Application of Incentive Contracting (IC) principles to the Drilling Operations in SSB/SSPC has resulted in the most significant improvement in operational and economic performance since many years. After four years of going through the learning curves, millions of dollars have been saved, not in the least because the service contractor fraternity has shown their commitment, without which the benefits would never have materialised. This article describes the development and implementation of these contracts in a restrictive contracting environment.


Following many years of letting "dayrate" contracts for the entire range of drilling services in SSB/SSPC, the lack of incentive for the contractors to improve, significantly widened the gap between their performance and capabilities. This was aggravated by SSB/SSPC drilling staff assuming the exclusive leading role from well design to the execution phase inclusive. Upon full appreciation of the opportunities for improvement in the early 90's, SSB/SSPC drilling staff initiated the development and application of incentive conditions to their contracts. The basis was, that contractors could make monetary gains by performing sets of operations better than pre-defined targets. The challenge was, very much like in the "footage" type contracts of the past, to create a contractual situation that aligned the drilling and service contractors' goals with those of SSB/SSPC, albeit without the risks of the past. Due to HSE and Quality matters not being as much appreciated in the old days, many accidents occurred and many barrels of oil were rendered irrecoverable as a result of "rushed" operations. The "Drilling In The Nineties" (Ref. 1) type Incentive Contracts (IC's) that were developed over the past four years in SSB/SSPC however, link flexibility with HSE and Quality control to ensure history's downside does not repeat itself.

Originally instilled as a means to improve drilling performance by promoting faster execution only, IC turned out to be a "winner" in many more ways. Despite the "Production Sharing Contract" (PSC) environment and its contractual constraints under which Shell Upstream operates in Malaysia, application of IC's has actually led to a semi-integration of many services. The added value of integration lies in the continuous challenge from the team members in search for improvements to their respective share of the operations. The major drawback of contractual constraints has proven to be of lesser importance if the right mindset can be created, in which contractors can de-couple operational control from full contractual control.

Incentive contracts have now been used for four years on four large offshore development drilling campaigns and applied to four different drilling contractors and just as many rigs. Over that period, the incentive contracts have been refined and simplified and their scope has expanded to include almost all drilling, completion and workover activities.

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