The Spectrum of New Business Relationships

Transcription

1 The Spectrum of New Business Relationships Producers and contractors share one objective to reduce the cost of doing business. To this end, oil companies are converging to fewer service suppliers and expecting more of them. Service companies are organizing themselves to provide better service. A group of drilling, petroleum technology, completion and asset managers discusses how their companies are making these changes work to their advantage. Stephane Chafcouloff Montrouge, France Roger Goodan Houston, Texas, USA STEPHANE CHAFCOULOFF Oil companies, whether majors, independents or state-owned, are evaluating how best to use their resources to remain profitable. Most have begun to outsource noncore activities. How does your company view outsourcing? BLACKWOOD BP considers itself, certainly in the North Sea, to have gone quite far down the road of outsourcing. Four years ago, we took what was seen as a fairly bold move in outsourcing our accounting activities. It was the first major outsourcing, and not a technical area, but it was thought at the time to be pretty close to a core activity. It s been very successful and challenged our thinking on what is and isn t a core activity. It also clarified the distinction between accounting and management control. STEVE DOLE We ve outsourced some of PanCanadian s noncore activities in facilities engineering and facilities construction, but we haven t outsourced drilling or completions. We ve developed a strategic alliance with Dowell for stimulation services. But that s not outsourcing in the sense of delegating engineering to their side. While we still maintain an engineering expertise, we can take advantage of Dowell s capabilities. We ve removed duplication of effort in our stimulation process design, execution and evaluation. PÉREZ At Lagoven, we re working toward outsourcing all noncore activities, from well construction and maintenance, through logistics and supporting services to facility design and construction. Reservoir management, even though a nondelegable core business activity, is being supported by joint efforts with third parties, including service companies. This is achieved through integrated In this article, DESC (Design and Evaluation Services for Clients) is a mark of Schlumberger. 4 Oilfield Review

2 Jerry Anderson Mobil Oil Canada Calgary, Alberta, Canada David Blackwood BP Exploration Aberdeen, Scotland Steve Dole PanCanadian Petroleum Limited Calgary, Alberta, Canada Gavin Humphreys Shell UK Exploration and Production Carl Lawson Phillips Petroleum Company Bartlesville, Oklahoma, USA Freddy Pérez Lagoven Caracas, Venezuela reservoir studies that result in better reservoir characterization, from which optimum designs can be derived. With this approach, we incorporate the best knowledge to identify the most efficient economic means to use state-of-the-art technology and achieve good operational capability. LAWSON Reservoir management is also sacred to Phillips, and we don t outsource it. We do some outsourcing on the drilling side. In remote locations, like Papua New Guinea and Cameroon, we are turning a lot of our business over to the drilling contractors or the service companies. In these areas, where we don t have the infrastructure to take care of the operation, we outsource it by forming an alliance or giving an integrated service contract. Partnering is the only way to complete a cost-effective operation. Our alliance in Papua New Guinea was very successful. The well drilled before the alliance cost $17 million. Under the alliance, we drilled the next well for less than half that cost $8.1 million. We also work with integrated services packages, such as with Halliburton for our offshore China operation. They picked the Summer

3 service companies and the drilling contractor, and we supplied the drilling supervisors on the rig who worked with a small engineering group on the mainland. At BP, our global organization is divided into 42 assets, with 40% of them based in Aberdeen. Functionally, we have a very light touch we have a broad strategy but allow individual assets a fair degree of autonomy. No two assets will necessarily act in exactly the same way. If we look at early production schemes, in the classic role, the North Sea operator went to ten different service companies and tried to orchestrate them all drilling, a rig-based vessel to house the production facilities, supply and operation of the production facilities, and then export to a tanker. The Machar field is an example of what success can look like the project management was outlined by BP, but the project was essentially managed outside the company. 