Documente Academic
Documente Profesional
Documente Cultură
DISTANCE LEARNING
PACKAGE
(THE DLP)
RE-FORMATTED BY:
PETROLEUM ENGINEER
E-Mail: peteng.mzhelu@gmail.com
1
Well Engineering Distance Learning Package (The DLP)
Chapter One
Introduction, HSE
and Administrative
Matters
/Introduction
3
1.1 INTRODUCTION
Below you will find some information designed to help you use the
DLP to best effect and to help us maintain it as a fit for purpose
document.
drilling programmes. This means that the student will either be able
to find the relevant knowledge in the DLP or will know where to find
it. For this reason a number of key SIEP documents and reports are
used as references throughout the DLP and the intention is that the
student becomes familiar with them in this way.
value of such an exercise will depend in large part on the effort put in
by the student.
Most students will sit their Round 2 examination between two and
four years after receiving the DLP. This will depend on the time the
student has available, how much time (s)he takes to study the
material (expected 150 - 250 hours) and how much experience the
person gains (or already has). It should be noted that experience is
not measured by the amount of time that an individual spends at the
well site or in an office based position, but by the amount of
development gained. This is entirely dependant on the individual who
must take every opportunity to face new challenges and thereby
learn.
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1.1.5 ACKNOWLEDGEMENTS
Many people have contributed to the project to write the Well
Engineering Distance Learning Package and some of their names are
listed below. Apologies are proffered to anyone who feels missed out.
First and foremost is Ray Quartermain of Silica Services who has
provided the technical editing services and has really been guardian
of this project. Thereafter Allan Schultz, Steve Collard, Gerard de
Blok, Frank De Lange and Gareth Williams all deserve recognition.
11
1.2.1 Introduction
1.2.1.1 GENERAL
In general you, the Junior Drilling Engineer trainee, will not have
been on a drilling unit prior to commencing your training with the
Shell Group. This Part on the subject of Health, Safety and the
Environment therefore commences with two Topics containing
information which will be useful in your first few days on location,
and should therefore be read (or re-read) just before arriving there
for the first time. These will help you avoid injury before becoming
accustomed to what goes on. They contain no descriptions of
systems, and a minimum of narrative.
Topic 2.2 is a list of things to watch out for, and has deliberately
been made short enough for you to read in a few minutes before
your first visit to a drilling location. It is not only concerned with the
12
life-threatening hazards but also with lesser but still painful injuries.
Topic 2.3 contains a description of the "safety systems" which you
are likely to come into contact with during your well-site work. It is
not exhaustive and few details are given. The intention is to make
you aware of safety systems, to enable you to recognise that certain
actions or procedures are part of a larger system, and to make you
aware that you yourself have a role to play in that system.
In principle the drilling crew, and especially the driller, will warn you
if they see you putting yourself at risk, but they may not have the
time to do that if you make a sudden movement at the wrong time.
Nor can they always be watching. The drilling crew may also be so
accustomed to their daily routine that they do not realise that a
newcomer may not know what is about to happen.
To put the risks into perspective the current Lost Time Injury
frequency for all Exploration & Production companies within the
13
Group is approximately 1.8 per million man-hours. (See below for the
definition of Lost Time Injury.) That means that the average person,
including contractor site personnel, would have one accident serious
enough to require one day or more off work approximately every
sixty years spent at a work site. Alternatively, assuming that the
length of a working career is thirty years. of which 25% is spent at
work, it means that at current rates only one person in eight would
lose one working day or more due to an injury at work during his/her
entire career. Bearing in mind that a cut finger or a sprained ankle
could result in losing a day that is not a rate to be ashamed of; even
so, Shell is striving to improve it further.
The figures quoted in the previous paragraph are averages for all EP
companies (including contractor personnel) in the Shell Group.
Evidently the risk varies with the type of job - a floorman on a drilling
rig is more likely to be injured at work than an accountant. You, as a
trainee, should also bear in mind that, within the same type of
activity, incident frequency distributions are skewed towards young
and inexperienced personnel.
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1.2.1.2 DEFINITIONS
15
First Aid Case (FAC): A first aid case is any one-time treatment and
subsequent observation of minor scratches, cuts, burns, splinters,
and so forth, which do not ordinarily require medical care by a
physician.
Lost Time Injuries (LTI): Lost time injuries are the sum of
Fatalities, Permanent Total Disabilities, Permanent Partial Disabilities
and Lost Workday Cases resulting from injuries.
16
Lost Time Illnesses: Lost time illnesses are the sum of Fatalities,
Permanent Total Disabilities, Permanent Partial Disabilities and Lost
Workday Cases resulting from occupational illness.
Lost Time Illness Frequency: The lost time illness frequency is the
number of Lost Time Illnesses per million working hours worked
during the reporting period.
17
Near Miss: A Near Miss is an Incident which did not result in Injury
or Illness and/or Damage (Loss) to Assets, the Environment or Third
Party (ies).
The basic difference between an Injury and Illness is the single event
concept. If the event resulted from something that happened in one
instant, it is an injury. If it resulted from prolonged or multiple
exposure to a hazardous substance or environmental factor, it is an
Illness.
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19
1.2.1.3 AN EXHORTATION
Never ever say to yourself "I know this is not what I should be doing,
but it will be alright this time".
20
• Stabbing drill-pipe
You will probably not be asked to help to run drill-pipe into the hole,
but, if you should find yourself acting as a floorman, remember that a
golden rule is never to put a hand on the pipe which is already in the
hole. The driller may lower the additional pipe when you don't expect
it.
