Alliances in the Oil Field
C. Brent Austin
Steve Dole
PanCanadian Petroleum
Calgary, Alberta, Canada
Today’s business climate is encouraging oilfield operators and contrac-
Walt Chmilowski
Gregg Vernon
Calgary, Alberta, Canada
the competition.
Ty Watson
Denver, Colorado, USA
700
16
Wells
650
15
BOPD
600
14
550
Average BOPD/well
Richard Lewis
John Thompson
Mike Vinson
Houston, Texas, USA
cutting costs and making the most of their resources—and gaining on
Producing wells, in thousands
J. Harmon Heidt
Amoco Exploration and Production
Denver, Colorado, USA
tors to join forces. Alliances are one of the ways oilfield companies are
■ Reduction in well
productivity. Since
the 1980s, the
number of oil wells
has increased, but
the number of barrels of oil per day
(BOPD) produced
per well has fallen.
(Adapted from Adams
et al, reference 1.)
13
500
12
81
82
83
84
85
86
87
88
89
90
91
92
Year
For help in preparation of this article, thanks to Rick
Adams, Mobil Oil, Midland, Texas, USA; Hervé Anxionnaz and Jean-Pierre Delhomme, Schlumberger Wireline
& Testing, Clamart, France; Andy Cart, Amoco Production Company, Houston, Texas; Dave Church, Dustin
Free, Jay Haskell, Ed Nordmeyer, Jerry Richards, John
Thompson and DJ White, Dowell, Houston, Texas; Roy
Dove, GeoQuest, Houston, Texas; George Dozier, Dowell, Bakersfield, California, USA; Tony Fondyga and Pat
McKenna, Wireline & Testing, Calgary, Alberta, Canada;
Roger Goodan, Schlumberger Integrated Project Management, Houston, Texas; Gary Griffith, Scott Mathis and
Stephen St. Amand, Marathon Oil Company, Lafayette,
Louisiana, USA; Joel Guttormsen, Conoco Canada Ltd.,
Calgary, Alberta; Gary Horton, Anadrill, Lafayette,
Louisiana; Jeff Icenhower, Amoco Production Company,
Denver, Colorado, USA; Bobbie Joines, Dowell, Denver,
Colorado; Joe Mach and Scott Scheid, Wireline & Testing, Houston, Texas; Mike Mathews and Bob Murray,
Dowell, Lafayette, Louisiana; and Brian Taylor, Dowell,
Midland, Texas.
In this article, BRACKETFRAC, Charisma, DESC (Design
and Evaluation Services for Clients), DipFAN, FasTex,
FracNPV, GeoFrame, HyPerSTIM (High-Permeability
Stimulation), PCM (Precision Continuous Mixer), SediView and SPIN (Sticking Pipe Indicator) are marks of
Schlumberger. SUMIC is a mark of Statoil.
26
In the oil field, two factors drive profits. The
first, market price of oil or gas, is governed
by many elements, such as political stability,
economic growth and the weather, all of
which are outside the control of operators.
However, the second factor, production
cost, can be controlled to some degree by
the industry.
During the past decade, market price has
stabilized—albeit at a moderate level—but
production costs continue to increase. Wells
cost more to drill and bring on stream
because much of the easy oil is gone, leaving behind oil that defies production by
conventional techniques and oil in deeper,
more complex reservoirs in frontier areas.
Total production costs remain high because
productivity per well has declined and the
techniques and materials required are generally more expensive (above ).1
Striving to remain profitable, oil companies are taking action in two areas to control
costs. First, they are redefining their business, identifying core competencies and
outsourcing noncore activities. Second, they
are changing the way they do business,
gradually converting the arm’s-length relationship with contractors into more cooperative collaborations to eliminate redundancy and boost efficiency, exploiting new
technologies to enhance productivity.2
Oilfield business relationships take many
forms. Volume discounts, turnkeys, service
bundling, integrated services, joint ventures,
partnerships, alliances—each has a place in
the continuum of business practices, each
with different levels of cooperation and
Oilfield Review
trust. Volume discounts and turnkeys are
variations on the traditional way of doing
business. Jobs are bid, whether by well or
by project, and job specifications are set by
the operator. The service company reacts,
then executes the job on demand.
In a second category, service bundling
and integrated services are new ways of
doing business that are gaining acceptance,
especially outside North America. Service
bundling gathers several services under one
contract and concentrates the points of contact between the operator and contractors.
Here, the operator still provides all the
specs, and the service supplier executes the
job. Integrated services contracts span a
wide range of activities, from service execution—performing bundled services—at the
most basic end, to product delivery at the
most sophisticated end (see “Integrated Services,” page 11 ). Product delivery, in which
the product may be an offshore platform, a
well or some other complicated project,
Entry
Supply
assurance
Quality
management
entails conceptual design, process planning,
service execution and evaluation.
Joint ventures tend to denote shared
equity and sometimes result in acquisition
of one party by the other.
The third category, and perhaps the
newest in the oil industry—certainly the
hardest to define—includes partnerships
and alliances. Partnerships are defined by
the Journal of Petroleum Technology as
“short-term, project-specific relationships
between supplier and client that seek to
gain greater economic value for both parties.”3 Alliances are similar to partnerships,
except they are designed to persist beyond
the scope of individual projects. Other definitions exist, but an alliance is defined here
as a long-term relationship between two
companies that furthers their common interests over a specific range of activities.
Although both are new business practices
in the oil industry, alliances differ from integrated services contracts. Under an inte-
Focused
Enhanced
Established quality
expectations
exceeded
All focused attributes
plus mutual business
and profitability growth
due to enhanced
cooperation
Competitive
total system cost
Development
cooperation
Effective quality
system
Supply chain
management
Business
results
optimization
Controlled
access to both
parties’ process
and information
systems
Synergistic R & D
1- to 3-year
duration
Project-specific
R&D
Easy agreements on
rights of development
alliances. As an alliance evolves,
the partner companies share more
strategies, risks and rewards.