1 Other assets might not take that approach. [For more on this project, see Integrated Services, page 11.] Drawing an analogy with new field development, when anyone wants to design a platform these days, in comes an engineering company to do the whole thing. So, philosophically, everyone crossed that outsourcing bridge years ago. In one asset, we ve just extended it to the other end of the life of the field by taking the reservoir engineering out of the BP organization. HUMPHREYS At Shell UK Exploration and Production [Expro] we have integrated drilling engineering, completions and well services into well engineering organizations. Using a well engineering business process model, we defined our core and noncore activities, then developed a program to outsource noncore activity when this makes business sense. We were then able to define our generic organization and manning requirements. In our model, we treat project management as a core business, so within any outsourced projects we always retain a Shell well engineer as the project manager reporting to a Shell head of well engineering. The Expro model for the North Sea, and our definitions of core and noncore business, may not be appropriate to other Shell operating companies, which may develop different models on the same principles. In remote locations, we specify in our bids that we want a project, or logistics manager, who is usually a drilling contractor. In integrated services packages, I d like to see service companies have one individual taking care of all the product lines. If I m working with a number of people, and don t have one entity I can contact, I fall back on the traditional way of doing business. At Lagoven, we do not completely outsource project management. In cases where we have third parties performing specific tasks, even with Lagoven personnel as part of the team, we currently maintain leadership by means of a Lagoven project manager. For special projects, such as exploration wells in the Orinoco Delta at around 20,000 ft [6100 m] we create a special task force for the engineering design. Then we bring the service companies and drilling contractors into the team so that a comprehensive review of the design can be carried out. This way, specific levels of know-how, technology and operational capability can be put into place for designing and executing the most cost-effective well construction plan. ROGER GOODAN There are many approaches to outsourced project management to name a few, drilling contractor, service company and engineering company, meaning the company that builds platforms. What are the roles of these three in your projects, and which usually has the position of lead contractor? We expect the service company to be the lead contractor, and to bring along a drilling unit provider. The drilling services we re looking for include semisubmersible capability, jackups and workover capability. We select a best-in-class contractor in each category of required service. Very few people can do everything for you, so some sort of group will come together an integrated services contractor or contracting alliance. Within the alliance agreement the parties have worked up their share of the development cost the actual cost of the project. Everyone knows the 6 Oilfield Review

4 number, we set the target costs, and then everyone shares in the gain and the pain of either getting above or below that target cost. The project manager, whether from BP or a contractor, is dedicated for the life of the project. This approach works only if people within the project management team can make commitments on behalf of their organizations. It is our view today that the people who are connected to the reservoir should be playing the major role, and leading for the future. We see drilling the well as just another service, which should respond to the reservoir needs. This could vary if the project were divided into specific tasks; then the service of most value, and not necessarily the most costly, should have the leading role. For Phillips, that has already taken place in China, where we ve used the drilling contractor as an integral part of integrated services. The service company, as project manager, chose the drilling contractor as part of the services they offered. We have also operated another way, with three groups the drilling contractor, the service companies and the operator in a type of alliance. On single wells in remote locations, we use the drilling contractor as the lead project or logistics manager the one with the best local knowledge. We want somebody who knows how to get the job done in a country, how to work with the government officials, how to get materials into the country quickly and from the warehouse to the location. Our lead contractors on our North Sea platforms are the drilling contractors who have created alliances with our well services contractors. With our mobile rig fleet we have created a subsea alliance that integrates the engineering effort of our lead drilling and subsea completions contractors with our subsea equipment manufacturers. In this environment, we provide to the alliance contractors a conceptual design of our requirements, which they translate into a detailed program to fulfill our objectives. ANDERSON On lead contractors, Mobil has not yet gone as far as Shell and BP. We utilize a lead contractor in a coordination role, and select the contractor based on what makes sense for that particular job. I would agree with Carl in a remote location, the drilling contractor is the most likely candidate, but in others it could be a service company. We maintain ultimate control for approval of personnel on our jobs and the contractor or service provider coordinates the various services. Along those lines, we also use turnkeys where they make good business sense for Mobil. This past year we drilled an exploration well in Egypt using a turnkey contract. We didn t have a