In earlier generations roughnecks were very well paid but were not
given so much safety training. Most of them finished up with more
gold rings than they had fingers left to put them on.
21
• Core recovery
Not only is the core barrel itself a suspended load, but the core inside
it may be supported only by friction and may slide out at the wrong
moment.
• Trip hazards
The derrick floor (or any other working area) should be clean and
tidy but occasionally it may become cluttered up with equipment and
tools. Watch where you walk - if you trip there are not too many
things on a rig floor which you can safely get hold of to steady
yourself .
Trips on stairs can be hazardous. Always have one hand available for
the railing - especially on a floating unit. It follows that anything too
22
• Rotary table
It may seem obvious, but the rotary table can rotate and is therefore
a special trip hazard. If you walk across the derrick floor, walk round
the rotary table, even if it is apparently not moving as you approach
it.
When the drilling crew are running pipe in or out of the hole they
tighten or loosen the connections by means of tongs which are
operated by pairs of wire ropes. One wire goes to the draw-works
and does the pulling, the other goes from the so-called back-up
tongs to a fixed point on the rig floor to stop the other half of the
connection turning. When the driller tightens the pulling cable, the
back-up tong will suddenly rotate a quarter of a turn round the pipe
and the wire line which was lying loose will snap tight. Anyone
standing too close to this cable could then be seriously hurt.
When drill-pipe is being pulled out, the tongs are not the only hazard.
Remember that there may be a column of drilling fluid almost 30
metres high inside the pipe. As the connection is unscrewed this
liquid (commonly with a pH of 10 or 11) may spurt out into the eyes
of the unwary spectator.
From time to time tools are run into the hole on wire line. If a tool is
being run quickly and meets a resistance of some sort in the hole,
the winch operator may not be able to stop quickly enough. In that
case the wire will continue spooling off the drum and fall onto the
derrick floor in loops. When the tool in the hole then falls free an
instant later the loose wire will be dragged very quickly into the hole
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and the loops will snap tight with enough force to sever a limb. Keep
a safe distance away during this operation.
• High pressures
The result of a small leak may be a fine jet of high pressure liquid
which can cut and penetrate soft material.
Avoid these two hazards by keeping your distance from high pressure
lines, especially while pumping or pressure testing.
25
• Standing on tubulars
The hazard associated with lifting single joints into the derrick has
been mentioned. The opposite operation - laying down pipe -
involves allowing a joint of pipe to slide freely down the ramp and
along the catwalk. In doing so it acquires a large amount of kinetic
energy, which should be absorbed by a sprung barrier at the end of
the catwalk. Occasionally a joint will jump over the barrier or slide
down the ramp off-centre and go sideways off the catwalk. Don't put
yourself into a position where one of these could hit you.
The low pressure drilling fluid system has its own share of hazards
for the unwary.
26
Dust around the mixing area is also unpleasant for the eyes, but this
is an obvious hazard. With one exception drilling fluid products are
fairly innocuous - they have been designed to be environmentally
friendly - but cement dust is not. If sacks of cement are being cut
open and emptied, either into the bulk tanks or while mixing cement
slurry, the dust which may be blown around has a high pH and is bad
for the eyes and lungs.
27
It is very rarely that a well is drilled without any gas indications at all;
there is thus always the possibility of gas coming out of solution from
the drilling fluid. Most hydrocarbon gases are heavier than air and
will therefore tend to gather at the lowest point on a location, which
is normally in the cellar. Do not be tempted to climb alone into a
deep cellar on a land location to look at the equipment or check the
gauges - there may not be enough oxygen there to support life. If
there also happens to be H2S present you may not stay alive for long
enough for someone to get a line round you and lift you out, even if
they see you collapse!
28
• Cranes
Cranes lift relatively distant heavy loads high into the air and swing
round to move them over intervening obstructions. The resulting
hazard is that a load may pass over people on the location without
them being aware of it. If there is a crane working on location, make
sure that you remain aware of what it is doing.
You will know by now that you should not be under a suspended
load, what you might not realise is that you should not be close to
the crane or under the jib. Cranes occasionally fall over, and jibs
occasionally fail. In theory there are automatic safeguards to prevent
safe working loads being exceeded; in practice it still happens.
Even if you are not underneath the load, keep clear of the area
where loads are being picked up or set down as they can swing
unexpectedly - especially offshore.
Trucks, cranes and fork-lifts are fitted with reversing alarms. This is
done for a good reason. If you can hear a rapid beeping above all the
other noises on a location it means that there is a vehicle very close
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to you going backwards, which in turn means that the driver may not
be able to see you. Look around to check where it is and what it is
doing.
• Welding
30
The first five items are all concerned with preventing incidents. The
following five are actions which are taken prior to and/or during
normal operations in preparation for dealing with an incident if there
should be one.
• Induction meetings
31
• Safety meetings
32
33
These cards are also known as MSDS (Material Safety Data Sheets).
• Personnel register
• Drills
• kick drills
34
• fire drills
• evacuation drills
• H2S drills (if appropriate)
• Emergency signals
Each drilling unit has a set of signals given by a bell, whistle, siren,
flashing light, etc. with at least one unique signal corresponding to
each of the above-mentioned emergency situations. There may be
more than one signal for each situation - for example a bell in the
accommodation and a siren on the rig floor. You should make sure
that you know the signals, and know what to do when you hear one.
Regrettably these signals are not standard from area to area or even
rig to rig.