Long-term view
of outcome
Significant
improvement in
both partners’
perfomance
Active steering
committee
Regular meeting
review
Risk sharing in
pursuit of objectives
Long term, 3+
year duration
Commitment of
significant resources
by both parties
Feedback at
all levels
Integration of
management
planning
Partnership
measurement
system to address
total quality and value
of partnership
1. Adams R, Englehardt S and Free D: “Forming a Customer-Supplier Alliance in an Exploration and Producing Environment,” presented at IMPRO94, The Juran
Institute’s Conference on Managing for Total Quality,
Buena Vista, Florida, USA, November 6-8, 1994.
Summer 1995
All enhanced and
focused attributes
plus:
An agreement to
achieve strategic
objectives through
interdependence
A continuity strategy
nFour stages in the evolution of
Strategic
Sharing of rewards
Optimum trust
Highly synergistic
R&D
2. de Wardt JP: “Strategic Alliances: Where are We
Headed?” World Oil 216 (February 1995): 103-107.
3. “Pressed into Service,” Journal of Petroleum
Technology 46 (March 1994): 198-200, 223.
King GE: “Improving Quality Control in Alliances and
Partnering,” Journal of Petroleum Technology 46
(March 1994): 192.
grated services contract, the client assigns
responsibility to the supplier to reduce the
client’s costs. In an alliance, the supplier
accepts responsibility to reduce client cost,
and the client takes on responsibility to
ensure the supplier’s profit, often by assuring
future business to the supplier. The two sides
work together to reduce costs and improve
profitability for all involved. Trust and confidence in supplier commitment make bidding each service or per well a thing of the
past.
However, integrated services and
alliances are not mutually exclusive. An
integrated services project may be offered to
an alliance partner, or may evolve into an
alliance. In fact, most alliances start out as
tests for a certain period of time, then if successful, may become self-renewing, sometimes called evergreen. Not written as long
contracts, the terms of an alliance often fit
on a single page.
Alliances themselves take many shapes.
An alliance may be an agreement between
an operator and a service company for a
single service, or it may embrace several
companies or several product lines within a
company to create what is called an integrated alliance.
Some alliances cover one geographic area
or business unit; others encompass worldwide activities. The alliance between Texaco and Dowell, for example, covers all
pumping services for Texaco’s North American operations (see “DESC in an Alliance:
Texaco,” page 43 ). The alliance between
Oryx Energy Company and Schlumberger
spans wireline, testing and logging-whiledrilling services worldwide.
Service companies can form a brand of
alliance among themselves—more a consortium, or partnership, following the definitions in this article—to offer complementary
services when the market is for integrated
services. Oil companies forge similar partnerships to develop their assets.4
“Strategic alliance” often describes
alliances that are part of the partner companies’ strategies, and implies that the companies share their strategies openly. Few oilfield alliances so far have reached such a
level of cooperation and openness, but that
is the goal to which many aspire (left ).
4. Nicandros CS: “North Sea Trends Typify Industry’s
Worldwide Adjustment to Change,” Oil & Gas
Journal 91 (November 8, 1993): 47-53.
Hamel G and Doz YL: “Collaborate with Your
Competitors—and Win,” Harvard Business Review
(January-February 1989): 133.
27
While this manner of association is relatively new to the oil business, it has been
practiced by other industries, notably in
manufacturing, for up to 15 years. Kodak,
Apple Computer, Siemens, Ford Motor
Company, Motorola, Toshiba and
International Business Machines are just a
few of the companies with experience in
gaining efficiency through alliances.
Alliance analysts have a rich selection of
ongoing and past alliances from which to
draw analogies, along with success and failure factors (see “The Alliance as a Relationship,” page 34 ).
Efficiency Improvements
Through Alliances
The cooperative spirit of an alliance changes
the way problems are approached. In the
quest to cut costs, it means not dwelling on
contractor profit, but cutting total project
cost (next page, top). To uncover where cuts
can be made, every process in the entire
project must be analyzed and examined for
inefficiencies. Alliance partners construct a
description, called a process map, for each
process. A process map may be a list of
steps or a flow chart (next page, bottom
left and right ). The total project is analyzed
and individual processes are retained only
if they add value. Improvements are made
to the remaining processes, or entirely new
processes are developed, and the new processes are remapped, giving continuous
improvement. 5 Decisions on how to
improve a process come from the alliance
partners, and team members have the
power make the necessary changes.
Where to start cutting costs? An economics professor would say, cut first where
there are the easiest and biggest gains.6 In
today’s development-oriented oil field,
pumping services can often account for the
majority of the cost of a well (below ). These
have become the early targets of companies
trying to increase efficiency.
Process mapping can show where redundant efforts are undermining efficiency. For
example, before one alliance, stimulation
engineers from both sides would spend time
designing a frac job. Soon after the start of
the alliance, the engineers from both companies completed the exercise of mapping their
fracture design processes. The results
showed the two processes to be duplicates.
200
Thousands of dollars
150
100
50
Through the alliance, now a frac job is
designed jointly, and then modeled by the
service company engineer, freeing the oil
company engineer to spend time on other
projects that add more value—in some cases
selection of other wells to be stimulated,
called candidate recognition. In other cases,
the optimal division of labor may assign candidate recognition and job design to the service company engineer, leaving the oil company engineer free to develop future growth
opportunities. In a growing number of
alliances, the oil company no longer
requires a representative on site for the job.
The streamlined process is more efficient,
but trust in the alliance partner is crucial to
the success of such a scheme (page 30 ).
