Well Engineering Learn Distance Package

W E EL LL L E N NG G I I N NE E E E R RI I N NG G D I IS S T TA A N NC CE E L E EA AR RN N I I N NG G P A AC CK KA A G GE E ( T H E D L TH E LP P )

E-Mail: peteng.mzhelu@gm [email protected] ail.com 1

Well Engineering Engineering Distance Distance Learning Package Package (The DLP)

C h ha a p t er O On e I n nt tr ro d uct i io n , H S E a n nd d A Ad m mi in ni i s t r ra at ti iv e M a at tt te r s / I n nt tr r o d uct i io n 3 Petroleum E Engineer: M Mohd. Z Zouhr y E El-Helu.

[email protected] ail.com E-Mail A Address: peteng.mzhelu@gm

Well Engineering Distance Learning Package (The DLP)

Welcome to the Well Engineering Distance Learning Package, the DLP. This has been written to replace the previous two distance learning packages which were known as Round 1 and Round 2. The reasons for replacing Round 1 & 2 were as follows ; •

To update the material, in the process changing the focus to reflect changes in the development programme for Well Engineering Staff (see Role of Well Engineering below).

•

To get rid of the duplication of material between the two packages.

•

To allow the use of new formats to improve the readability and clarity of the document.

5 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Below you will find some information designed to help you use the DLP to best effect and to help us maintain it as a fit for purpose document.

1.1.1 ROL E O OF W WEL L E ENGINEERING The role of Well Engineering as a discipline skills pool has been defined in the Well Engineering Framework (WEF). This is designed to put the values and drivers of the Shell Business Framework in the context of the EP Business Model and thus provide a model to show well engineers where they can contribute in the business. The WEF fully acknowledges the shift of the Well Engineering contribution from "making hole" to adding value through cost effective life cycle well design. This contribution is most effective when made in the context of multi-disciplinary teams at any stage of the hydrocarbon life cycle, i.e. from prospect acquisition to project decommissioning. Group objectives for growth and cost reduction need low cost solutions in ever more challenging environments which puts the emphasis on smart, fully integrated, designs and use of innovative technologies. To become "a partner of first choice" Shell must be a leader in innovation. This requires highly motivated staff which take an interest in their own development in support of 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


opportunities which benefit themselves as well as the company. This shift in WE contribution needs to be reflected in the Learning and Development programme for WEs.

1.1.2 OB J ECTIVES O OF T THE D DL P The objectives of the DLP are: •

To provide the foundation knowledge for a new Well Engineer.

•

To provide a syllabus for the Round 1 and Round 2 Well Engineering examinations. Further information about the roles and objectives for these examinations is available from the drilling mentors in the OUs or from the well engineering pages on the EPT-LD intraweb site on the Shell Wide Web.

•

To provide the information contained in the syllabus of the International Well Control Forum examinations at Supervisor level.

After studying the DLP, gaining sufficient experience and after receiving the guidance of a mentor or coach, the student should be in a position to tackle most of the challenges faced by a wellsite based Company Appointed Representative, generally known as a Drilling Supervisor, or an office based Well Engineer charged with writing 7 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


drilling programmes. This means that the student will either be able to find the relevant knowledge in the DLP or will know where to find it. For this reason a number of key SIEP documents and reports are used as references throughout the DLP and the intention is that the student becomes familiar with them in this way. Note that the DLP is a learning aid NOT an engineering reference document. In the case of contradictions between the DLP and an SIEP report or an OU's local operating procedures, the latter take precedence. If in any doubt, seek advice from your mentor or the focal point in your OU for the subject concerned.