• Contingency plans
• Accident/medical emergency
35
• Blow-out
• Fire
• Man overboard
• "May-day" call from aircraft/vessel at sea (including third
parties)
• Loss of contact with aircraft/vessel at sea
• Loss of contact with road transport unit
• Loss of stability of offshore unit
• Diving emergencies
• Oil spill
• A release of H2S
• Natural hazards appropriate to the specific area such as
cyclones, icebergs, earthquakes, flooding, etc.)
36
• Preconditions
• An unsafe act
• A failure of the system defences
37
One of these can almost always be present alone without there being
an incident, and often two can be present without there necessarily
being an incident.
People do not deliberately perform unsafe acts which they know are
likely to result in an accident. They have to be in a situation where
their judgement may be faulty. In the jargon of safety professionals,
there have to be pre-conditions. These are conditions which are
imposed on the worker and which are, in the short term at least,
outside his control. They are part of the working environment and as
such are under the control of the line management of the company.
Examples of pre-conditions are poor motivation, poor training, high
workload, long working hours, an uncomfortable environment and
distractions.
38
The reason for this is that built in safeguards are used which are
given the name system defences. These are measures specifically
designed to mitigate the consequences of either human or
component failure. They are installed as a last line of defence, and
the quality of the defence is related to the consequences of the
mistake which they defend against. If a Boeing 747 hits the ground it
can kill hundreds of people, so the system defences are very
comprehensive including a co-pilot, redundancy of controls, flashing
lights, aural warnings, and an automatic pilot which can over-ride the
human pilot's inputs. In the drilling business it would be fatal to fall
out of the derrick, but only to one or two people, so the derrick man
is provided with a simple safety harness with a principal attachment
plus a back-up line.
39
It does not take much thought to realise that every action we take
between waking up in the morning and falling asleep at night
involves a certain amount of risk. We evaluate that risk, usually at a
subconscious level, and if it seems to be below a certain threshold
level we equate it to zero and carry on without further thought. The
threshold level is very personal; it also varies with time. As an
example not many people consider taking a shower to be a
hazardous activity, but we probably all know someone who has
slipped on the soap or on smooth tiles and either had a near miss, or
done something more serious such as spraining a wrist or dislocating
a shoulder. The conclusion is that there are no risk-free situations in
practice and the first method is not in fact an option at all.
The second method is very common in low technology jobs and until
recently has been common in the oil industry in jobs where an
accident would not result in immediate major damage to equipment.
The thinking is that an employee will learn initially from his peers and
40
then by experience and will see the dangers for himself, or that he
need only be shown once. There are many reasons why this
approach is not effective, for example:
41
It is by now obvious to you that the only acceptable choice is that the
top management of a company accepts the responsibility for all the
assets of a company, including as a major asset the personnel. This
acceptance of responsibility for damage to personnel as well as to the
other assets of a company may initially have been motivated by
public relations - not wanting to be seen as a company which injures
a lot of people - but it also made good business sense.
Individual Operating Unit (OU) HSE policies are based on the Group
policy. It is a primary responsibility of the Management of an Opco to
ensure that all the contractors involved, as well as all staff members,
are aware of the Opco policy, understand it, and are fully committed
to adhering to it.
44
45
The first of the above points addresses safety in how the work is
done; it relates to an employee's attitude, alertness and interest. This
attitude aspect is of overriding importance as it will allow unsafe
situations to be recognised and corrected at an early stage of their
development.
46
Major accidents, including the Piper Alpha accident (1988) and the
Exxon Valdez oil spill (1989), led to increased awareness within the
industry and with the authorities that more effective management
systems should be in place to avoid major incidents. The Cullen
Inquiry Report (1990) on the Piper Alpha accident recommended
safety management systems and safety cases based on a full formal
safety assessment. This led to the development of the Safety
Management System (SMS) in Shell E&P companies, guidance for
which was first issued in 1991.
47
The SMS thus evolved into the Health, Safety and Environment
Management System (HSEMS) to cover such requirements, and took
account of external developments such as Quality Management
standards (ISO 9000) and Environmental Management standards (BS
7750).
For simplicity the remainder of this Topic refers only to HSE and
HSEMS (except where safety as such is meant, and with reference to
ESM). It must be remembered however that initially the main focus
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was on Safety with the Environment and Health (in that order) being
brought into the scope of the System at a later date. The system
itself did not change significantly with these additions (apart from the
change of name).
the move away from this reactive approach (after the accident)
towards a more proactive approach, i.e. taking preventive action
before an accident occurs. HSEMS has taken this further by providing
the structure for improved planning via the management of hazards.
50
The elements of the HSEMS structure are dealt with in turn in the
following sub-topics;
51
53
This may seem self evident when set down in print, but it is
surprising (or perhaps not) how many people will try to avoid
accepting responsibility for an accident to a subordinate.
55
56
57
I would therefore request you to ensure that work does not start
before it is confirmed that essential safety systems are in place and
that staff are accountable for this requirement. Where we cannot
ensure safety, operations should be suspended. This accountability
should apply at all levels of the organisation; from the Chief
Executive who should ensure that the corporate business
programme is in line with resources and managerial/ supervisory
capabilities, to the supervisor who should ensure himself that all
precautions are in place and that his workers understand the job at
hand.
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• General Management
This is the level which sets the policy and priorities, establishes the
framework for implementation, provides the resources, and monitors
adherence and overall performance. It is not however sufficient for
the top management of an Opco to perform its HSE responsibilities
behind closed doors it, and specifically the GM, must be seen to
demonstrate strong leadership and commitment. This visible
leadership and commitment was the first principle of ESM; it is so
important because it creates the atmosphere in which the whole
Management System operates.
