Incentive contracts for drilling rigs and services traditionally follow a "beat the curve" approach aimed at reducing well durations. This method failed to achieve breakthrough performance with the PDO Deep Oil and Gas exploration drilling team in Oman. By developing a strategy that approached the supply of drilling goods and services using a team approach, and implementing an incentive scheme to reward the team as a whole rather than individual contractors, a significant improvement in performance was achieved. Exploration drilling costs were demonstrated to be reduced by 32% over the first two years of contract inception, resulting in significant savings for PDO and improved goods and services from the service contractors.
Incentive schemes are not new to the drilling contracting world, and have been used in the oil industry in various forms for many years. Traditional "beat the curve" incentive programs have been tried and later dropped by PDO. This occurred because the programs did not satisfy the operator's requirements for well quality, lower cost per meter, and safety. From the contractor's point of view, these programs were similarly unsuccessful. They did not improve revenues or profitability, reward favorable safety records or improve products or processes.
In 1998, a new program was devised with the goal of jointly satisfying both PDO and service company goals. The new program linked the asset team, drilling department, drilling contractor and main service contractors, to common incentive criteria based on well quality, cost per meter and safety performance. Since implementation of the new incentive scheme in late 1998, PDO has realized significant cost reductions, improved products and services, and improved well quality. Although the incentive program does not take exclusive credit for these performance gains, (there were several company-wide performance improvement programs in place at the same time), it is credited with contributing to significant performance gains realized by PDO Deep Oil And Gas Teams.
The first attempt toward an incentive program for the PDO Drilling Exploration Group was very basic. It involved generating days versus depth curves for a given hole section for comparison against the closest available offsets then challenging the contractor to beat these curves. The approach used a minimum of three offset wells, excluded any NPT event over 6 hours, excluded any well that deviated from the average by 30%, or more, and set a target 5% faster than the generated average. Incentives were offered only to drilling contractors. In practice, incentive goals were rarely achieved and little incentive money was paid. As a result, the initial program proved unsuccessful in motivating real change leading to reduction in well durations.
Improvements to this program involved creating a Best Well Time (BWT) curve using the best times from offset wells. At the same time, incentives offered to contractors were increased to a larger portion of target savings. While this evolution drew increased interest, creating realistic BWT curves for an exploration program with a highly variable portfolio of wells, and sometimes limited or distant offset wells, proved to be laborious. Because determination of fair incentive goals required extensive, and often unavailable, engineering time prior to drilling each well, the program fell into disuse.