Andrew Well-Engineering Alliance: A New Industry Model

Abstract

Summary The BP Andrew field has been developed using a novel business solution which required the creation of a Well Engineering Alliance with shared objectives, a radically new behavioral approach and jointly developed targets. The paper describes the structure of the Alliance, the development and implementation process and the success that has been achieved. A project update provides a summary of subsequent progress. Field Overview Andrew is a Paleocene oil field 50 km North East of the Forties Field, it is relatively small in size, 112 million stock tank barrels (STB) reserves, and was discovered in 1974. Its development has, until recently, been considered uneconomic due to the high initial cost of development. The arrival of proven horizontal well technology has allowed the number of wells planned for the field to be halved at the same time as increasing the plateau from 45 000 to 58 000 barrels of oil per day (BOPD). Improvements in jacket and topsides construction, increased heavy lift capability and a reduction in offshore manpower needs have allowed the project cost to be substantially reduced. Most significantly, an innovative Alliance approach has been applied to all aspects of the project to create substantial cost reductions and value enhancements. Three wells were predrilled through a subsea template prior to installation of the jacket and topsides in May 1996. Following the tieback and completion of these wells, together with an existing appraisal well, six further wells were drilled from the Andrew Platform. First oil was produced in June 1996. In addition the development includes Cyrus, a small subsea field which is tied back to Andrew by a 6.5 km flowline bundle. Cyrus was developed within the same contractual arrangements using two subsea production wells. Andrew is a project where behavioral issues are considered of paramount importance. The combination of appropriate behaviors and new technology can together deliver a breakthrough performance. These softer, less tangible issues are a key aspect of the project. Contract Strategy The contracting strategy was conceptualized at the project sanction stage in 1993 and was to maximize field productivity for minimum cost through delivery of highly productive, low cost, low risk wells as early as possible. To achieve this, the plan was to create an integrated Well Engineering Alliance incorporating all the skills necessary to drill, complete and maintain the wells. Strategy development and contractor selection involved the following steps:Identification of key business objectives as: maximizing well productivity from the main Paleocene reservoir, accelerating first oil, maximizing value from the Lower Cretaceous underlying reservoir, and minimizing costsIdentification of key implementation success factors as: selecting the correct contractors, getting them onboard early enough to have an impact, and keeping them, i.e., life of field accountability; adopting an integrated team/alliance approach; and ensuring alignment of asset business objectives with contractors objectives through the use of a single alignment mechanism with a focus on both cost and well productivity.Selecting contractors based on ability to deliver on business objectives through an interactive selection process focused on behavioral alignment, technical ability and cost. Contractual Framework The contractual approach within Andrew was designed to effectively align business objectives between contractors and operator, thus generating a true Alliance. The Well Engineering Alliance members were: BP (operator), Schlumberger IPM (Completion Well Management and Data Acquisition), Baker Hughes INTEQ (Integrated Drilling Services), Transocean (Mobile Rig) and Santa Fe (platform rig). Contractual arrangements were defined in two documents: the "works contract" and the "alliance agreement." The works contract between BP and each of the Alliance members covered all the standard contractual and legal terms. Within it, costs were broken down into the components: direct cost, profit and overhead. Based on an agreed budget developed by the Alliance Well Engineering Team shortly after starting the preplanning phase, the profit and overhead were paid on a fixed basis. Direct costs were subsequently paid as they were incurred to a level lesser or greater than those in the budget depending on actual expenditure. This contractual arrangement provided a direct incentive to Alliance parties to reduce direct costs without fear of reducing profit or overhead levels, i.e., to become profit driven rather than revenue driven. By reducing direct costs within the project, companies' profitability actually increased with the fixed profit and overhead component. In addition, the incentive also existed to reduce overhead, thereby further enhancing profit. The second "contractual" document was the Alliance Agreement, which was common to all Alliance members. This document set out how the Alliance would operate including arrangements for risk and reward within the project. The agreement was structured into key minimum performance standards which, if met, provided access to share capex savings and a profit multiplier payment related to well productivity. The minimum performance standards which had to be met on Andrew wells were: correct target location, effective gas cap zonal isolation, acceptable data acquisition and at least 75% of the perforated horizontal interval contributing to flow, averaged over three predrilled wells.