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Interest alone, vital though it is, is clearly not sufficient. The GM must
demonstrate a willingness to provide the funds required for sufficient
resources (in this case, man-hours) to develop, operate and maintain
the HSEMS.
• Operations Management
This is the level which specifies the professional ways and means;
which selects the appropriate objectives, standards, specifications
and procedures in the technical and HSE disciplines; which verifies
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• The Crew
This is the level which actually does the job. They must flag all
unsafe conditions and incidents, correct unsafe acts and give
suggestions for improvements. It is also the responsibility of each
person in the crew to watch out for the safety of his work mates.
• The Individual
In the last resort each individual is responsible for his own safety and
should not rely on the "systems" to take care of him.
HSE Advisers are not responsible for HSE matters. Such staff,
sometimes known as "HSE professionals", have a very specific rôle to
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1.2.6.4.2.5 In SIEP
63
1.2.6.4.2.7 Accountability
65
Making staff accountable for HSE, in the same way that they are
accountable for the technical aspects of the job, means that career
performance ranking is as dependent on HSE performance as on
technical performance.
66
How probable is it ?
Mitigate
Recover
consequences
67
1.2.6.7 IMPLEMENTATION
68
There is only one way to ensure that people do use procedures and
systems and that is to capture their hearts and minds. Their hearts
have to be convinced from the start that the objective of safety
management is (contrary to what may have been implied earlier in
this document) not to achieve a low accident rate but to send them
as individuals home in one piece to their families and friends. Their
minds have to be convinced that the specified procedures are the
best procedures. The latter is basically achieved by training, but it is
also very important to involve the people who use the procedures in
writing them, and to take seriously any suggestions they may have
for modifications. Capturing the hearts can only be achieved by
creating a HSE culture which permeates the whole company. Every
manager and supervisor, at every level, must demonstrate by his
own actions that the operation achieves success through the use of
the correct procedures. There must be briefing sessions and HSE
meetings to build and consolidate group motivation and to encourage
individual participation in discussion. Each person should be
individually informed, by means of newsletters, etc. of significant
achievements within the company as a whole as well as within
69
70
Last but not least there is the tenth principle of ESM - accident
investigation. Strictly speaking this is not performance monitoring,
however it is similar to monitoring in as much as any accident or near
miss is a positive indication that the HSE management system has
failed and provides feedback into the "corrective action" element of
the quality loop.
71
72
You will already have realised that top management will be ensuring
that the quality loop is being closed by monitoring the corrective
actions being taken by the operations management.
1.2.6.10 AUDITS
There are two levels of audits, internal and external. Internal audits
are more thorough versions of the routine rig visits, done by a larger
team and taking longer. They will also look at the procedures within
the office organisation. The result will be a formal report which goes
further up the line than the rig visit reports.
External audits are done (at the request of the top management of
the operating company) by a team led by SIEP and include members
from the operating company itself and from partners, if there are
any, and/or contractors. They are as comprehensive as possible
taking a team of four people up to two weeks to complete. There will
be a formal report sent to the operating company by SIEP over the
signature of the EP co-ordinator, who will require regular progress
reports on the corrective actions taken. External audits will be done
every three years or so.
74
1.2.7.2 HEALTH
Within the industry there are trades with their own specific health
hazards, such as:
76
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1.2.7.2.2 HYGIENE
The environment is currently the topic with the highest profile. The
drilling business creates two very different hazards for the
environment; pollutants are discharged and, onshore, the topology is
modified. It is difficult to know which has the greater long term
effect, both have to be controlled and mitigated, and much has
already been done in those respects.
The pollution resulting from blow-outs is what gets all the publicity,
but that, thankfully, is rare in our operations. What has not been
rare, and only began to receive significant attention in the early
nineteen eighties, is the discharge of liquid drilling fluid. If the drilling
fluid properties started to deviate from what was required, usually by
79
taking up clay from the drilled formation, the easy option was to
dump it and mix new drilling fluid. The chemicals used were simple
and cheap, and solids removal equipment was limited to the shakers,
desanders and desilters. The alternative was, and is, to use a more
sophisticated system, easier to maintain but more expensive to start
with, and to use more efficient solids removal equipment so that
formation solids taken up by the drilling fluid are completely removed
and are discarded dry.
80
which may prevent the area ever returning to its original state, That
is a change to the natural drainage of the area. The natural drainage
is an equilibrium state which has developed over geological time. A
step change will not be reversible and it is difficult to estimate what
the final effect will be. An access road may for example cut across a
dry stream bed. When the rainy season comes the stream may then
follow the road and create a completely new stream, in the process
virtually destroying a village which had always relied on the original
stream for irrigation. Building a dam to provide drill-water may create
changes which will not revert to the original state when the dam is
eventually removed.
81
82
83
The first part of the HSEMS Manual will normally be divided into the
following sections, reflecting the management of HSE within the
structure of the Model Management System
84
85
86
87
88
89
90
91
This section describes the plan and the process for periodically
reviewing and improving the effectiveness of the HSE Management
System. The review should include a review of the methods used to
measure and monitor performance. A plan for the review and
improvement of HSE Cases should be described.)
93
94
This part draws together into a comprehensive list all the documents
and standards referred to in Parts 1 and 2, together with a
description of their purpose, revision date, their custodians and
review cycle; cross referenced to the appropriate activities and
hazards. In addition, as HSE Cases are developed, and site specific
controlled documents identified, the latter must be included in Part 3
of the HSEMS Manual.
