Cost Model Optimization of Integrated Drilling Services Contracts in Delivering Economical and Fit for Purpose Development Wells for Petronas Operated Field in Middle East

Abstract

Abstract Cost optimization is an ever-enduring subject in drilling industry. PETRONAS, as a prudent operator of an oil field in Middle East, constantly pursues for means in optimizing drilling cost which makes up between 50-70% of a typical development project CAPEX, ensuring the projects stays economical to PETRONAS while still delivering its production commitment and values to its stakeholders. In ensuring PETRONAS and its partners investments remain protected, all drilling operations related risk compounded with regional specific risks must be accounted for and addressed in its contracting strategy. In such situations, typically an operator would opt for a turn-key or Integrated Drilling Services (IDS) approach contract in ensuring its cost are capped. However, placing considerable risks to IDS contractor will subsequently driving the well cost up. Tailoring a fit for purpose cost model of IDS contracts is vital in striking the balance between profitability of contractor and cost savings for operators. In this paper, an analysis for different cost models for IDS contracts that have been successfully implemented in one of the oil fields in Middle East by PETRONAS will be elaborated. Three types of cost models have been incorporated by PETRONAS in one of the oil fields in Middle East for several IDS contracts during their tendering process. These cost models are lumpsum cost per well, lumpsum cost per meter and lumpsum cost per hole section. The wells were drilled to the same reservoir with identical well design and drilling operation sequences using rigs with same specifications in order to achieve fair comparison. The awarded contracts with the three different cost models resulted in a range of well cost. Several advantages and disadvantages were observed during contract execution of each IDS contract implementing the different cost models. The lowest well cost in terms of IDS unit price was achieved by IDS contract utilizing lumpsum cost per hole section model. A cost reduction of up to 50 % was achieved compared to other IDS cost models. All the wells were drilled and delivered safely meeting the well objectives. In some areas of Middle East, drilling operations are challenging due to constant security concerns which led to multiple operation suspensions, in addition to typical carbonate drilling challenges which resulted in higher drilling cost as compared to regional average. This paper would help the other oil field operators to utilize the IDS contracts with a proven and reliable cost model that ensures drilling the wells with lowest cost. PETRONAS has drilled more than 125 wells in one of the oil fields in Middle East utilizing various models of IDS contracts.