SPE

-. . ..-_
SPE number/pege
19217- 1
Title
SELE~ING AN OFFSHOREDRILLI1/GRIG
- THE COMPETITIVETENDERINGPROCESS
Authm
JONATHANHARRIS,GENERALMANAGER,ATLANTICDRILLINGCOMPANYLTD., UK
Copyright 1989, Sosbty ofpetroleum En@neers
Thispaper ~: preparedforpresentafii at OffshoreEurope89, Aberdeen,5-8 September 1889.
PemrJasiontocopyis restrictedtoan abstractof notmwe than300 words. Illustraticmsmaynotbecoplad. The abstractshculdcoatsinconsplcuwa
acknowledga+nant of whereand bywhomthepaper was presented. Pubfiistionelsewhere IS .uausllygrantedupon requestprdded propercreditis reads.
1.0
2.0
OBJECTIVEAIMS, SUBJECTIVEMEANS
The evaluation of a complex tender
cannot be reduced to objectivetests,
and it is a mistake to attempt to do so.
A successful operation depends upon
many factors which are intangibleor
difficult to measure,and concentrating
upon measurable parameter tends to
misplace the correctemphasis.
The closed competitive tender IS the
virtually universal appaoach of
operators wishing to contract an
offshore drillingrig. It is intended
to ensure that contractor make their
lowest offer for doing the stipulated
work, so that the operat>rcan choose
the bid which beratmee*~,hia criteria
without engagi,ng ir negotiating or
barteringprices. 1; practice,however,
invitationsto tender (Ill%)tend to set
unnecessarily strict parameters, with
the threat that non-conformingbida will
be rejected.
MAIN CRITERIAFOR SELECTION
When an operator embarks upon the
selection of a rig for a drilling
programme, he normally has three main
criteria for making his selection -
technical suitability, price, and
availability. None of these is as
clear-cutas may appear at first sight.
2.1 TechnicalSuitability
Some technicai parameters are
absolute and.determinethe type of
rig and ths equipmentit must be
provided wicr!, Examples are the
water depth at the drilling
locationor locations,the pressure
and temperaturerating of the well
control equipment, and the
specification of the wellhead
connect{r. Even in these casea,
howev<.r,ingenuityand flexibility
can sometimessuggestalternatives
when necessary - for examplewe
have recently seen seuri-
aubmersibles operating in jack-up
water depth. Many of the other
2.2
2.3
technical requirements which
operators set in bid enquiriesare
preferences ratker than
necessities.
Price
Operatorsare not alwaysclear what
their objectives are when
considerifigprices M bida. We
hear of some corripaniee who profess
to eliminatethe lowestand highest
bid in any tender,on the grounds
thet significant deviations from
the norm imply some shortcoming.
Others will take the lowest bid
which complies with their other
requirements.
Surely what price ought to mean in
~
bid Gvaluation is value for
money. It la commonlyrecognised
that.ina dayratecontracta higher
priced bid can lead to a lower
overall cost, if the well is
drilled efficiently. Equally, a
low priced bid can prove to be very
expensive if calamities and
disastersextend the drillingtime.
Especially in a weak market,
differencesin dayratesbetweentwo
bida are insignificant compared
with the level of confidencewhich
the operator can have in the
contractoralikelyperformance.
Availability
It is a remarkablebut perhapa not
aurpriaing observation that
operatora requirements for
contract commencementare stricter
in a weak rig Edrkr2t than when rigs
are in short supply. There La
some recognitionthat every well la
subject to testing, which makes
every contractors assessment of
hia rigs availabilityapproximate
to within two or three weeks at
best, but ironically che main
uncertaintyin a weak rig market is
the outstandingextensionoptions,
upon which operators almost
invariablyinaiat.