95
The HSE Case is the translation of the four part Company HSEMS
Manual into an operation/facility-specific demonstration of the HSEMS
in action. It is a demonstration of how the company's HSEMS
objectives are reflected in practice and is a more focused expression
of the level of local risk management. It documents the programme
of formal HSE assessment that has been conducted by the operating
company to assure itself that an operation is safe, and can be used
to demonstrate that:
96
97
98
Part 2 of the HSE Case translates the material given in the HSEMS
Manual Part I from the corporate level to a demonstration of practice
at the level applicable to the management of the specific operation.
When there is no difference between corporate-level and operation-
level material this section demonstrates the implementation of what
was said in the HSEMS Manual. It details contact persons, relevant
meetings, site specific controls and plans e.g. contingency planning.
The HSEMS content of the HSE Case is related, and cross referenced,
to the appropriate parts of the hazard analysis and installation
description.
99
The description should include all facilities and sytems that are in
place to control, reduce the likelihood of loss of control, mitigate and
prepare for recovery from hazards. Design features for HSE
enhancement should also be included. The description should be able
to demonstrate that equipment and operations that must remain
100
• Hazard analysis
• Hazards Register
• HSE-Critical Operations Procedures
• Manual of Permitted Operations.
101
• Hazard analysis
• Hazards Register
102
103
This section sets out the key hazard control and recovery procedures
for the operation. It includes:
104
• a status report list of all findings of the HSE Case, and also
findings from subsidiary studies or similar (e.g. audits) that
have not been satisfactorily resolved;
• a plan to ensure resolution of any deficiencies in the HSE
Management System as applied to the installation/operation;
105
The Remedial Work Plan shows action parties and completion dates.
Given the findings of the hazard analysis and the measures already
taken, or in hand, to lower risk associated with the operation, it is
concluded that this HSE Case demonstrates that, to the extent
reasonab1y possible:
106
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1.3.1 Introduction
Responsibility for the budgeting, securing finance, monitoring and
control of any Operating Unit's operating costs and drilling costs rests
exclusively with the Operating Unit (OU) itself. This responsibility
ultimately lies with the OU's chief executive, but he in turn delegates
portions of it to his various managers charged with managing
different portions of the OU's business.
108
• Contract payments
• Personnel
• Consumables
• Service fees
• Company overheads
109
Included in the time related costs are all contractual payments for
services applicable during the contract period of the rig that are
specified as a daily rate. For example:
The above mentioned types of contract mostly specify a daily rate for
the rental of equipment with in addition a rate for executing a
specific activity with that equipment.
110
1.3.2.1.2 PERSONNEL
• Operations Manager
• Head of Well Operations
• Well Engineers
• Site Representatives
• Administrative assistants in the Well Engineering Department
• Civil Engineer (if solely concerned with access road and
location construction/rehabilitation)
• Geologists
111
1.3.2.1.3 CONSUMABLES
The cost per day for consumables usually only includes payments for
the fuel and lubricants for the rig, supply vessels, standby vessel and
helicopters if they are not already covered by the day rates for
contract payments.
112
SIEP charges all OUs, including NVOs, for general support on the
basis of a specified amount per string-month, which is evidently a
time-dependent cost chargeable to each individual well.
Other than that SIEP also carries out specific tasks at the request of
the OU in the same way that any other contractor would do. Such
tasks are invoiced at so much per man-hour. The type and amount of
work involved depends on the size of the OU. A large OU will have its
own geologists, reservoir engineers and petrophysicists and will only
ask for SIEP assistance with major projects which are not related to
specific wells and will thus not be included in well costs. On the other
hand a small OU, or NVO, will typically ask SIEP for assistance with
geological interpretation and well evaluation, or advice on specific
borehole difficulties, on a well-by-well basis. These costs will be
charged to the well to which they refer. Although this assistance is
not strictly time-dependent there is a general correlation between the
amount of time spent on a well and the amount of assistance
requested, and for convenience these service fees are both estimated
and charged in the time-dependent category.
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114
• Bits
• Casing and casing attachments
• Cement and additives
• Mud chemicals and lost circulation materials
• Completion tubing and attachments
• Completion fluids and chemicals
115
of something that happens or is used only once per well. The exact
magnitude of such a once-off cost is not necessarily known
beforehand.
The costs for mobilising a rig and all related service contract
equipment and personnel from one part of the world to another is
very much dependent on the distance to be covered and the means
by which the transport is to take place. This is usually specified as a
fixed amount in the contract(s) and can be in the order of 1 to 4
million dollars, depending on the circumstances.
Another example of a fixed cost would be the drilling of one (or two)
water wells per location or group of locations for a fixed price.
Fixed costs which are independent of the number of wells drilled (eg
mobilisation) are normally allocated equally to all the wells which
benefit from that expenditure.
116
In new areas, all facilities that have to be set up specifically for the
execution of a project are once-off costs charged to the well or wells
that are to be drilled. These can, especially in remote areas, be the
costs for the installation of an infrastructure such as office
construction, installation of long distance telephone network etc.
(With established companies these costs are usually charged to
overheads.).
117
Other than the cases mentioned above once-off costs are those
relating to non-time- and non-depth-dependent costs for permanent
well equipment and work undertaken for a specific well only. The
major item is the wellhead and its related equipment. If the wellhead
is recovered, often the case with exploration wells, the costs
allocated to the well are those of refurbishment and depreciation.
