The structure of the North Sea oil industry, with its extended supply chains and high reliance on contracted out services, has provided an ideal environment for sub-optimal performance to develop, become accepted, and form part of our culture. Partially due to a lack of clarity and agreement on performance goals, and partially due to under-developed management and leadership skills, this inefficiency now provides "hidden returns" for operators, waiting to be exploited like untapped reserves. Whether introducing new technology, or seeking to maximise the value of existing strategies, organisations are now recognising that it is the practices and behaviours of their personnel that determine whether their full potential is realised. This paper describes some of the factors that inhibit performance within the oil industry and offers a methodology for continuously improving efficiency and financial returns. Two case studies are presented, demonstrating the effectiveness of the process in practical situations. Introduction The oil industry has long been characterised by collaborative working between exploration and production (E & P) companies and groups who either own or have expertise in essential technologies. Against the backdrop of fluctuating oil prices and the need for financial returns that match stock market performance, E & P companies and lead contractors have sought to outsource more of their requirements, intensifying this collaboration. In many ways this has been beneficial to the industry. It has fostered an enterprise culture that has seen the emergence of countless small firms, each with its own innovative technology that may not have emerged from under the larger corporate umbrella. According to UKOOA, this constant innovation is a key enabler in the drive for lowering unit development costs within the UK sector. This market evolution has also however bought with it some problems. It has encouraged the polarisation of both E & P companies and principle contracting firms, leading to a situation where a decreasing number of suppliers vie for business with a declining number of buyers, diminishing the market's ability to self regulate, i.e. encourage superior performance and provide sanction against under achievement. In addition, the number of operator staff tasked with managing these contractor relationships, and those managing performance of internal departments, continues to decrease. This paper seeks to demonstrate the effect that combining leadership development with a culture of continuous improvement has on these operator/contractor relationships, and on operational and financial performance of E & P activities. The effect on performance that the buyer/supplier relationship (or internally managed relationship) can have on performance will initially be explained, prior to a brief outline of performance management and leadership theory. The outcome of two performance improvement projects will then be described, along with the a description of their implementation, in order to demonstrate how developing management technology can complement the development of hardware technology in order to exploit hidden financial returns. The Agency Problem Based on the economic concept of utilitarianism, Agency Theory, has been used to investigate the role of self-interest (of groups or individuals) within organisations and business relationships (Wright, Mukherjib, & Kroll, 2001). Agency theory is fundamentally concerned with the economic relationship between a firm's owners and the manager's of the firm appointed by those owners. With similarities to transaction cost economics (Coase, 1937), agency provides a basis for analysing the cost to the owners of delegating control of their interests to a third party, these costs arising from differences in goal orientation and risk aversion, and from self-interest. Jensen and Meckling (1976) recognised that agency relationships were "the essence of the firm... existing at every management level" as managers relied on others to perform their delegated tasks, others whose behaviours the manager could not directly control and who "will be able to appropriate...resources for their own ends".
The paper focuses on drill bit development for a specific natural shale gas play located within North America. These wells require advanced horizontal drilling techniques and extensive hydraulic fracturing to make them economically attractive. This paper details how a major operator has been able to make radical improvements in drilling performance in this area, leading to significant cost reductions. A typical well consists of a vertical section, build section, and a final horizontal leg. When the operator started this project in 2008, the objective was to drill this entire main hole in just three bit runs; one for each directional leg described prior. In actuality, twelve to fourteen bits were utilized, averaging over forty days from drill-out to section TD. This made the economic viability of further development questionable. A team approach enabled bit design modifications and improvements to be implemented in a controlled, continuous, and closely monitored program. A key component of this was the development of a unique flexible bit design developed specifically for directional applications in coordination with a leading supplier of motors. These bits contain novel features that allow rapid design modifications to be performed locally, significantly reducing response time, and allowing the program to proceed at a much faster pace than previously possible. Within a matter of months, this systematic cooperative approach enabled the operator to achieve the initial objective of drilling the interval in 3 bit runs, but also their subsequent objective of drilling the interval in just two bit runs. Days to drill this section were drastically reduced from over forty to less than twelve days. The savings produced by this huge improvement in drilling performance has greatly assisted the economic viability of continued development in this basin.