SPE number/page
19217- 2 JONATHANHARRIS
Authors
Title
SELECTINGAN OFFSHOREDRILLINGRIG - THE COMPETITIVETENDERINGPROCESS
3.0 PERFORMANCECRITERIA
None of the three selectioncriteria
mentioned above is a guarantee of
succe~s. Only if other things are equal
will any of these criteriabe ~:rarnount.
The drilling contractor has an
overriding ability to influence the
outcome of the well (in terms of total
costs). Objectivelyconsidered,perhaps
his ability to improveupon the drilling
programme is limitedto some extent,aa
his best efforts to jmprove rig move
times, tripping times, P stack runs,
and so on, do not comp~tiein potential
with getting the mud prngrammeand bit
selection right, but moat operators
would agree that the commitmetitand
attitude of the rig crew and-management
Cec be crucial to an efficient
operation. Figure 1 ahowsacalculation
which ough~ to be much more familiar
than it sometimesappeara to bs.
Performance cannot be measured
objectively.
po two wells are the
same, but consistently good results,
from year to year, and from operatorto
operator, are a good indicationof a
rigs capability. Safety statiatica
give some indicationof performance,aa
there is a correlationbetweengeneral
operationalefficiencyand a good safety
record,but it ia possible for operators
to be much more searching in th?i~
assessment of a contractors
capabilities.
Performance and safetyboth derive from
people. It has been well said that a:l
offshoredrillingrig would be virtually
100% safe lying at anchorwith no-one on
board (if such a thing were possible).
The same rig would be 100% inefficient,
incapable of work. It is when people
step aboard that all this changes.
Consequently, a pointer towards a
contractorsperformanceis his people -
how he recruits them, employs them,
trains them, and motivatesthem. Some
operators require that all a
contractors personnel should be his
employees rather than hires from an
agency, but then do not go on to ask
where these employeescame from (if the
rig was previouslyidle), and what will
happen to them whim the contractends.
Work on human resourcesin businesshas
shown repeatedly that employees are
motivated by job interest,achievement,
and prospects for development-salary
and working conditions must be
satisfactory, and not cause for
4.0
5.0
complaint, but are not motlvatorain
themselves. There is enormous scepe
here for oil companiesto evaluatetheir
contractors. Some of the considerations
to be taken into accountare shown in
Figure 2, but even if operatorswere
simply to start showinga keen intereat
in a contractorscrew turnoverand the
length of service records of his
personnel, this would be a step in the
right direction.
THE INVITATIONTO TENDER (XTT)
Some ITTs are short,consistingperhaps
of a single telex or letter,and leaving
the contractor to make his own best
presentation of the equipment and
services he will provide for prices he
quotes. Others are very substarm.~lly
more elaborate. Figure 3 shows the
range, and graphicallyillustratesthe
un<ue emphasis put on equipment
specification. Settingout requirements
in great detsil may help to define
contractual obligations with the
successful tenderer, but does not help
to make the bidding or subsequent
evaluationany more objective.
THE CONTRACTORSRESP2VSE.
Having digestedwhat %s requiredof him
from the ITT, the contractorprobably
finds that there are severalparticulars
i,1 which he does not meet the
apeciflcations. He has variousoptions
available to him, depending upon the
nature of his non-compliance.
5.1 AdditionalEquipment
When the ITT calls for equipmentor
supplies which are additionalto
the contractors equipment, the
contractor may be unwilling to
purchsse the additional items
unless he can recoverthe cost tn
the term of the contractfor which
he is biddingor he knows that the
equipment will be required for
futurebids.
For example,. 25.6 lbs/ft 5
drillpipeis carelycalled for, and
the contractor will need the cost
to be recoverable, whereas
additional 9\ drillcollarsbeyond
his present inventory can be
purchased (if requiredby the ITT)
in the knowledgethat they can be
used as replacements for future
damagedor lost collars.