1.1.3 STUDY O OF T THE D DL P The DLP is composed of a number of Sections and each Section is split into Parts. After studying the material contained in each part the student should complete the coursework at the end of that part. The coursework is designed to be an audit trail so that progress of the student is tracked by the mentor who must evaluate the coursework done. In several cases the student is invited to apply the well engineering techniques to data from a well (s)he has worked on. The 8 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


value of such an exercise will depend in large part on the effort put in by the student. In a number of cases group common well engineering software is mentioned and occasionally the student is requested to make use of one of the software packages. Although it is not always easy to gain access to such software in some OUs, we strongly recommend that the student gains familiarity with Well plan for Windows and Stress Check. Most students will sit their Round 2 examination between two and four years after receiving the DLP. This will depend on the time the student has available, how much time (s)he takes to study the material (expected 150 - 250 hours) and how much experience the person gains (or already has). It should be noted that experience is not measured by the amount of time that an individual spends at the well site or in an office based position, but by the amount of development gained. This is entirely dependant on the individual who must take every opportunity to face new challenges and thereby learn.

9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


1.1.4 FEEDB A CK A ND U UPD A TE Each of the parts has been written by a different author and therefore the style may vary somewhat. Also, the level of the material inevitable varies since it is a somewhat subjective judgement when the material given is too basic or advanced. Finally, the document can always contain errors especially this first version which is brand new. Simple feedback forms have been included at the end of each Part and users of the DLP are strongly encouraged to use these to express their views of the material. Those at the end of all Parts except this one request comments on the specific subject matter covered; at the end of this introductory Part you are requested to give your overall impression of each Part with respect to content and clarity. Ownership of the document resides with EPT-LD in SIEP. The intention is that the DLP will be updated approximately every two years, though the amount of resource available for this will likely be limited. Priority will be given to Parts for which most critical and constructive feedback has been received. Wherever possible, please be specific about material that is incorrect or missing.

1 0 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Following updates, personnel who have received the package previously but who have yet to sit the examination, will be informed of the updates. Where these could affect the Round 2 examination, they will also receive a copy of the updated material.

1.1.5 A ACK NOWL EDGEMENTS Many people have contributed to the project to write the Well Engineering Distance Learning Package and some of their names are listed below. Apologies are proffered to anyone who feels missed out. First and foremost is Ray Quartermain of Silica Services who has provided the technical editing services and has really been guardian of this project. Thereafter Allan Schultz, Steve Collard, Gerard de Blok, Frank De Lange and Gareth Williams all deserve recognition.



1.2.1 In t r o d u c t i o n 1 .2 .1 .1 G E EN NE E R R A L L In general you, the Junior Drilling Engineer trainee, will not have been on a drilling unit prior to commencing your training with the Shell Group. This Part on the subject of Health, Safety and the Environment therefore commences with two Topics containing information which will be useful in your first few days on location, and should therefore be read (or re-read) just before arriving there for the first time. These will help you avoid injury before becoming accustomed to what goes on. They contain no descriptions of systems, and a minimum of narrative. Topic 2.2 is a list of things to watch out for, and has deliberately been made short enough for you to read in a few minutes before your first visit to a drilling location. It is not only concerned with the 1 2 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