presence in the country, but the turnkey contractor had an infrastructure set up, and was able to meet the required timing. We also recently turnkeyed a group of shallow wells in eastern Oklahoma. A local contractor familiar with the area could do it cheaper and better than we could. Generally speaking though, we find that on deeper, higher pressure wells and remote wells, we can simply do it for less money than a turnkey. We have also found it difficult to get a turnkey contract for drilling exploration wells in a remote location. Contractors are unwilling to turnkey because the risk is too high, or they have to put such a large risk factor into the contract that the cost would be unreasonable. We tried to bid a Cameroon well out as a turnkey operation but no one was willing to take the risk. The Gulf of Mexico and onshore US are areas where we have used turnkeys. I believe that to optimize turnkeys, the well engineering contractor needs to be able to produce the same product continually, and so learn and make money over the full project. Shell recently turnkeyed more than 120 similar wells in Oman very successfully. In Expro, however, we do not often have this environment. Technology continues to develop with more horizontal and multilateral wells and as such we are unable to clearly define to our contractors our requirements, which they use to estimate a cost. Turnkey in this environment is simply unfair and in contradiction to the win-win environment we advocate. 1. For other outsourcing by BP: Cross J: IT Outsourcing: British Petroleum s Competitive Approach, Harvard Business Review (May-June 1995): Summer

5 STEPHANE I d like to shift gears here, and focus on one of the newer roles of service company people. Placement of service company people in the operating company office has been a growing trend a prime example is the rapid growth in Dowell s DESC program. [For a review of the DESC Design and Evaluation Services for Clients program, see The DESC Engineer Redefines Work, page 40.] What do you think about service company personnel posted in your organization? STEVE We feel strongly that it affords us tangible and significant benefits. Three Dowell engineers have been working in PanCanadian for almost four years. By now, these fellows fit right into our organization they re part of the completions team. They re involved in our project planning, design and execution, and having them across the hall from our engineers helps us move through the designredesign iteration quickly and effectively. We have empowered them to act as efficiently as possible, which streamlines decision making. If they decide something needs to be done, there s not a lot of negotiating. Having those folks in our office also helps us see how Dowell works, and helps Dowell focus on the reservoir rather than on horsepower or volume of fluid pumped. Our mutual goal is to extract hydrocarbons as cheaply as possible, and dollars per barrel of oil is what we re both targeting. By focusing on the reservoir, we can work toward that goal. That s the biggest benefit getting everyone focused on that common objective. However, what ultimately makes it work is having the right people people who can fit into the organization. In the early stages there was some work to develop the required trust, but once we got by that, it s been onward and upward. STEPHANE The Dowell engineers focus mainly on completion engineering. How important would it be to have the expertise to develop the well from A to Z? STEVE Today we re looking for specific technical expertise. But at the same time, we want a link to the broader picture so that we can identify the advantages in using other kinds of contractor expertise. For us, Our mutual goal is to extract hydrocarbons as cheaply as possible By focusing on the reservoir, we can work toward that goal. Steve Dole this is another benefit of having DESC engineers on board: they give us access to other parts of the Schlumberger organization. For example, our DESC engineers tapped into other Schlumberger people to help us with a completion design for a zone that neither Pan- Canadian nor other operators had been able to complete successfully. A team of our people and Schlumberger people succeeded in getting commercial production out of that zone. We can make the best use of service company expertise if the engineer works closely with our people, whether in our office or in the service company office. We want the service company to understand our reservoirs, and one way to do that is to get into our office, dig into the files and identify ways to improve our productivity. This comes about as a result of a joint diagnostic study of the well from which specific services are designed and evaluated economically. Close interaction and effective communication between the parties make approvals more efficient. Mobil makes effective use of service company engineers in our offices. We have offices for service company engineers, they are hooked up to our system and network, they attend our meetings and interact with our reservoir management teams as participating members, just like Mobil employees. We have a number of service company engineers in place, in particular, pressure pumping engineers and some well performance people in our drilling groups. This is one form of