measuring Performance
The use of new technology leads directly to the need to measure its performance, as well as the overall performance of the drilling effort. This is an operator’s task, although the drilling contractor conducts its own performance measurements and supports its operator client. The technology supplier also cooperates in the measuring and evaluation process.
An operator will not adopt a new technology without a rigorous process of testing and qualification. During this process, the operator and supplier develop a standard or set of criteria for measuring performance. These are then used to evaluate the commercial application. For some equipment or processes, the criteria are obvious: Is it easier to install? Does it make some other operation easier? Is it more reliable? Does it have a longer useful life or increase mean time between failure? Does it allow us to do something we could not do previously? Does it provide information we could not get before?
Of course, it is generally easier to measure performance in a controlled laboratory or test facility than it is on a working drilling rig, where it can be difficult to isolate the contribution of the new technology from the effects of everything else that may be going on at the same time. Fortunately, this task has become more manageable in the years since deepwater drilling first became common, with the advent of such capabilities as Pressure-while-drilling (PWD), which provides information that is useful both for controlling the well during the drilling process and evaluating post-drilling performance.
Drilling contractor performance is measured continuously as a well is being drilled. Operator and contractor measure the length of hole drilled each day and compare the result with information about offset wells in the field or area. The total time that it takes to drill, and perhaps complete, a well is one of the universal standards for measuring contractor performance. This is plotted on a simple graph of well depth vs time in days. From this graph the operator and contractor can identify sections of the hole or operations that caused difficulties and took more time than had been allotted in the schedule (e.g., Did a shallow water flow cost us some time? Or lost circulation due to a weak formation and narrow fracture gradient? Was it unusually difficult to get a good cement job on a section of casing? Did the drillstring become stuck in a particular formation? Was time lost to trouble with some part of the completion? ).
A carefully conducted measurement program allows the operator and contractor to identify anomalies and unexpected variations. Equipped with these insights, personnel at all levels can begin analyzing the measurements to discover the causes of the difficulties.
Measurement and analysis provide the operator and contractor with the information they need to improve their methods, processes, equipment and technology and do a better job on the next well. They provide the feedback needed to progress along the learning curve for a series of development wells. The information can be used to establish benchmarks and to build a suite of best practices that can be employed on future wells in the field or area. In deepwater projects, this entire process is generally conducted with a high degree of collaboration between the operator, drilling contractor, and suppliers of technologies and equipment. Information may also be shared among operators and with regulatory authorities. Valuable information and lessons learned will go into the knowledge management systems maintained by the operator and contractor so that they may be available throughout the
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