Eliminating bidding is another example of
increasing efficiency by slashing processes
that add no value. Through process mapping, some oil companies have found that
almost as much money is spent on the bidding process as on the job itself. An advantage of the alliance between Conoco
Canada Ltd. and Schlumberger Wireline &
Testing has been the time and money saved
by not bidding. Conoco Canada Ltd. previously required at least three bids for every
well. Specifying the logging program took a
half day; getting the bids back took another
5. For a review of oilfield applications of quality control,
assurance and management:
Burnett N, Harrigan J, Jeffries J, Lebsack T, Mach J,
Mullen D, Pajot D, Rat F, Robson M, Theys P and
Wohlwend H: “Quality,” Oilfield Review 5, no. 4
(October 1993): 46-59.
6. This idea was quantified somewhat by Vilfredo Pareto,
an Italian economist, and founder of the “80-20 rule:”
80% of the wealth is held by 20% of the people. Quality expert Joseph Juran extended this concept to the
analysis of problems in general: 80% of the problems
come from 20% of the possible causes.
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nRelative magnitude of cost sources in the life of a development well in a California field. Pumped materials are the greatest cost,
and so present the greatest potential for cost savings.
28
Oilfield Review
Product-based
system
Service-based
system
Percent
Percent
Alliances
15
15
5
5
30
30
Customer design, specification,
procurement supervision,
QA/QC and payables
Supplier profit
(traditional approach
focuses here)
Supplier equipment
(including depreciation
and recapitalization)
Supplier labor
(including overheads)
20
New total system cost
Price = 100%
Invoiced cost = 115%
Total system cost
Cycle time, productivity,
logistics, research, engineering,
market swings, utilization
and missed opportunities
nNew focus on costeffectiveness for
product-based and
service-based systems. The traditional
approach reduces
costs by cutting supplier profit. Alliances
achieve increased
efficiency by cutting
total system costs.
45
45
20
Supplier materials
Process A
(operator)
Process A
(service company)
Improved process A
(operator + service company)
Further improved process A
(operator + service company)
nAnalyzing a well stimulation process map. More than 6 ft [2 m]
long, this typical process map comprises more than 100 steps.
nTwo fracture-design process maps streamlined to create one,
more efficient process. Through continuous improvement, the
operator (pink) and service company (light blue) processes
become a new single process (purple). Further improvements
yield a process with optimum efficiency (dark blue).
Summer 1995
29
half day. The bids then had to be opened in
the presence of a witness. Comparing bids
was a job in itself, and since there was no
uniform format, this could take another day
or two. After selecting a contractor, Conoco
met with an accountant, then called the
contractor to announce the award. “In the
week I save by not bidding, I can identify
new prospects,” remarks Joel Guttormsen, a
geologist with Conoco in Calgary, Alberta,
Canada. “That’s adding value.”
An idealistic example of process streamlining through trust is the story of tubulars—drillpipe, casing and tubing. Mapping
the many processes from steel manufacturing and tubular construction through
deployment and finally recycling shows that
tubulars are picked up, put down, inventoried and inspected anywhere from three to
eight times each (next page ). Cutting out
redundant steps and checks yields the seamless circle of the ideally efficient process.
Most of the process lies outside the realm of
the operating company alone, but through
supply chain management—alliances with
other links in the supply chain—total process efficiency can be optimized.
Some alliances initially formed to address
drilling and pumping costs later expand to
enfold other services. Examples from three
North American oil companies show how
such alliances are increasing productivity
and cutting costs.
Preperforating
Amoco/Dowell engineers
select perfs.
Forward to local
Dowell coordinator.
Fracturing
Tree-up
Schlumberger coordinates
logging and perforation;
notifies Amoco of date.
Dowell engineer
designs frac.
Amoco coordinates
w/Schlumberger to
set wireline packer.
TD not OK
Amoco installs frac valve;
coordinates w/Dowell
to test casing.
TD OK
Copy to Schlumberger
Wireline & Testing;
prepare for job.
Dowell notifies Amoco
of total depth (TD)
and Amoco OKs TD
or cleanout.
An example of an integrated alliance
designed to increase drilling and completion efficiency is the multiservice, singleproject alliance between Marathon Oil
Company and the Schlumberger companies
of Anadrill, Dowell and Wireline & Testing.
Diamond Offshore Drilling was the drilling
contractor, and mud was provided by M-I
Drilling Fluids Company.
The challenge was to drill and complete
nine directional offshore wells in the Vermilion Block 331 field of the Gulf of Mexico. Marathon fielded an interdisciplinary
team that interfaced with the contractor
team, and all decisions were approved by
the new collaboration.
Perforating
Run gauge ring w/gamma
ray/casing collar locator.
Copy to Amoco
Offshore Integrated Alliance
Forward to local
Dowell coordinator.
Copy to Amoco
Dowell and Palestine meet
on location for equipment
layout and select frac
date; Dowell notifies
Amoco of frac date.
Log and perforate
Dowell coordinates for
pit/frac tank/lines
and coiled tubing unit.
Palestine coordinates
installing frac stack,
pit/lines separator
and watchmen.
Frac well;
shut in for 36 to 48 hours.
Dowell coordinates
with water supplier.
Palestine coordinates
hauling flowback fluid.
Amoco coordinates
w/packer company.
Run gauge ring and
junk basket;
set packer.
Amoco coordinates
for rig.
Rig pusher coordinates
for tools, water/packer
fluid, tubing and tree.
Run tubing and
land tree.
Rig pusher coordinates
rig-down and pickup tools.
Run wash tool;
wash to plugged-back
TD and test casing.
Well ready to perforate
Well ready to fracture
Well cleaned up and ready
to run production tubing
Turn over to production;
ready for sales.
nStreamlined process map from Amoco Southeast Business Unit alliance with Dowell.
30
Oilfield Review
Typical Tubular Supply Chain
Mill
Scrap
Make steel
Handle & load
Inspect
Manufacture
pipe
Inspect
Nondestructive
test
Inventory
Handle & load
Ship to pipe
processor
Process
Nondestructive
grades, threads
test
Inventory
Handle & load
Ship to
distributor
Pipe
Processor
Inventory
Distributor
Handle & load
Inspect
Inventory
Handle & load
Ship to inspection
company
Inspection
Company
Handle & load
Inspect
Nondestructive
test
Inventory
Handle & load
Ship to
operator
Operator
nProcess maps
describing the use
cycle of tubulars.