outsourcing in which we utilize service company people to do things that they do well. This frees our people to work on things that are of higher value to us and that they are best suited to do. In Shell Expro, we also have all our lead contractors networked into our main well-engineering data base, and in some cases Shell senior well engineers move into the lead contractor s office to head the project from there. Where we have developed quality improvement projects, our contractors and our lead contractor s subcontractors are involved in the quality management process since we value their contribution to the well engineering. I m not against the principle of contractor and Shell Expro staff interchanging their respective roles. There is value in everyone understanding better what everyone else does. STEPHANE We ve talked about many forms of outsourcing, such as turnkeys, integrated services, alliances and service company engineers in the oil company office. Does your company have a model for these new types of contractor-operator relationships? At Lagoven we have experienced and analyzed different relationships, and from a technology capture point of view, we believe that the fastest way to transfer technology is to let technology users pull it in from technology providers. Incentive contracts focus everyone s effort on doing just that by instilling a culture of working together. This allows better use of standard technology and faster adaptation of new technology not for the sake of fast technology transfer, but because the partnership knows it makes good business sense. There are many models for partnerships, but they can collapse to look like one. We try not to limit our possibilities with language. The issue is the alignment of the objectives on both sides. In the simplest of terms, we both make our money the same way. 8 Oilfield Review

6 At Mobil we see a spectrum of business relationships ranging from the traditional day-work model all the way to turnkey. Between these extremes are many other options, including strategic alliances, integrated services and incentive contracts. We prefer to call these Enhanced Supplier Relationships, or ESRs. We encourage our drilling people worldwide to do what makes sense for their local operation. Our approach is to maximize the net present value of our wellbore assets. Driving down cost may be the biggest factor, and that s what we re doing with ESRs. We are using them in some form all over the world. To date, we ve had the most success with the strategic alliance, working with our service providers to drive down total costs and sharing in the savings. [For more on alliances, see Alliances in the Oil Field, page 26.] We are beginning to expand these into integrated services, allied multiple services. We have also had success in the integrated services approach by putting together the drilling contractor and one or more service companies, appointing a lead, then optimizing from that standpoint. I have a bit of a problem differentiating between integrated services and strategic alliances. You should do what s most appropriate for the business. You shouldn t use a model that prevents you from maintaining flexibility in relationships with your lead contractors and the service industry. We ve talked here about the relationship between the operator and the service company, but what we have found in developing ESRs, in strategic alliances in particular, is that the internal partnering within our own company is equally or even more important than partnering between the operator and service company. When we map our processes and then overlay those with the processes of our service company with the goal of driving out waste we often find most of that waste within our own company. Removing this waste requires involvement of all the contributing departments within the operating company as well as the service company. I support Jerry s view. If we can t involve all members of our oil company community who contribute to the well engineering process, we will fail. We need complete commitment from the petroleum engineering, contract and procurement people to realize the full savings potential of a well engineering business process. ROGER For Schlumberger, the most active areas for alliances and integrated services are North America and the North Sea. Only in the last year has the trend reached West Africa and just now is extending to the Far East. This global expansion raises a key question: Can service companies and operators also expand the scope of their work together to include research, shared technology or intellectual rights? Is confidentiality a problem? There has to be continued dialogue between the innovators, the technologists and the clients in the oil companies. On the issue of funding, no single oil company can fund this research and development on its own, so some of these new projects need a joint approach. Our drilling R&D laboratory in Rijswijk, The Netherlands, already works with our operating companies, the service industry and with other operators in Joint Industry Projects JIPs whenever there is a business need to do so. I agree that no single operator can to do all the R&D. Amoco s drilling R&D department has talked with Phillips and Conoco about an alliance in which we will share their facility to do