With the available well cost data, a well cost data base has been set
up in SIEP and is used for estimating future well costs based on
historical performance.
119
proposed area and also for variations in the market costs for
equipment and services.
This is the last cost estimate made prior to drilling the well. A well
proposal, a well programme, a detailed well design and the costs
related to specific service contracts need to be available in order to
meet the accuracy requirements of this estimate.
120
Comparing the actual final well costs with the well cost estimate, and
analysing the differences, is a powerful cost control tool which can
lead to increased efficiency in future wells. Such differences can be
due not only to estimating errors or cost variances, but also due to
performance variances. In case of the latter, future operations can be
modified and tuned towards better performance and efficiency.
121
122
These figures reflect the situation at the beginning of the year 2000.
Rig rates can however fluctuate quite aggressively and normally
follow the oil and gas market price. This was demonstrated in
1998/99 when the oil price more than halved followed by a reduction
in drilling activity. The normal supply and demand situation that
developed resulted in a 50% reduction in rig rates. In offshore
operations, especially in the North Sea, the same market conditions
will also heavily influence total operating rates are through the supply
boat/transport market situation.
123
Total
Daily rental
Operating cost
US$/day
US$/day
1.4 Contracting
124
1.4.1 Introduction
This Part is intended to give guidance on key aspects of contracting
by providing an overview of the various types of contract and
contracting activities. It also highlights some of the commercial and
practical aspects.
125
126
127
129
130
A good contract clearly defines: what each party has to do, when,
where and how, what price will be paid by for this, and what
happens when something goes wrong or either party does not fulfil
its obligations.
The "promises" with regard to what each party has to do, when,
where and how including the price to be paid, and other matters
which are specific to each contract, make up the bulk of the
document and are described as the "Specific Conditions of
Contract".
These include:
132
1.4.1.2.2 MYTHS
There are two myths about contracts which you need to recognise.
These are that:
133
1.4.1.2.3 SUPPORT
134
135
It important that you appreciate that whilst this Part will address in
more detail the process of Preparations and Contract Award, steps
such as Execution of the Work (Contractor Management) and
Demobilisation/close-out are also important parts of the whole
contracting process.
137
138
139
• safety
• environmental protection
• health
• quality management
• financial management
The DITN initiative aims to address this cost increase through three
main strategies:
Contracting strategies are being reviewed and improved with the aim
of incorporating and integrating the best features of incentive
contracts, subcontracting and turnkey arrangements into mutually
beneficial contracts where commercial and operational issues are
managed so as to produce a 'win-win' situation.
140
• improved efficiency
e.g. cost reduction and improvements in performance and
profit
• improvement of quality
e.g. joint responsibility for delivery of project objectives
• appreciation of joint achievements
e.g. enhanced motivation as a result of shared decision
responsibility and incentive payments
• proactive implementation of Health, Safety and Environment
policies
e.g. partnerships instead of adversarial relationships
• attainment of joint business objectives
e.g. increased investment opportunities and maximisation of
return
• improved technical opportunity
e.g. shared Research and Development costs, application of
innovative technology
• increased information exchange
e.g. less hierarchical communications
141
The standards and norms for the management of this transition are
still being refined at the time of writing (1995). The relationship
between Shell drilling/contract engineers and contractors therefore
needs nurturing with the requisite care and support. The aim is to
avoid conflict and coercion and the final objective is the realisation of
the 'win-win' relationship.
The contract strategy will have an impact on all aspects of the project
organisation, the resourcing of the project team and the definition of
the work scope and specifications. The approval of this strategy is
usually the first formal involvement of the Tender Board.
• Local infrastructure
• Logistics and travel
• Local organisations, institutions and government offices
• Security restrictions
• Local cultural customs and constraints
• Opportunities to share resources with other companies in the
area
144
1.4.2.1.2 TIME
145
Estimation of the time requirements and outline project plans are key
matters to be addressed in the Development of a Contracting
Strategy step of the Contracting Process.
146
Provided the payment methods are also suitable, the OU's role in this
process is more geared to that of Quality Control and more emphasis
147
148
Exactly how the services are integrated will depend on many factors
and considerations which are beyond the scope of this document.
149
The three types of contract utilised for the Group's drilling operations
are:
150
As you will see the name of the types are derived from the payment
method.
Reduced Rate (90% of the full day rate), the Special Rate (70%) or
even on the Zero Rate.
This type of contract is intermediate between the Day Rate and the
Turnkey types of contract. The work is divided into smaller parts for
which individual pricing schedules have been agreed, each of which
provides the contractor with a financial incentive to operate more
efficiently. This could be lump sums for hole sections, or a logging
job. The overall objective is to have the well drilled for a lower price
in a shorter time than would have been done under a day-rate
contract, and in such a way that both parties gain.
1.4.2.3.3 TURNKEY
evaluation logs. This type of contract can only be used when the
"end product" and its specification can be very accurately defined
prior to the preparation and award of the contract. Any changes in
the Scope of Work identified after award of the contract can have
extremely significant consequences regarding the total contract value
(cost). The financial risk to which the contractor is now exposed is
certainly higher than that in the day rate type of contract. However it
is the OU's intention to limit his exposure to performance related
risks only. For this reason the drilling contract contains special
clauses dealing with unexpected and severe problems; the Lump-
Sum mode of reimbursement is temporarily suspended and replaced
by a Day-Rate until the situation is resolved.