The future of the offshore oil/gas industry in the UKCS faces a growing number of challenges. Not least of these are the technical complexity of the reservoirs currently available for development, and their lower recoverable reserves. Current exploration and production efforts are concentrating on either stand alone small/marginal fields or brown field developments, exploiting hitherto untapped reserves near to existing facilities. Technical advancements are playing their role in enhancing the ability of operators to reduce development costs. The greatest constraint on extracting the maximum value of these reserves is, however, the field development process. This constraints can only be overcome by introducing new business and engineering processes which are focused on achieving both the goals of the operator and of the field development contractor. An integrated field development contractor, with access to key technology, personnel, and equipment, can assist in the enhancement of the value of these small/marginal fields by structuring the development process such that it provides the optimal balance between cash flow, Net Present Value (NPV), and risk. Introduction Many of the oil and gas reserves which have recently been developed, or are currently under consideration, in the UKCS are classed as economically marginal. This is despite the relatively high stable oil price and the level of existing process and transportation infrastructure available in the region. As other regions throughout the world open their territories for exploration and development activities, the UKCS has to compete for development capital against a background of increasing alternative investment opportunities. In addition, as this global market expands, developments also have to compete for construction resources and equipment which are also now becoming scarce. When considering the viability or ranking of a potential investment, a number of ratios are employed such as Unit Cost, Net Present Value (NPV), NPV/Capital expenditure (Capex), Discounted Cash Flow (DCF), Payback, and more recently risk weighted criteria such as Estimated Monetary Value (EMV). Each of these calculations has as their key inputs capital expenditure, revenue, and the time scale. The objective of this paper is to demonstrate how an integrated field development contractor can assist in the optimisation of marginal field exploitation by implementing a development plan which balances the engineering solution and these key investment metrics. Field Characteristics A 1994 UKOOA study, Study 20201, covered a detailed assessment of existing oil and gas developments and the probable outcome of future exploration activity. The scope of the study was to quantify the probable capital expenditure in the UKCS over the next 25 years. The study identified 187 existing oil discoveries and 133 existing gas discoveries. Of these 96 and 64 fields respectively were in production. The average initial size of producing oil fields was 219 million barrels, accounting for 85% of total reserves then discovered. For the 91 fields still to be developed the average reserves was only 41 mmbbls. Figure 1 shows the size distribution of these fields. The same percentage of known reserves existed for gas fields, where the average initial size of the 64 producing fields was 860 bn cubic feet. For remaining known reserves the average size was 140 bn cubic feet.
The Horn River Basin is a natural shale gas play located in North Eastern British Columbia, Canada. However, these wells require advanced horizontal drilling techniques and extensive hydraulic fracturing to make them economically attractive. This paper details how a major operator, working in cooperation with a key drill bit supplier, has been able to make radical improvements in drilling performance in this area, leading to significant cost reductions.A typical well consists of a main hole interval that has a vertical section, build section (taking the bore from vertical to horizontal), and a final horizontal leg. When the operator started this project in 2008, the objective was to drill this entire main hole in just three bit runs; one for each directional leg described prior. In actuality, twelve to fourteen bits were utilized, averaging over forty days from drill-out to section TD. This made the economic viability of further development questionable.The team approach of operator and bit supplier enabled bit design modifications and improvements to be implemented in a controlled, continuous, and closely monitored program. A key component of this was the development of a unique flexible bit design developed specifically for directional applications in coordination with a leading supplier of motors. These bits contain novel features that allow rapid design modifications to be performed locally, significantly reducing response time, and allowing the program to proceed at a much faster pace than previously possible. Prior to any alterations, a full analysis of the drilling data of the previous iteration was undertaken. Any proposed changes were then discussed in detail with the drilling operations team, prior to implementation.By July 2009, this systematic cooperative approach enabled the operator to achieve the initial objective of drilling the interval in 3 bit runs, but also their subsequent objective of drilling the interval in just two bit runs. Days to drill this section were drastically reduced from over forty to less than twelve days. The savings produced by this huge improvement in drilling performance has greatly assisted the economic viability of continued Horn River Basin development.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
customersupport@researchsolutions.com
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.