Traditional processes
allow tubulars to be
handled, inventoried
and inspected a
number of times
(top). Alliances
between links in the
chain permit elimination of redundant
steps, yielding the
ideally efficient process (bottom).
(Adapted from Amoco
ASAP 2000 program,
with permission.)
Handle & load
Inventory
Handle & load
Ship to
well
Utilize
Scrap
Allied Tubular Supply Chain
Scrap
Utilize
Make steel
Ship to
well
Manufacture
pipe
Handle & load
Handle & load
Process
grades, threads
Summer 1995
Ship to pipe
processor
31
alliance, Marathon normally wouldn’t
acquire these measurements while drilling
because of the high cost, but Anadrill drilling
engineers pushed for them, certain the measurements would make drilling safer, would
create a more stable hole and ultimately
save money. Compared with other recent
similar drilling projects conducted via “business as usual,“ or outside the alliance, the
Vermilion 331 team increased the average
drilling rate by 56% and decreased drilling
costs by 14% (below ).
Benchmarks were set in three areas: better-than-market financial compensation was
offered if drilling time, health, safety and
environment compliance, and well performance exceeded expectations. The joint
team worked to anticipate time-consuming
steps and solve problems rapidly. Drilling
time was minimized with topdrive to speed
tripping and connections, and with the help
of the SPIN Sticking Pipe Indicator program,
which requires downhole weight-on-bit and
downhole torque as inputs. Before the
Drilling
Ft/day
Cost/ft
1000
100
900
90
921
800
80
700
70
500
Dollars
600
Ft
nResults of Vermilion 331 integrated
alliance between
Marathon Oil Company, M-I Drilling
Fluids, Schlumberger Wireline &
Testing, Anadrill,
Dowell and Diamond Offshore
Drilling.
592
400
92
79
60
50
40
300
30
200
20
100
10
0
0
PanCanadian Stimulation Alliance
Completion
Days/gravel pack
Cost/gravel pack
7
6
500
473
6.6
400
425
4.8
3
Dollars
Days
5
4
300
200
2
100
1
0
0
Production
Business as usual
8000
7840
Bbl of oil equivalent/day
7000
Vermilion 331
Unlike the integrated alliance that drilled
Marathon’s Vermilion wells, most oilfield
alliances begin with a single service. An
example is the alliance between PanCanadian Petroleum and Dowell, the goals of
which are to assure high-quality stimulation
and to control treatment costs. In 1992, top
management at PanCanadian urged business managers to search worldwide for
more efficient production methods. Out of
that came the motivation to forge alliances
to optimize production and speed payout
( next page, bottom ). The alliance with
Dowell emphasizes finding the best technology for the problems encountered in
PanCanadian’s variety of assets, which span
a multitude of environments in Canada,
including shallow gas wells, deep foothill
exploration wells and wells producing
heavy oil.
A Dowell engineer—called a DESC engineer, for Design and Evaluation Services for
Clients (see “The DESC Engineer Redefines
6000
6030
5000
4000
3000
2000
1000
0
32
The completion phase also benefited from
the team organization and the risk-reward
financial structure. By focusing attention on
both productivity enhancement and process
cost reduction for the 15 zones completed,
the team was able to reduce average rig
time by 1.8 days and shave nonrig completion costs by 10%.
These savings were achieved while implementing the relatively new HyPerSTIM fracturing and sand control technique. The
HyPerSTIM technology, combined with
Marathon’s emphasis on sound completion
practices and the team’s attention to detail,
resulted in flow capabilities that averaged at
least 30% more than in the prealliance
completions (next page, top left ).7
While the overall project met or exceeded
expectations, it took time and effort to step
out of the comfort of long-standing roles,
responsibilities and communication lines. A
financial structure that gave all parties a
vested interest in achieving project goals
and an environment that promoted open
communication and risk taking was key to
the success of the project.
7. Mullen ME, Norman PE and Granger JC: “Productivity
Comparison of Sand Control Techniques Used for
Completions in the Vermilion 331 Field,” paper SPE
27361, presented at the SPE International Symposium
on Formation Damage Control, Lafayette, Louisiana,
USA, February 7-10, 1994.
8. For information on crosslinkers, breakers and other
fluid additives:
Brown E, Elphick J, Gulbis J, Hawkins G, King M and
Pulsinelli R: “Taking the Brakes off Proppant-Pack
Conductivity,” Oilfield Review 3, no. 1 (January 1991):
18-26. Also, see an article on advanced fracturing fluids in the Autumn 1995 issue of Oilfield Review.
Oilfield Review
Oil Well Performance Analysis
kh-normalized productivity index
4
3
Prealliance
Alliance without
HyPerSTIM
Alliance with
HyPerSTIM
2
1
0
Sand 1
Sand 2
Sand 3
Sand 4
Positive
Optimized
Early payout
Late payout
Traditional
Negative
Cash flow
nImproved well performance in
wells stimulated with HyPerSTIM
fracture treatment.
cult to predict, and engineers tend to err on
the side of surplus. A more efficient process
was developed by switching to a more
expensive PCM Precision Continuous Mixer
system, giving higher quality fluid, and no
waste.
Alliance engineers also examined the type
of crosslinkers in the frac fluid. Previously,
they had used titanate crosslinkers with
covalent bonds. Then they tried borate, with
ionic bonds, which are more flexible, so not
affected by shearing during passage through
perforations. Finally, they switched to an
encapsulated breaker to improve the breaking of the link created by the crosslinkers to
start fluid flowing out of the fracture.8 The
combination of new technologies yielded
improved fracture conductivity (right ).