E!!!E!Zz- Os-
SELECTINGAN OFFSHOREDRILLINGRIG - THE COMPETITIVETENDERINGPROCESS
5.2
If potsaiblea contractorwill try
to rent equlpwientto meet ITT
obligations, especially if the
eqttlpmentla requiredfor only one
short phase of a well, such as 30
elevators. This can cause
problems. If the equipment
schedule is regardedaa a list of
the items to be on board throughout
the contract, then the contractor
must carry the cost of the rental
throughout the contract term. In
some parts of the world where
logistics are a major
conelderation, this may be
necessary, but in the North Sea it
la not, and the equipmentschedule
should be recognised aa an
obligation to supply rather than a
l$ating of equipmentto be carried
Gt all times,Assumingthet he is
not required to carry the aqulp~nt
throughoutthe contractperiod, the
contractor mst decide, usually
with vary littlehelp from the ITT
or from the operator, how long each
item of equipmentwill be required.
lie will err on tha side of
caution, and, if there are msty
such items in the ITT, this will
tend to raise the overall level of
dayrates bid. The solutionis to
specify the periods of each phase
of the operation,and requirethe
contractor to list additional
equipment and its price separately
(whether or not included in the
dayrate). The operatormay be able
to supply some items more cheaply
himself.
ReplacementEquipment
In this case, the contractormust
decide why the operator haa
specifiedthe equipmentin question
(usually withoutany gcidancefrom
the ITT), and whether or not his
existing equipment can be
considered a comparable
alternative.For example,a bid may
specify a particularmake or model
of shale shaker. Having enquired
why the operatorwants these, the
contractortiy decide either to bid
his exia~~.,~equipment, making a
case for its suitability, or to
provide for tl.~e change-outof shale
shakersin his costinge,making due
allowance for the time requiredto
do the modification,and the effect
this may have on availability.
This can be a trickydecision,with
significant amounts of money at
5*3
stake, and compounded many times
over for a detslledbid with -~ery
precise equipment specifications,
From the operatorspoint of view,
it must be very difficult to
justify the cost impltcationaof
this approach. Certainly, an
equipment schedulecan be written
around a particular rig so that
other bidderswill appear expensive
to meet the specificrequirements,
but in this case the competitive
tender la an inappropriate
approach. If the operators
requirementsare indeed so specific
that only one or two existingrigs
can meet them, then it will save
everyones ti>e and energyif the
operator rsgotlitea directlywith
the rig owner (o;owners). This ie
not usually the corporate
inten~ion, however - in most
caaes, an operator la wanting G
coat-effective solution, in which
qasa equipmentalternativesshould
not be ruled out at the tendering
stage. The operatormay or say not
we quantifiedthe financialvalue
t,> him of the specifiedequipment
(ti.nd this will involve some
assumptions and aubjectiva
jtidgements). The contractor,
however faces not only the full
c ost plup installation, but also
the cost of retiring the old
equipment early, and it la this
total he will use in his bid
costinga (whether or not he tries
to recoverthe full sum). In other
words, if an ITT includestoo many
detailed specification, so that
most rigs fail to comply in some
respects, the overall level of
dayrstes bid is likely to be
higher. This may be acceptableo;
even regarded with pride as an
indicationof higher standardsthan
the rest of the industry,but the
simple solution is to specifyin
detail only those items of
equipment which are absolutely
tndepensiblefor the proposedwork,
leaving the remainder as
preferences which will be judged
againstcostlbenefitcriteria,
insurances
Another area whera detailed
specifications can be obstructive
is in the insurance programme.
All contractors have existing
insurance programmed, usually
,
SPE numbdpege 19217- 4 JONATHANHARRIS Authcss
me
SELECTINGAN OFFSHOREDRILLINGRIG - THE COMPETITIVETENDERINGPROCESJ
6.0
encompassing a fleet of rigs, and
there is a range of methods
available for reaching the same
level of coverage.No contractor
is likely to removea single rig
from the fleet and vrii, a
different insurance package for
it, as this would be expensiveand
possibly leave unintended
exposure. Yet it ia the rule
rather than the exception that
ITTs stipulate insurance
programmed in detail. If it iS
intended that satisfactory
alternatives should be bid, then
either the insuranceprovisionsof
the ITT should say so, or the
rubric statingthat non-conforming
bids will be disqualifiedshould
be dropped.
