The testing contract strategy is an integral part of the project execution plan. The contract strategy needs to be finalised at the earliest opportunity, i.e. the planning stage. Well testing cannot be viewed in isolation from other facets of the drilling and production operations. The strategy adopted should take into account the other contracting strategies involved in operations. Since may of the major testing contractor form parts of large integrated service company groups there may be considerable benefits in combining testing contracts with for instance wireline logging/well evaluation contracts.
The contracts strategy should aim to:
·Reduce the number of contracts that the Company manages
·Simplify contract and testing operations management
·Provide contractor with incentives to perform
·Allow contractor reasonable control in the management of the execution phase
·Enable contractor's involvement in the planning of the execution phase
·Utilise the contractor's in-house expertise in well testing operations
1. Contract strategy
A Contract Strategy will address amongst other issues:
1.Plan of all contracts to execute the test
2.Commercial form
Turnkey
Unit rate (lumpsum elements)
Day-rate incentives/re-imbursable cost
3.Method of Contractor selection
4.Integration and interfacing of contractors
Factor affecting the contract strategy will include;
1.Local environment
Company contracting policies
Government requirements influencing contracting out work
2.Availability of equipment, suitable contractors and their respective capabilities to undertake either elements of or the total scope of work.
Award of the well testing contract(s) should preferably be made at well planning/design stage in order to allow the contractor's input into the final well programme.
Drilling unit selection will have a bearing on the well test equipment configurations possible. Layouts of equipment can affect the drilling unit's classifications, e.g. hard piping must be approved of by the drilling unit's certifying authority (DnV, ABS, etc.) layouts can also be affected by governmental regulations concerning interfaces of hazardous areas, etc.
Therefore drilling unit selection particularly for offshore units should take into account well testing plans and vice versa.
Advice on the local environment affect the planned contract strategy can be obtained from the Company Finance and Commercial Services departments.
2. Contract options
2.1 Contract each individual service
This should be avoided as much as possible. It is likely that any of the contractors will be able to, or be prepared to, price any of the work under any form other than a day-rate re-imbursable cost, since individual contractor performance will be so reliant on other contractor's performance over whom they have no control. Management of the execution of the test also becomes more difficult. Extra personnel will be required on site, each contractor having their own supervision.
2.2 Contract as a complete package
A fully integrated well test contract is usually the preferred option. The integrated contract is employed to manage the total project, from execution design through the recommendation and provision of all suitable equipment and services essential for the acquisition of high quality data to its final timely presentation. The contract should be constructed such that the contractor has an incentive as well as an obligation to provide suitable quality equipment and services for any particular test regardless of source. It should encourage the utilisation of new technology and techniques that will improve well test performance.
2.3 Contract as engineering and management
In areas where little in-house well test expertise is available or non-routine well tests are planned an engineering management type contract may be considered. The appointed contractor would be paid to put a job specific well test package together and manage its execution. From the basic specification of the deliverables specified by the operator, the contractor would refine the scope of work and subcontract all the required services and equipment.
Use of multiple sources for similar services, particularly when the Shell Company is the sole customer of the contractors will lead to unnecessary overhead costs to the Company due to low utilisation of each contractors facilities, etc.
When using an integrated contract type care should be taken to allow the lead contractor to create an integrated package which is not merely the sum of Company specified subcontractors. A sense of ownership and flexibility in choice has to be generated by the lead contractor to obtain the maximum benefit from an integrated contract.
3. Commercial form
When deciding on the commercial form particular attention needs to paid to how well the scope of work can be defined and the chances of having to change the scope of work after contract finalisation.
Any turnkey type contract should always include a set of unit rates that allows changes of the scope of work extending the flow period, extra data gathering, etc.
In general, turnkey type contracts will only be applicable for small well defined types of testing work.
The form should allow for return on both fixed and variable costs.
It is necessary to differentiate between planned and unplanned work. Planned work should whenever possible be paid for on a fixed price basis of unit rates (often called lump sum) work.
Unplanned work should be paid for in a combination of unit rates and dayrate/incentive type payment dependent on the ability to define what would be in its cope of work.
For instance mobilisation, demobilisation and rigup/down should be performed on a lump sum basis.
Due the uncertain nature of testing the contract rates should include provision for as wide a range of unplanned work as possible without continual recourse to the contractor's standard price lists which are usually the worst form of re-imbursable cost structures and provide the contractor with no incentive to perform.
The objective should be to pay for results meeting specified quality acceptance criteria.
Payment structure should be result-oriented not time-oriented.
4. Tendering
Once the contract strategy has been determined it is usual to tender. The specification of equipment required should be avoided. Specification of the deliverables should predominate. Tender documents which do not include specified equipment lists have been shown to have many benefits in stimulating the tenders to make commercially and technologically attractive offers.
5. Incentives
Various forms of bonus schemes are becoming common place in testing contracts in the North Sea. The type of bonus incentive scheme adopted will vary from Company to Company. An identification of the most common well testing problem areas within the Company is a good starting-point for devising an incentive scheme. Incentive payment schemes can be built around performance against quantifiable service quality-checklists covering such items as
·equipment rigged up, tested and accepted within a specified time;
·equipment rigged won and shipped back to contractor base within a specified time;
·pre-delivery and installation equipment acceptance criteria;
·percent equipment downtime, incidents
·compliance with Company and Contractor operations and safety procedures (e.g. PTW, Equipment Certification records complete and on-site, etc.;
·completeness of package;
·quality of data acquired and submitted;
·environmental incidents/liquid drop out.
Care should be taken not to make the incentives time-related but quality-related.
6. Contractor performance monitoring
Particularly in longer term contracts it is important to monitor contractor performance through effective performance benchmarking such as;
·no of fishes
·up-time;
·incidents;
·wireline miss-runs;
·pre-post cals out of spec;
·downhole tool failures;
·LTIs;
·Close-out speed of test review action items;
·No of rejected data acquisition incidents.
Hardware related
Equipment rigged up, tested and accepted within a specified time
Wharf delivery shipping checklist completeness (per cent)
Equipment rigged down, shipped back to base within a specified time
Number of items required after initial mobilisation
Certification records complete and on site
Per cent equipment downtime
Number of wireline miss-runs
Tool pre-calibration records complete in spec.
Tool post-calibration records complete in spec.
Data records submitted complete
HSE
Personnel's health and safety records up to date
Incidents (potential)
Environmental spills
Hazardous substance handling procedures followed
Permit to work procedures followed
Waste disposal procedures followed
Failure to achieve... for HSE will cancel the bonus scheme