In the deeper oil and gas wells, the
alliance team tested a new energy-assisted,
or foam, fracture technique that gave higher
productivity. “We did switch to more expensive products, but they have decreased our
total cost and increased our productivity.
The results of the alliance surprised us,” says
Steve Dole, coordinator for completions
engineering at PanCanadian in Calgary,
Alberta, Canada. “We thought we’d bottomed out on the cost per job by 1993. But
we’ve learned we can keep cutting.”
After two years, the alliance completed
1500 high-tech frac jobs, 700 cement jobs
and 140 conventional fractures all with reasonable cost, excellent quality and no losttime accidents—a perfect safety record. Jobs
are now scheduled to avoid delays during
periods of peak activity and to make better
Delayed payout
Land
Drilling
Completion
use of Dowell’s resources. This improved
resource utilization has resulted in reduced
costs for Dowell, thus benefiting both companies. The alliance is expanding to include
coiled tubing services and cementing, and
to plan longer-term actions. Through the
alliance, PanCanadian is now influencing
Dowell’s research in areas of special need,
such as fracturing techniques for shallow gas
wells and hydrocarbon frac fluid breakers.
Alongside the stimulation alliance is a
parallel alliance to add value to open- and
Stimulation Improvements
Future
benchmark
12
Normalized absolute open flow potential
Work,” page 40)—was posted to the PanCanadian office to interact with field development teams and provide a link with
Dowell research capabilities. Continuous
improvement teams were formed to analyze the entire stimulation process. Prior to
the alliance, PanCanadian had considered
the shallow gas wells deserving of only
low-technology fracture treatments. Stimulation engineers were pumping batches of
premixed frac fluid. Premixed fluid is less
expensive, but the quantity required is diffi-
10
8
Encapsulated
breakers
6
Borate
Titanate
4
2
0
nContinuous improvement in flow rates
by changing stimulation fluid. Normalized absolute openhole flow rate has
increased steadily as stimulation engineers optimize crosslinker and breaker
technology.
cased-hole logging and drillstem testing, initiated in 1993. PanCanadian has increased
its drilling activity from 413 wells in 1992 to
a budgeted 1250 in 1995, without increasing staff. To handle the increase in logging
activity, two additional Schlumberger personnel have been dedicated to the PanCanadian office; an applications development
engineer helps design logging programs,
and an evaluation services technical representative coordinates all logging and testing.
In an atypical exchange of expertise, a
third Schlumberger engineer has been seconded to the PanCanadian petrophysics
Production
nPayout curves showing traditional and optimized drilling and production.
Summer 1995
33
onded to the PanCanadian petrophysics
group for a two-year stay. Tony Fondyga,
with 15 years of wireline and testing experience, works with the geology and reservoir
groups to make decisions on the fate of wells
—whether to case or abandon. Working
within the PanCanadian group, Tony sees the
business through the eyes of the operator
and deals directly with service suppliers,
including competing wireline companies.
During the first two years of the alliance,
logging time and costs per meter have
dropped relative to PanCanadian’s prealliance average. Process improvements have
streamlined log data delivery by eliminating
log films and delivering digital log data
directly to an outsourced data library. Teamwork with the Dowell DESC engineer to
analyze cased-hole logs for fracture design
has led to improvements in the quality of
shallow gas well treatments. Plans call for a
Schlumberger interpretation specialist to
move into the PanCanadian office to work
on special projects and help the drilling and
development groups get better value from
their data.
Process
Bidding
Single Sourced
Allied Supply Chain
Strategizing
Not done
Local market
position and price
Developing strategic
issue jointly
Planning
Reactionary
Budgeted spending
and revenue
Optimizing value
and reducing cost
Research
Potential for
testing
Joint testing
Jointly developing
Designing
Supplier
reacting
Supplier responding
Supplier responsible
Scheduling
On demand
Supplier and operator
communicating
Supplier is scheduler
Operations
quality
As ordered
Enhanced for
incentives
Most effective
and efficient
Evaluation
Both are
separate
Joint effort
specific to incentives
Focused at total
system impact
Continuous
improvement
process
Microinternal
Centered around
incentives
Feedback in
every process
Reengineering
Not done
Changing tasks of
local process owners
Upstream suppliers
involved
Profiting
Spending vs.
revenue
Planned spendingactual costs
Enhanced revenues
and total system cost
■ Supply chain evolution.
Multiple Amoco Alliances
What makes an alliance successful? From
those who’ve done it, one of the first
answers is top-down commitment. The
alliance must have champions at the highest level. An example is the case of Amoco
Production Company. Early in 1992,
Amoco launched the Vendor Asset Materials Management (VAMM) team as part of a
company-wide business process reengineering effort. The VAMM team, led by US
Operating Group Vice-President Jerry
Brown, made a presentation to the seven
North American business unit managers,
urging alliances as a tool for lowering
investment costs and reducing controllable
operational expenditures. The Amoco Supplier Alliance Program, ASAP 2000, was set
in motion throughout the company to bring
a systems approach to managing supplier
relationships (above ).
The business unit managers were encouraged to create supplier alliances with the
service companies of their choice. Five
alliances have been built with Schlumberger
companies, and three with Halliburton
Energy Services. Each alliance is different,
but share some common features. “We have
a healthy concern for the profitability of our
alliance partners,” says Harmon Heidt,
Alliance Coordinator with Amoco in Den-
ver, Colorado, USA. “Our focus is on eliminating costs deemed to be unnecessary—in
all our operations, Amoco’s and our suppliers.” The following examples from three
Amoco business units demonstrate some of
the progress to date in increasing efficiency.