5.4 ImpossibleRequirements
Some equipment can simplynot be
provided in some bids, either
because of the physicallimitation
of the rig being bid, or more
likely becauaeof the durationand
lead time of the contract. Given a
term contract (say a minimum of a
year) and a reasonablelead time,
most biddersare willing to change
out relatively inexpensive
equipment (for example the
drillstring),or make modifica~iona
to equipmentor the rig structure.
No-one is likely to change the
derrick, or the cranes, or the
accommodation,yet ITTs continueto
specify requirements of this
nature, One haa to wonder what the
intention might be. As
specification of this nature are
likely to be ignored,they have no
bearing on the tenderedprices,and
create additional work for no
apparent reason.
~ENDER EVALUA~
It fs a frequently statedaim of the
tendering process that like should be
compared with like. This is clearlya
desirable starting point, and prices
shouldbe adjustedso that all equipment
necessary for the contractis costed in
to every bid. But the very attempt to
force tenders into the same mould
involves countless subjective
judgments, and it is importantthat
operators should recognise the
assumptionsand the weighings which are
being applied.,
It is axiomatic that every bid should
include the cost of all equipment
necessary for the work. But is some
equipment essentialand other equipment
provisional? Should they both be costed
in with the same weighting? What if the
contractor has failed to give a price
for the provisionof some equipmentor
service (maybe unimportant in itself,
but included in other bids)? At least
one operator uses the highestcost bid
by any other tenderer,and writes that
into the non-conforming bid. This is
certainly a penalty for non-complimce,
but is it an objectiveevaluation?
Operatorstend to see equipmentli;ts as
in some way objective,and thereforea
good starting point ior ITTs and
subsequent Gvaluation. A rig either
does or does not have the specified
equipment, and ona can tall senior
management that rig X comp$iea with
companys stated requirements whereas
rig Y does not. It ia clear cut, and no
blame can be attached for making a
.
subjective judgement, hence the
tendencyfor equipmentpacificationsto
grow larger and larger. It is more
difficult to explain ta senior
management that rig X is more expensive
because the bid complieswith a complex
equipment specification, but that this
extra cost is of no quantifiablebenefit
to the companysproposedoperations,
When we turn to the all-importzmt
questionof the people to ba involvedin
the drillingprogramme,what we find in
ITTs iS again things that can be
counted,in an ostensiblyobjectiveway.
The categories and numbersof peoplo.
the record of training and medicai
certification, sometimes the rates of
pay, are all items which can be tallied,
but do not give more than an approximate
impressionof the team which is to drill
the well. There is no escapingthe f:.::
that personnelassessmentis subjective,
and at some point in the tendering
process it will be necessaryto ask for
and evaluatesome qualitativeaspectsof
the contractors personnel(ace Figure
2) rather than rely solely on
quantitativemeasures.
Some operators make their final choice
of rig without any detailedfiomDarison
between bids, although moat will at
least have checked the vinning bid in
some detail, Others have a very
elaborate formal evaluation, In which
data from each bid is transcribedon to
a comparisonchart, ao that an adjuated
c-
JONATNANNARRIS
SELECTINGAN OFFSHOREDRILLINGRIG - TM COMPETITIVETENDERINGPROCESS
final price can be calculated. This
usually involves weighting for the
importance of differentat?pectsof the
bid, and drilling departments are
UaUally aware of the way in which these
can affect the outcome. What ia uot so
often realised is the effect of the
(maybeunstated)underlyingassumption.