research and development, and share the cost. I m in favor of keeping R&D alive, and this may be a way of doing that. Much of what the drilling R&D group does in Mobil is technical service work. We do very little pure research and development anymore, but when we do, it is in conjunction with the major service companies. We don t worry much about confidentiality. We recognize that we have to work jointly if we re going to accomplish anything worthwhile. Unless it s something particularly confidential to Mobil, we are glad to work with the major service companies. we believe the fastest way to transfer technology is to let technology users pull it in from technology providers. Freddy Pérez Petroleos de Venezuela (PDVSA) affiliates have a research and development institution Intevep that provides services for the oil and gas industry. This institution has several areas of activities. In addition to R&D, there are technical services, which assist operators in evaluating, procuring and adopting existing technology, as well as developing differentiating technology for our business needs. However, joint R&D projects have been developed with other operators, universities and service companies. The funding of these projects is mutually agreed upon, and varies with the scope and expected results. Confidentiality is not a problem, but a matter of understanding upon which there must also be agreement. Summer

7 STEVE We don t have an R&D organization within PanCanadian but we do have an R&D budget to support various initiatives through research groups around the world. Through our operations alliance with Dowell in Canada, we re essentially supporting the Dowell research group in the States. This has allowed us to influence and, in some cases, even direct some of the research done at the Dowell center in Tulsa for example, the development of breakers to meet our specific needs. 2 If we see a need for something that is bigger than what our share would support, we ll reevaluate our corporate R&D budget and work with Dowell to address specific projects. We haven t been concerned with confidentiality. ROGER We ve seen that the evolving relationship between operators and contractors has got to be a win-win situation for both parties. What kind of relationship with the service companies do you want in the future? The issue is the alignment of the objectives on both sides. In the simplest of terms, we both make our money the same way. David Blackwood In the North Sea, the focus must be on long-term reduction of well cost in terms of /bbl, that is, life cycle cost. The way we do business in the future depends on enhanced technologies, which are channeled from the operators, service companies and smaller niche companies into the industry. Shell will maintain a close relationship with technology-focused companies, as we see continued value of their contribution to well design, one Shell core business. A trusting relationship allows the service company to appreciate its impact on the business, and speeds the development of a winwin relationship between the two parties. Our relationships with service companies are unique. We view these relationships as a prime source of technology, knowledge and operational capability. They allow not only cost reduction, but also increased productivity and the generation of more work. What I d like to see continue from the contractors and service companies is honest and open communication. They have a lot of good ideas and have been talking about alliances since But in remote locations in the Far East and Africa, the concepts of integrated services and alliances have not reached the field workers. We need to train field personnel so they understand how to work in these kinds of teams. We ve seen tremendous evolution in the last two years, but I d like to see the service companies be more proactive in telling us what works with other clients. Rather than reinventing the wheel, I d like to know what has worked elsewhere and determine whether these ideas could also apply to our business. As we progress in these relationships, the biggest obstacle to improvement is ourselves. Our cooperative efforts enjoy strong support at the top. But for these relationships to work, and work well, we need to have buy-in from bottom to top and all across the various levels of the company. STEVE I agree with the argument for a company-wide buy-in. Learning from the experiences of other alliances is also good advice. We ve explored sponsoring a conference with Dowell and other operators in North America engaged in pumping alliances, to talk about what they ve experienced, how alliances are built, what s working well, how results are measured and the future of alliances. I would like to see more open conversation on economics, and how future investments can be influenced by everyone around the table. The ideal relationship will be probably be longer term, more stable, and less confrontational. Long-term stability should not be confused with complacency, but rather a level of comfort with working in an alliance where all parties receive an appropriate return on what they have put at stake, and where exceptional performance is rewarded. LS 2. Breakers are chemical agents added to fracturing fluid to allow easy cleanup of the fracture after treatment. 10 Oilfield Review