Early in 1992, John Morris, the operations
manager of the Southeast Business Unit
(SBU)—covering land operations in
Louisiana, east Texas, south Texas, Arkansas,
Mississippi, Alabama and Michigan—met
with major service suppliers to discuss
alliances. He anticipated a significant
reduction in operating costs associated with
reducing the number of suppliers. At
The Alliance as a Relationship
In French, alliance means marriage. And many
During courtship each side checks out the other,
sometimes coming as a surprise to those who
alliances seem to resemble marriages more than
and compares with others, looking for the most
founded the alliance—and the partners must work
they do other business relationships. After studying
attractive, compatible partner. Compatibility is
out problems and develop techniques for getting
37 alliances in different industries, Professor Rosa-
based on common values, principles, experi-
along. Trust is crucial and individual sacrifices are
beth Moss Kanter of the Harvard Business School,
ences, resources and hopes for the future.
made for the good of the relationship.
Cambridge, Massachusetts, USA, has found that
After the engagement, plans are drawn and the
As partners enter the “old marrieds” phase, they
relationships between companies grow or fail much
wedding closes the deal. The agreement is given a
can reflect back and recognize changes, changes
like relationships between people.1 She describes
name and made public. Executives from both sides
not anticipated at the start of the relationship. Col-
the four phases of an alliance as courtship, engage-
are invited to “meet the family.”
laborating becomes more effortless and routine.
ment, marriage and old marrieds.
The marriage phase begins as the partners set
up housekeeping together and grow as a family.
During this phase, differences are discovered—
34
Kanter also outlines the eight essentials “I”s in
an alliance that make for a strong “we”:
Wireline & Pumping Cost Analysis
400
Avg. benchmark
Avg. alliance
Thousands of dollars
350
300
250
200
150
100
May July
Sept
Nov
Jan
Mar
May
1991
July
Sept
Nov
Jan
1992
1993
Fracturing Cost Analysis
300
■ Amoco Southeast
Business Unit well
completion and
fracturing costs
and performance
before and after
the alliance with
Schlumberger.
Avg. benchmark
Avg. alliance
Thousands of dollars
250
200
150
100
May July
Sept
Nov
Jan
Mar
May
1991
July
Sept
Nov
Jan
1992
1993
Well Performance
Absolute open flow/net feet of
perforation, Mcfd/ft
100
Avg. benchmark
Avg. alliance
80
60
40
20
0
May July
Sept
Nov
Jan
Mar
May
1991
July
Sept
Nov
Jan
1992
1993
midyear, a project was designed to test the
abilities of the service companies to provide
cost-effective stimulation solutions. By the
beginning of 1993, the SBU had aligned all
pumping and wireline business with the
Schlumberger companies.
The alliance operates with a steering committee comprising the Amoco operations
manager, representatives from Dowell and
Wireline & Testing and the alliance coordinators. The role of the steering committee is
to set objectives and communicate results
between upper management and the working committee.
Most alliances have two coordinators—
one from the Amoco business unit and one
from the Schlumberger companies. The
coordinators are the facilitators for the
alliance, and also responsible for scheduling, quality assessment, a newsletter for
communicating results, interventions to
solve specific technical problems and
alliance scorecards—tools for measuring the
success of the alliance.
The SBU alliance is organized into four
alliance field teams, each composed of
Amoco, Dowell, Wireline & Testing and
GeoQuest people in the office and the field.
The teams select and evaluate wells, and
identify and modify processes for their local
operations from recompletion and fracturing
to plug and abandon.
Initially, there was redundancy in fracture
and recompletion evaluation and design,
with both sides performing the same tasks. A
streamlined approach was approved by each
side, and is now used in the alliance. Flexibility in job scheduling has resulted in better
utilization of equipment and personnel.
Comparison of well completion and fracturing costs tracked before and after formation of the alliance shows that the cooperative approach has reduced costs by 20%.
Accompanying the reduction in costs is an
improvement in well performance relative
to benchmark wells (left ).
Individual Excellence: Each company is strong
Information: Partners share data required to
Integrity: The partners behave honorably in
and has something of value to contribute. Motives
make the alliance work. These include objectives,
ways that justify and enhance mutual trust. They
for pursuing the relationship are positive—to pur-
technical data, and knowledge of conflict, trouble
do not abuse information, nor do they undermine
sue future opportunities, not mask weaknesses.
spots or changes.
each other.
Importance: The alliance fits with major strategic objectives.
Interdependence: The partners need each other,
Integration: Partners develop linkages and
shared ways of working together. They build broad
connections between many people at different lev-
have complementary skills and couldn’t achieve
els in the organization. They become both teach-
the same results alone.
ers and students.
Investment: Each side shows tangible signs of
Institutionalization: The alliance is given a for-
long-term commitment by devoting financial or
mal status, and extends beyond the people who
other resources to the relationship.
formed it.
1. Kanter RM: “Collaborative Advantage: The Art of Alliances,”
Harvard Business Review (July-August 1994): 96-108.
Daunis JR and Scott FL: “Division of Technology Ownership Between a Service Company and Customer,” paper
SPE 25843, presented at the SPE Hydrocarbon Economics
and Evaluation Symposium, Dallas, Texas, USA, March 2930, 1993.
35
36
Connection Time
200
150
Time, days
operating in West Texas, officially began a
pumping alliance with Dowell in 1992 covering cementing, acidizing and fracturing.
“Substantial savings have been realized and
pumping service quality has improved constantly,” reports alliance coordinator Fred
Ray of Amoco, in a recent alliance newsletter. “We attribute the savings and improvements to our commodity planning and process reengineering.” Since the alliance
began, the PBBU has documented a cost
savings of $1.3 million.
Among the greatest challenges in any
alliance effort are documenting and quantifying improvement, probably more difficult
in a service industry than in manufacturing.
One of the most powerful tools for recording progress is the scorecard, and the PBBU
alliance team takes scorecards seriously—to
the point of creating a team to evaluate
scorecards. Scorecards have been devised to
track all activities to understand problems,
identify bottlenecks and recognize improvement. Examples are scoring workover
cementing jobs in categories such as cost of
job, cement left in pipe, job pumped on
time and remedial cement required. Often
the best scorecards are the ones that look
bad, because problems can be tackled only
if they are discovered. And some of the
most successful scorecards are those that
are no longer used—either they have helped
identify other factors that should be tracked,
or the problems they’ve exposed have been
addressed.
