Most drilling cost reduction initiatives are reactionary, unsustainable and ultimately fail. Usually the failure is neither due to incompetence nor is failure of planning the root cause and neither is it due to a lack of follow through on the plans and strategies. However, they fail because of inefficient opportunity framing and inadequate understanding of the underlying human interactions involved. The pull and push effects of the cost reduction agents is not also fully analysed.

Because most drilling cost reduction initiatives are reactionary, the planned time-frame is typically immediate to short term and the situation of things typically return to the status-quo ante or normalcy shortly afterwards. Consequently, the resultant effect on the organization is not readily apparent and when manifestsed, it is felt mainly in the operational domain. Overall, it results in more inefficiencies at greater costs over the long term. This is usually masked by early apparent gains reflected in the cost saving line item numbers.

Drilling Cost reduction is a change event usually involving major disruption in the routines of the affected personnel (direct and indirect), work segments, service providers and operating philosophies and practices. It therefore requires robust and rigorous management of change protocol.

Game theory is a type of decision theory in which one's choice of action is determined after taking into account all possible alternatives available to an opponent playing the same game, rather than just by the possibilities of several outcomes. It is therefore a useful tool for analysing and anticipating the potential outcomes of a cost reduction initiative to effectively manage disruptions and the resultant inefficiencies. It provides a framework for properly considering the unobvious but highly possible variables at play.

This paper will present a conceptual framework for evaluating a hypothetical drilling cost reduction program. For the purpose of this paper, the rational players / agents will be the service companies, the national government and the Oil and Gas Company. Principles and observations from Decision Theory, General Equilibrum Theory and Mechanism Design Theory will be used as anchors for predicting the possible outcomes of the game.

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