A Flexible Contracting Strategy Has Streamlined International Drilling Operations: A Case History

Abstract

SPE/IADC Members Abstract The primary goal of a drilling operation is to minimize the time and expertise required to drill wells while operating in a safe, prudent manner. Minimizing drilling costs decreases the development cost per barrel threshold necessary to exploit hydrocarbon reserves. Decreasing the elapsed time between acquiring a prospect and evaluating the potential reservoir positively impacts the return on an operator's investment. In order to reduce operating costs and to expedite potential production from its international prospects, Marathon Oil Company's Worldwide Drilling Group (WWD) has adopted a flexible contracting strategy. This strategy involves an appraisal of each project's objectives and potential along with the company's existing infrastructure in the area to determine the best type of contract to be employed. This paper reviews the various contract types including conventional, incentive-based, and lump sum operating rate daywork, limited and full turnkey drilling and integrated service agreements. The contracting philosophies which were utilized offshore New Zealand, Sakhalin Island, Tunisia, Ireland, China, and Gabon, and onshore Argentina and Egypt are described. Cost normalizations, risk premium/management, local tendering difficulties, and time constraints are discussed along with their effect on which contract mechanism was selected. This paper summarizes Marathon's strategy of utilizing contracts which best fit the overall project objectives. Streamlining operations through innovative contract philosophy and economizing on local infrastructure, required personnel, and initial capital expenditures have significantly minimized drilling costs. Selected use of turnkey and limited turnkey contracts have assisted in managing risk in ares where Marathon has had limited experience. Finally, this flexible approach to selecting contract type has enhanced the company's ability to pursue high risk and marginal projects. Introduction Marathon's World Wide Drilling Group, located in Houston, Texas, has been charged with the responsibility of drilling wells in areas where the company does not maintain a permanent drilling infrastructure. Primarily, WWD's area of operation encompasses those areas of the world where Marathon holds an interest but has limited or no production. In fulfilling this task, the group has evolved into a small cadre of essential personnel augmented by contract personnel on an "as needed" basis. These personnel are utilized to quickly and efficiently drill and evaluate a prospect, while assessing and managing the environmental impact to an area. If the prospect is determined to be commercial, they assist the International Production organization in establishing a permanent production and, if needed, drilling infrastructure within the country. The accomplishment of this scope of work involves utilizing the most efficient contract mechanism where cost, timeliness, and utilization of available personnel are all optimized on a prospect by prospect basis. Contracting Strategy The contracting strategy of WWD involves an assessment of each project's objectives and potential, along with the company's existing infrastructure in the area. The potential longevity of the work program as well as the company's strategic commitment to a specific area are also considered. With these factors in mind, a contract mechanism which best satisfies the requirements and which makes the most business sense is selected. The types of contracts which have been selected in different areas and/or work programs are as follows: Daywork Drilling - The conventional operating arrangement whereby the operator assumes the risk of drilling the well. The drilling contractor and other third party service providers are compensated for work performed on a daily basis. All consumables are charged to the operators' account. P. 499^

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