The PBBU alliance operates through intervention teams to drive improvements to gain
efficiency. “Joint intervention teams are
highly focused to resolve issues in a timely
manner,” says Amoco Resource Manager
Ted Rolfvondenbaumen. “In other words,
we involve the right people at the right
time.” For example, in the past year, the
fracture appraisal intervention team has
reduced lost time per job from 50 to 32
minutes; replaced bagged sand with conveyed sand; switched to PCM fluid delivery;
scheduled multiple fracture jobs in one day;
reduced spillage to almost nothing; and
brought wells on production within an average of 4.5 days, compared to 51 days in
1993. These process improvements have
resulted in 17.6% cost savings for Amoco,
and 5.3% savings for Dowell.
A third alliance has developed with
100
50
0
1991
Amoco
1994
Industry
1994
Amoco
nReduction in connection time—from
well spud to product sales—for Amoco’s
Greater Green River basin.
Amoco’s Northwest Business Unit (NWBU).
The NWBU comprises six basins straddling
the Rocky Mountains in Colorado and
Wyoming. In 1993, the NWBU’s Greater
Green River basin group formed an integrated alliance to maximize value from the
remaining exploitation opportunities in a
20-year-old field. The alliance united the
efforts of Amoco, Dowell, Wireline & Testing, Exeter Drilling, Apex Mud and Cooper
Wellheads. Since then the agreement has
been extended to include three other fields.
The major objectives were to reduce total
system costs for drilling and completion,
reduce cycle time and continuously
improve service quality.
The alliance steering committee set incentives for recognition of innovative and superior work at three levels: individual, team
and company. To monitor progress, the
committee established measures—well performance, well cost, service quality, timing
and adherence to plan.
Total well costs in the first field dropped
49% compared to 1991 levels, an achievement made possible by numerous changes
in the drilling and completion process.
Amoco completely redesigned the wellhead
assembly, facilities and casing size to shave
costs. The drilling contractor improved the
drilling process to reduce average drilling
time per well by six days. Alliance partners
modified frac fluid and proppant, taking
advantage of the BRACKETFRAC technique
in which both buoyant and dense proppant
are injected to create artificial barriers
above and below the desired fracture interval, thereby controlling fracture height.
Dowell engineers used the FracNPV application that examined the balance between
fracture cost and anticipated production to
identify the most cost-effective fracture treat-
ment. Dowell supplied coiled tubing services to eliminate the need for a service rig
and exploited used coiled tubing as costeffective production tubing.
Fracturing costs per volume of gas produced have been reduced by an average of
57% compared with prealliance fracs. Connection time—time from spud to first sales
—dropped 66% (left ). News of the project’s
success has spread, and other operators in
the region have approached Amoco with
proposals to turn portions of their operations
over to Amoco to optimize production.
Alliances in Research and Development
Not all alliances between oil and service
companies revolve around field operations.
Collaboration and optimization of resources
are being taken a step further with research
and development alliances. Through such
alliances, the oil company benefits by
obtaining the tools and products for their
precise needs. In addition, the service company develops products that can be transferred to the market, and the companies
exchange know-how.
An example of such an alliance is the
collaboration between AGIP, the Italian oil
company, and Wireline & Testing and
GeoQuest. In 1992, Agip sought a working
relationship with a service company to
enhance the usefulness of dipmeter logs by
automating more of the interpretation and
integrating it with other log data. Agip
wanted more than a typical operator-contractor arrangement, in which the contractor programmers would meet Agip’s specifications: working together, geologists and
programmers from both sides created a
product adapted to user needs.
The project was named DipFAN for dip
facies analysis, and split into six modules.
For three of the modules, Agip engineers are
assuming the role of operator, taking the
project lead with responsibility for specification and design documents, executable
code and a user guide, while their Schlumberger counterparts take the role of partner.
For the other three modules, the roles
reverse. Four of the modules have developed to field-test stage, and work began on
the remaining two early in 1995. All six
modules will become part of the GeoFrame
oilfield data interpretation system (see “Tapping the Dipmeter,” next page ).
Another example of a development
alliance is the agreement between Statoil,
the Norwegian oil company, and Geco-
Oilfield Review
Tapping the Dipmeter
DipFAN facies analysis consists of software modules for faster, standardized interpretation of dipmeter data. By year end, six modules will be completed and running on the GeoFrame system.
Three of the modules have been completed: the
StatPack, FasTex and SediView applications.
The StatPack program is both a stand-alone
module and a statistical library used by the
other components of DipFAN. It performs basic
processing such as principal component and
cluster analyses.
FasTex processing conducts geology-driven pattern analysis of high-sampling rate resistivity data
from the dipmeter to extract layering, heterogeneities and fractures. Texture curves are generated by cluster analysis to define a high-resolution
electrofacies zonation. The program outputs a catalog of facies in the specified interval, and segments the interval into layers with those facies
(top, right).
SediView analysis processes dip information to
produce a sedimentological description of the
logged interval (bottom, right). The method first
■FasTex pattern analysis for clustering dipmeter data into a specified number of layers—five in this case.
The geologist can cross-plot variables such as volume, apparent thickness or contrast of conductive events
versus resistive events, to monitor the quality of clustering (left). The resulting vertical zonation is displayed
with representative examples of each zone, identified by their eight dipmeter channels (right).
requires making a link between lithological information and dip results. Then the structural dip is
computed and subtracted, to rotate the sedimentary bodies to their initial position. The final step
detects the boundaries and orientation of the sedimentary structures.
■SediView analysis of dip information to produce a sedimentological description of the logged interval.
Raw dip results (track 1) are processed to give local curvature axis (track 2). Structural dip is estimated from
stereonet projection (center) and subtracted from raw dips to yield sedimentary dips (track 4). Dip dispersion
analysis is reported (track 5) and the sedimentary structure is delineated (track 6).
