Creative Management for Continuous Economic Growth: Lost Hills Alliance, Kern County, California

Abstract

Abstract Alliances are increasingly becoming an integral part of everyday business. Health and longevity of a true alliance depend on the ability to implement a progressive management style putting aside traditional operator-contractor relationships. Alliance efforts must emphasize teamwork and technology. This synergetic approach guarantees success, economic growth and profit for the alliance partners. This paper illustrates the strategies that allowed the fracturing alliance between Chevron and Dowell to evolve from low-cost, due to increasingly rising discounts, to an alliance based on dynamic implementation of management and technology. These strategies focus on a comprehensive engineering approach, cost effective application of technology, logistic optimization and combined management to achieve both the operator and service company economic goals. Introduction Massive hydraulic fracturing treatments in the Lost Hills field have increased the production from 6000 BOPD to the current 16,000 BOPD. Through an immense amount of teamwork developed through an alliance signed between Chevron and Dowell in 1991, in excess of 2700 frac treatments have been performed placing over 1.3 billion pounds of proppant into the producing formations. With the common goal of reducing fracturing costs through process improvements and applied technology, the alliance has reached a critical phase at which many alliances tend to fail. With traditional operator-contractor relationships, the operator typically sees cost reductions associated with improved efficiencies and bottomline cost reductions through increased discount. The service company, trapped in the paradigm, sees itself forced to recover a portion of the lost profit through increased prices. The combination provides an atmosphere in which trust is hindered by the inability to relinquish the pre-established norms. Since its conception, the Lost Hills Alliance was initially focused on streamlining the process of hydraulically fracturing the diatomite field. Since fracturing was a relatively new technique in Lost Hills and a large scale program was based on many variables, both operational and technical, the task was to implement a process that would optimize the fields productivity and resources. In doing so, the associated incentives were cost reductions over the anticipated program and the long-term commitment to provide profitable service. Five years of new well completions and an active waterflood have produced a mature Lost Hills diatomite based on a 2.5 acre spacing. With still over 1 billion barrels of oil locked in the low permeability-high saturation reservoir, economics to continue the longevity of the field can no longer be based on "across the board" assumptions of reservoir characteristics and conventional new well completion techniques. Rather, the longevity of the Lost Hills field and success of the Alliance will depend on the ability to adopt new management philosophy that rewards and urges both companies equally to strive for a common business plan and benefit from achievements realized. ORIGINAL STRUCTURE Alliance Steering Committee: This committee originally consisted of 6 members: P. 27