For instance, when comparing one
operatingdayratewith another,the cost
of dayratee for extensionoptionsmay be
important, as two bids with the same
price for the firm work may have very
different prices for the options. But
how important is this? To the
contractor, an option is somethingthat
may never happen,and he might well bid
a dayrate for the optionswhich asavmes
an improvement in market conditions,
so that he will not miss the beneftt if
th~s happenti. He knows that if his
price la t oo high, it might be
nego.iaced when the time comes. But
perhaps the operator Gstimates the
optional well or wells to have G 50 or
80 per nt probability of going ahead
and puts the tendered dayratea for the
option into his analysla with this
weighting. This is an unstated
assumption aa far as the contractoris
concerned and he has been bidding
blind in this regard. He may well
have tendered a lower price if he knew
all the facta.
7.0 SUGGESTIONSFOR IMPROVEMENT
7.1
7.2
ClarifyRequirements
It is helpfulto the contractorat
all stages of the tenderingprocess
to know what are the essential
requirements (and why), and what
are the preferencesand how these
will be weighted. For example,a
requirement for square kelly
instead of a hex will look to the
bidder like a preferencewhich he
might ignore, unless a reaaon
relating to the proposedoperation
is given.
Allow Alternatives
Very few requirementsare absolute,
and most operators over-specify
their requirements. Not only will
operators get more choice if they
allow technically satisfactory
alternative to their
speclficationa, but also
contractors will be able to put
forwardkeener prices,knowing that
they will not have to gamble on
7.3
7.4
7.5
whether or not a particular
equipment requirement will be
enforced.
Put More Emphasison Managementand
Personnel
This has been discussedin detail
above, and a very preliminarylist
of areas worth investigattn5 la
given in Figure 2.
SpecifyPerformanceNot Equipment
It makes the contractor thiuk
harder about the demands of the
proposed drilling programme if,
instead of a check list of
equipment, a performance criterion
c an be given. Examplesare given
in Figure 4.
A bidder may have a rig which does
not meet G stated requirement, for
lnatance a wire-rope mooring
system, but which in other renpecta
iu superior to other rige being
bid. If he has performance
c r it e r ia to conply with rather than
a detailed equipment specification,
he can make the caae for hla
existing equipment. The operator
can then evaluate this item in
context.
Pre-tenderScoutingEnquiry
If an operatoris clear about the
minimum requirements of hia work,
and can express these as commercial
or equipment or performance
specifications, there is much to
recommend a scouting telex to
establish which contractorsexpect
to be able to bid. Especiallyif
the reasons for a requirementcan
be given, it helps a contractorto
decidewhen not to bid.
The most fundamentalrequirementat
this stage is availability.
Contractors will normally assume
that programmedcan slip by aa much
as two or three months, and will
want to bid the rlga which miaa the
preferredcommencementdate by this
much, unless the operatorexplains
why availability Is essential,
There is a lot of work involvedin
preparingand evaluatinga bid, and
neitheraide will wish to undertake
this unless there are proapectaof
success.
SPE number/pege
19217 - 6 JONATHANHARRIS
AuttmIs
Title
SELECTINGAN OFFSHOREDRILLINGRIG - TNE COMPETITIVETENDERINGPROCESS
..
If it is possible to reduce the shodld be steeredtowardathe got.aof
field at this stage, it is better *aaeaaicS performance and value for
to visit the rigs in contention
money.
before bids are submitted.
Inevitably, first impressions
count, and if first Impressionsare
formed from the bid rather than
from the rig inspection,they may
be misleading. The contractors
ability to do the job well depends
more upon the rig and its crew than
upon his head office contracts
tearn.
7.5 StandardEquipmentLists
A standard format for equipment
listings would save both biddera
and clients the most time-consuming
part of their jobs. Figure 3 shows
the extent to which operators
require contractors to construct
equipment lists (four out of five
of these ITiS required the
contractor to retype his equipment
list in a give> format). Usually
only Oile biddercan be successful
in s tender, but filling in
equipment lists is a laboriousand
expensivejzb for ali the bidders.