37
the Norwegian oil company, and GecoPrakla to commercialize the SUMIC subsea
seismic acquisition and processing technique. The new system places four sensor
components on the ocean floor and records
signals from a conventional marine seismic
source. This allows recording of shear
waves, which have previously been
recorded only on land (see “Why Subsea
Seismics?” below ). Shear wave analysis
adds information about rock and fluid
boundaries that eludes conventional compressional-wave seismic interpretation.
Statoil had already invested years to
research the SUMIC technology, including
three feasibility studies, scaled experiments
and comparison of the sensors with reference sensors in controlled environments. It
was time to find a contractor to help commercialize the system.
After considering several companies, Statoil selected Geco-Prakla to develop and
improve the equipment and associated services, and promote marketing and sales. The
agreement permits Statoil to retain ownership rights on the technique, while Schlumberger has exclusive user rights. The agreement is one of a collection of projects under
a wider umbrella agreement with Statoil. In
a separate project for processing and interpretation, new functionality will be added
to the Charisma seismic workstation to handle the new type of data.
The Hard Road to Alliances
There are no short cuts to alliance success.
Process mapping can be a tedious exercise.
Meeting after meeting to explain total quality management and to ensure continuous
improvement can make office life more
demanding. The alliance approach requires
learning a new way to work, and it raises
some difficulties and questions. The foremost problem has been securing top-level
commitment and top-to-bottom buy-in to
the alliance concept. For alliances to work,
they must be part of the business plan, not a
passing fad.
An alliance is not a short-term fix. There
may be early successes that are not repeatable. Large cost savings encountered in the
first rounds of continuous improvement may
have caught what alliance specialists call
“no-brainers,” or “low-hanging fruit”—the
easy fixes that yield big savings. Later savings may be incremental, but still important,
and not attainable if the alliance partners
give up too quickly.
There is also a fear of change. People are
going to be concerned about their careers,
their power and their control. These very
delicate, significant issues must be considered before an alliance is formed. Restructuring is not a necessary outcome of an
alliance. According to Rick Adams, Operations Engineer for Mobil Exploration & Pro-
Why Subsea Seismics?
Conventional marine seismic surveys record compressional (P) waves but no shear (S) waves. This
Source boat
Recording vessel
is because the receivers are in seawater, and water
supports only P waves, no S waves. The new
SUMIC subsea seismic data acquisition technique
Source
plants four components of sensors—one
hydrophone and three geophones—on the seafloor.
■ SUMIC subsea
seismic acquisition, commercialized through an
alliance between Statoil
and Schlumberger. Sensors on the seafloor
record reflected compressional and shear waves.
Receivers coupled to the solid seafloor can acquire
both P waves and S waves that have been con-
P wave
verted from P waves upon reflection (right).
The acquisition of S-wave data may solve many
Receiver groups
problems encountered in conventional marine seismic surveys. Compressional waves are disrupted
by changes in fluid content, especially the pres-
S wave
ence of gas, in subsurface layers. That makes
detection of gas possible with P waves, but also
renders lithological changes invisible. Shear
waves ignore fluid changes and measure only rock
properties. Hoping to harness shear waves in this
and fluid type from subsurface layers. This appli-
way, Statoil conducted a feasibility study to illumi-
cation requires calibration with log data—incorpo-
nate the top of a reservoir through a gas chimney.1
rating P-wave and S-wave velocities for known
In zones where gas had completely obliterated
rocks and fluids—to extrapolate properties away
earlier P-wave signals, the seafloor sensor data
from the well using seismic velocities as guides.
showed reflections.
Shear-wave and P-wave data may also be combined to extract elastic properties such lithology
38
A third area of possible application of SUMIC
technology is hard seafloor. Seismic wave energy
ducing, in Midland, Texas, “Alliances are a
way of improving productivity without the
negative side effect of downsizing.”
Another potential concern is the fear of
being locked into an agreement and not getting the best technology. This must be taken
into account when choosing a partner. The
alliance partner that has offered the best
technology in the past and who offers it
today is likely to be the one who will be
able to offer it in the future.
Oil companies may question how big
they must be to have an alliance. According
to industry experts, alliances can work for
small independents as well as for majors.
The goal is to optimize assets, maximize
efficiency and lower total costs. An operator’s assets may be its infrastructure, or a
large in-house staff. Or it may have a small
in-house staff that needs to be augmented.
As more companies begin to make
alliances, some are looking for ways to
share their experience and to promote
alliancing as a new technology. Others are
beginning to view alliancing as a core competency, and are less inclined to share their
expertise. They have worked hard to learn
the skills, and are more reluctant to give
away their new competitive advantage. But
such an advantage may be temporary. New
business relationships that control total costs
and encourage constant change are healthy
for the industry, and give a direction for
more companies to follow.
Through alliances, operators and service
companies are trying to achieve a common
goal—lower the total cost per energy unit
produced. As more companies gain experience with alliances, significant savings will
continue to be made by both operators and
suppliers, and more opportunities will be
found for gaining efficiency and adding
value.
—LS
is greatly attenuated by reflection at large-contrast
boundaries. In conventional surveys, waves reflect
twice—going down, then up again—at the waterrock interface. Compressional- and shear-wave
recordings both may benefit from the placement of
receivers on the seafloor.
Finally, the new technology may facilitate
repeat surveys designed to monitor changes in
fluid saturation fronts. In the past, such surveys
have suffered from difficulties associated with
changes in acquisition geometry and equipment
and in processing methods between one survey
and the next. Permanently secured sensors may
alleviate some of those difficulties.
1. Berg E, Svenning B and Martin J: “SUMIC—A New Strategic Tool for Exploration and Reservoir Mapping,” presented
at the EAEG 56th Meeting and Technical Exhibition, Vienna,
Austria, June 6-10, 1994.
39