1.4.2.4 INCENTIVES
153
The OU gains because the cost is less and the well (or information)
becomes available earlier. A contractor's own costs are mostly time
based (payroll, rentals, equipment depreciation, etc.) thus he will
only gain from a lower income per operation if the time taken is
reduced even more. Incentive arrangements have to be designed to
make this result possible.
each. In fact, because most service companies have little control over
the overall progress of the operation it is difficult to design realistic
individual incentive schemes for them. The following links describe
what was being done in 1994-5 with respect to the various services,
but you should bear in mind that the application of incentive
contracts is evolving, and practices may have changed by the time
you read this;
• MILESTONES
156
157
158
• Making hole
For example:
159
• Logging
160
You will be asking why the expression "to a first approximation" was
used. In practice the logging operations are influenced by hole
conditions, which the drilling contractor can control. With enough
experience in the area, and a logging programme defined within
close limits, the contractor may be willing to accept a rate during
logging which is a combination of day-rate and lump sum.
161
into contracts goes hand-in hand with decisions on how services are
bundled together. Therefore selection of contract scopes and types
need to be made together.
The services which can have an incentive rate easily applied are
drilling fluid engineering and coring. The former is described below;
the latter is merely a variation of the "drilling ahead" arrangement.
Directional surveying/drilling and mud logging services are active
from spud to completion, and both can have an effect on the overall
performance, thus incentive schemes are being applied for them.
These are also described below.
162
company agrees to provide the mud required at a fixed cost per unit
length of hole drilled (a different rate for each hole section, of
course), with the mud specifications being between well defined - but
not unnecessarily narrow - limits agreed in advance. The contractor
then has a high incentive to use the minimum quantities of products,
reducing not only cost but also pollution. In a known area the drilling
fluid contractor may also be willing to include the engineering
services in the (increased) rate per unit length. This then gives the
incentive to provide a fluid which will assist the drilling contractor in
raising the penetration rate.
There are two extreme approaches for drilling a directional well. One
is to go slowly and carefully, with frequent surveys, and deliver a well
which follows the planned line exactly to achieve a bulls-eye on the
theoretical target. The other is to make hole quickly, with less
163
frequent surveys, but with several correction runs to bring the well
back onto course. Both extremes are inefficient. The ideal is to make
hole as quickly as possible without requiring correction runs and
certainly without wasting time following a theoretical line to a
theoretical point - as long as the well is within the defined target
area it is acceptable. Obviously, however, the closer to the ideal
point the better.
• Mud logging
Accepting that this type of service can assist the drilling contractor to
improve the overall efficiency, it is still virtually impossible to put a
value on each individual action of the mud-loggers. The incentive
which is used is to pay as, a bonus, a percentage of the cost savings
made for the company by the drilling contractor under his own
incentive scheme. This type of bonus scheme can be applied to all
the various contractors involved in the drilling of a well it is not
always easy though to agree how the percentage splits should be
made!!
• Other services
Services for which incentive schemes are more difficult to devise are:
165
166
In general one can say that the larger the proportion of work for
which unit rates (lump sums) or incentive rates are paid, the more
accurate the definition of the work must be and the more time it will
take to prepare.
Unit
Uncertain number of Fixed Price for defined work
rates/mini-
defined work units units
lump sums
167
168
The Opco has contracted a cantilever Jack-up drilling unit for drilling
six wells from a platform deck. The contract stated the requirement
for all the wells to be drilled without moving the drilling unit therefore
the derrick on the cantilever must be able to be skidded in a pattern
which is large enough to reach each well with the centre of the rotary
table. There is also a contractual requirement to "batch" drill and
complete the wells.
One year later all the wells have been drilled and cased-off to a
depth of 2000 metres. The first well has reached its final depth and is
cased-off satisfactorily at 4000 metres
169
The strategy was sound, but the contract did not reflect the full
expectations.
companies which wish to be considered for the work will submit their
tenders, and are called tenderers. The word "bid" is often used
instead of "tender" as it is virtually synonymous - but you would not
say "going out to bid" or "invitation to bid".
171
• SOLE/NEGOTIATED TENDER
172
1.4.3.2 PRE-QUALIFICATION
173
174
• General information:
• Financial information:
175
176
177
At this time the Tender Board will also approve the dispatch of tender
documents to those contractors listed.
1.4.3.3.1.2 Contents
179
This letter formally invites the tenderer to submit a bid for the Work
described in Part 9 of the Contract documents and gives an overview
of the work to be performed. Basic instructions regarding the
180
"Closing Date" and time and the manner in which the completed
tender documents are to be returned to the OU's office are given.
• INSTRUCTIONS TO TENDERERS
General
office strike, fire in his office, etc.), and if the OU feels that it would
also be punishing itself by rejecting his tender, it may decide to
change the closing date, which would have to have the approval of
the tender board. In that case it is essential not to disadvantage the
other tenderers, who may also be rushing to complete the
documents, and to send out an advice to all parties that they have
additional time to prepare their bid. This would be done by means of
a Tender Bulletin (see "communications" below).
182
183
To clarify: the bid price must still be based upon the understanding
of acceptance of all conditions.
In both of these cases the actual bid contains the prices and/or rates
for the original scope of work. Each Alternative must be clearly
described with reference to the applicable clause in the documents,
and the Contractor must fully explain the effect of his Alternative on
the final contract sum. It is then at the OU's discretion whether any
or all of the Alternatives are incorporated into the contract.