7.6 IndependentAuditof Performance
Records
It ia often impossible, for
confidentiality reaaons, to give
details of time/depthrecordswell
by well, but it would be sensible
for operatorsto eatabliaha common
basis for reporting performance
data so that contractor will be
encouragedto keep recordsover the
long term. A simple exampleis
suggestedin Figure 5.
It ia remarkablethat, as ao much
weight is put on safety
performance, operators should
accept unaudited reporting by
contractors. Bo:h performance
records and sefecy recordscould
usefully be audited by independent
third parties,so as to ensure that
they are prepared on a like-for-
like basis.
8.0 SUMMARY
The aim of tha tenderingand selection
exercise is to ensurean efficientand
trouble-free drilling campaign. This
depends more upon the rig crews and
management than upon the rig hardware,
and ITTs as well as bid evaluations

SPE numbar/page 192170 JonathanHarris

Authors
1
Title SELECTING AN OFFSHOREDRILLiNGRIG- THECOMPETITIVE TENDERINGPROCESS
Estimated wellprogramme:60Days
u<
Rig Dayrate S15,000 x 58 Days f870,000
Other Services f30,000 x 58 Days S1.740.00Q
f2,610,000
Ri.lu
RigDayrate f12,500 x 70 Days f875,000
Other Services f30,000 x 70 Days
&m
-
.
. Ri g X i s 20% HI GHERthanRi g Y
.
. Ri g X i s 12%LOWER thar i g Y
Figure1: Rigdayrateainthecontext0?omralltima-rahtedmats
--
Management:
** hierarchy, -of authority, &pth ofback-up
** leveloffinancial nxpmtsibilities, performance e targets
** meansandeffectiveness ofcommunications withemployees
** training policies, disciplinary Procedures
Rig Crews:
** nxruitment-sources, methods,criteria/qualifications, turnover
** moraleaniimotivation -goaloriented, jobscope, jobindependence,
promotionprospects -
-.
** termsandconditions -wages,otherpayments, organisation,
continuity ofemployment
Figure2: Some considerations forpersonnelevaluation
COMPANY
Contract term
Number of pages
- Covering Letter
- Instructions To Tenderer
- Contract
- Equipment Specification
- Personnel Schedule
- Rates Schedule
- Supply Obligations
- Other Schedules
Total Pages
A
1 well
88
B
1year
80
c D
1year 2 wells
177 224
E
4 wells
Figure3: Typicalcontentsof invitationtotender
SPE nunberlpege 19217/8 Jonathan Harris
Authors
I
~Title SELECTING AN OFFSHORE DRILLING RIG. THE COMPETITIVE TENDERING PROCESS
I
QmMQmm
One derrick or mast, to be ca able of withstanding the dynamic loads imposed by the motions
t of the floating unit while un ~i tow o; the same loads with 15,000 ft of 5 drill pipe + 1000ft
8-1/4 DC racked in the derrick or mast while in drilling position.
Tworevolving cranes one on port side, one on starboard side,withat least a 100ft boom,fast
iwndload linesanddrumsof sufficientcapacitytoreachthewaterlinewithrigat anydraught.
Minimumcapacityandhoistings~&:
7 tonsat a 90ftradius- 2C0fpm
50tonsat a 6(M radius
~ure 4: Examplesof performancecriteriainquipment specifkation
.
RIGNAME:
Number of wells spudded : Days on hire (A)
Other operations : Daysmoving (B)
Total footagedrilled : Daystesting(C)
.
Overallfmtage per Cperstingdays(D) ;
operatingday :
(A)-(G)+(C))
LostTimeAccidents(LTAs) : Downtimeforrepairs(E) :
AccidentFrequencyRate(AFR) : DowntimeWOW(F)
Downtimeother(G) :
Figure S: Rig performance record