184
Communications
After that deadline, but before the closing date, communication from
the OU to the tenderers is by means of Tender Bulletins sent to all
tenderers in order to ensure that they all have access to the same
Company information. Tender Bulletins are numbered and, if they are
in response to an enquiry from a tenderer, they should not reveal the
identity of the original enquirer. Tender Bulletins normally convey
information relating to queries, advice, modification and
interpretation, and are issued only to tenderers who have made
themselves subject to the Secrecy Declaration. For the sake of clarity,
it is frequently considered necessary to convey information in the
185
Site Visits
Site visits are actively encouraged for contractors who are not
familiar with the area so that the OU can be sure that bids are based
on realistic local conditions. It is usual to arrange a group visit for all
the contractors so that they all have the opportunity to discuss
specific points with the OU, and all are given the same information. If
any point of significance to the execution of the contract is raised by
a contractor during such a visit, any relevant information should be
circulated formally by the OU in the form of a Tender Bulletin.
186
• ACKNOWLEDGEMENT
• SECRECY DECLARATION
• COMPANY INFORMATION
188
Disclaimer
Although this section physically does not form part of the final
contract, this statement avoids exposure of the OU during the
189
Whilst the headings disclaim responsibility for accuracy they are not
intended to support erroneous or inaccurate data. The issuing of
inaccurate data will have a long term negative effect on the
contractor's price and performance and upon the contractual
relationship in general.
Introduction
190
Letter of Tender
Conditions of
Tender
191
Assessment Questionnaire
The forms must be carefully modified for each tender to ensure that
the necessary information will be submitted in all bids. Failure to
meet these requirements may lead to a need for further clarification
by the OU and/or tenderers, with a consequential delay and potential
rate increases.
Letter of Tender
192
The tenderer only has to fill in the numbers of any tender bulletins
which have been issued, then date and sign the letter and add the
formal name and address of the company submitting the bid.
This letter is the only form in which a full signature is required by the
tenderer as it commits the tenderer to the contents of the annexed
forms. The latter only need to have the tender title and reference
number added, with an initial to confirm that they are in fact part of
the tender submission.
Appendix 1
Letter of Tender
To:
Noordwijkerhout,
193
Netherlands
"STRICTLY CONFIDENTIAL"
Sir,
194
195
We agree that unless and until the formal Contract is prepared and
executed your Invitation to Tender, this Tender in conformance with
and in response thereto and any subsequent mutually agreed
modifications, together with your written acceptance thereof, would
constitute a binding contract between us.
We hereby confirm that the following forms are attached and form
part of this Tender and may be inserted into the Contract if awarded
to us.
Letter of
Tender
Conditions of
Tender
196
You may consider our alternative proposals set out in Form V. Each
Alternative may be considered for acceptance individually or in total
together with the stated effect on the other terms of our offer in
paragraph one above.
197
this
Signature: Initial:
Appendix 2
Conditions of Tender
CONDITIONS OF TENDER
1. Definitions
198
2. General
199
3. Preparation of Tender
(3.1) This Tender was prepared at the sole cost of Tenderer and
Company is not responsible for any costs or expenses incurred by the
Tenderer in connection with the preparation, collection, delivery or in
the evaluation of the Tender, together with any costs or expenses
incurred during the formation of a Contract should the Tenderer be
successful.
Unless otherwise required by law, the prices which have been quoted
in the Tender have not knowingly been disclosed by the Tenderer,
directly or indirectly, to any other Tenderer or competitor, nor will
they be so disclosed.
200
4. Information
201
5. Communication
6. Acceptance of Tender
203
6.2 Tenderer confirms that this Tender is a firm offer which is not
subject to negotiation.
6.3 Tenderer confirms that Company can at its discretion award any
part or all of this Tender in accordance with Form II and Form IV of
this Tender and confirms that acknowledgement of receipt of this
Tender shall not constitute any actual or implied agreement between
Company and the Tenderer.
7. Visits
(7.1) Tenderer confirms that Company may visit any location relevant
to this Tender for the purposes of inspecting the proposed equipment
and the performance of the Tenderer including but not limited to
modus operandi and procedures.
204
(7.2) Tenderer will make every effort possible to secure all necessary
approvals for Company to visit any desired locations for the purpose
of 7.1 above.
Name:
Position:
Appendix 3
TenderNo.:T-UW/D/94001
Tender title: Urdaneta West Drilling Services
A. GENERAL
205
All the data and drawings detailed in this section are to be supplied.
Units must be given as appropriate.
Hull depth:
Hull length:
Hull breadth:
- (Bow):
- (Aft):
- (Bow):
- (Aft):
B.3.1 General
Number of legs:
Number of chords:
Bay height:
Leg chords:
Diagonals:
Horizontals:
210
Span breakers:
B.7 DRAWINGS
* Construction drawings:
* Detailed load plan with all live loads and tankage marked with
contents and volume of tanks:
211
Max. concurrent wind speed and reference height above sea level:
Maximum penetration:
others (Tonnes):
others (Tonnes):
213
Leg chord:
Overturning:
Analysis parameters
B.11 MISCELLANEOUS
C.1. GENERAL
215
Contractor hereby states that the drilling unit meets the requirements
of paragraph 1.2 above under environmental conditions at least equal
to the following criteria which shall be considered as acting
simultaneously and from any compass direction.
216
Within the context of the above criteria "Drilling" shall include but not
be limited to all normal drilling operations, i.e. drilling, reaming,
circulating, running casing, cementing, round trips, etc.
Maximum "1-
: mph
minute" wind speed
Maximum wave
: ft
height
Associated wave
: (seconds)
period
217
Maximum surface
: knots
current velocity
218