life-threatening hazards but also with lesser but still painful injuries. Topic 2.3 contains a description of the "safety systems" which you are likely to come into contact with during your well-site work. It is not exhaustive and few details are given. The intention is to make you aware of safety systems, to enable you to recognise that certain actions or procedures are part of a larger system, and to make you aware that you yourself have a role to play in that system. In principle the drilling crew, and especially the driller, will warn you if they see you putting yourself at risk, but they may not have the time to do that if you make a sudden movement at the wrong time. Nor can they always be watching. The drilling crew may also be so accustomed to their daily routine that they do not realise that a newcomer may not know what is about to happen. It is not the intention of this document to frighten you into thinking that working on a drilling location is a dangerous activity. It is not. It is much less dangerous than many other activities in which we all freely take part such as driving and sports. In fact the most hazardous activity which Shell will ask you to undertake is probably to travel to the work site. To put the risks into perspective the current Lost Time Injury frequency for all Exploration & Production companies within the 1 3 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Group is approximately 1.8 per million man-hours. (See below for the definition of Lost Time Injury.) That means that the average person, including contractor site personnel, would have one accident serious enough to require one day or more off work approximately every sixty years spent at a work site. Alternatively, assuming that the length of a working career is thirty years. of which 25% is spent at work, it means that at current rates only one person in eight would lose one working day or more due to an injury at work during his/her entire career. Bearing in mind that a cut finger or a sprained ankle could result in losing a day that is not a rate to be ashamed of; even so, Shell is striving to improve it further. The figures quoted in the previous paragraph are averages for all EP companies (including contractor personnel) in the Shell Group. Evidently the risk varies with the type of job - a floorman on a drilling rig is more likely to be injured at work than an accountant. You, as a trainee, should also bear in mind that, within the same type of activity, incident frequency distributions are skewed towards young and inexperienced personnel. The remaining Topics of this Chapter on Health, Safety and Environment (HSE) are intended to provide the background to, and give you an insight into, how Shell deals with these issues. Whereas 1 4 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Topics 2.2 and 2.3 illustrate how "safety" as a concept can/does affect the individual operating at the sharp end of the business, the subsequent Topics explain how safety (and HSE in general) is integrated into the business and describe the methods which are used to achieve a satisfactory result at the corporate level. They concentrate on Safety Management, as that is the element which will make the most immediate impact on you, with a relatively brief introduction to Health and the Environment in the final Topic.

1 .2 .1 .2 D E EF FI IN N I I T T I I O O N NS S Accident: An accident is an Incident that has resulted in actual

injury or illness and/or damage (loss) to assets, the environment or third parties. Exposure Hours: Exposure hours represent the total number of

hours of Employment including overtime and training but excluding leave, sickness and other absences. Fatality: A fatality is a death resulting from:

An Occupational Illness, regardless of the time intervening

•

between the beginning of the illness and the occurrence of death, or 1 5 5 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


A Work Injury, regardless of the time intervening between

•

injury and death. First Aid Case (FAC): A first aid case is any one-time treatment and

subsequent observation of minor scratches, cuts, burns, splinters, and so forth, which do not ordinarily require medical care by a physician. Hazard: A hazard is the potential to cause harm, including ill health

or injury; damage to property, plant, products, or the environment; production losses; or increased liabilities. Incident: An incident is an unplanned event or chain of events that

has or could have caused injury or illness and/or damage (loss) to assets, the environment or third parties. Lost Time Injuries (LTI): Lost time injuries are the sum of

Fatalities, Permanent Total Disabilities, Permanent Partial Disabilities and Lost Workday Cases resulting from injuries. Lost Time Injury Frequency (LTIF): The Lost Time Injury

Frequency is the number of Lost Time Injuries per million Exposure Hours worked during the period. (Note: some contractors base their LTIF on a period of 200,000 hours.) 1 6 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Note that there does not have to be a particularly severe injury to result in an LTI. In the case of offshore personnel, any requirement for a specialist examination which the site medic cannot do (e.g. an X-ray) will mean a trip ashore and almost certainly a missed shift, even if no further treatment is required. Lost Time Illnesses: Lost time illnesses are the sum of Fatalities,

Permanent Total Disabilities, Permanent Partial Disabilities and Lost Workday Cases resulting from occupational illness. Lost Time Illness Frequency: The lost time illness frequency is the

number of Lost Time Illnesses per million working hours worked during the reporting period. Lost Workday Case (LWC): A Lost Workday Case is any Work

Injury/Occupational Illness other than a Permanent Partial Disability which renders the injured/ill person temporarily unable to perform any regular Job or Restricted Work on any day after the day on which the injury was received or the illness started. Medical Treatment Case (MTC): A Medical Treatment Case is any

Work Injury that involves neither Lost Workdays nor Restricted Workdays but which requires treatment by, or under the specific 1 7 7 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


order of, a physician or could be considered as being in the province of a physician. Near Miss: A Near Miss is an Incident which did not result in Injury

or Illness and/or Damage (Loss) to Assets, the Environment or Third Party (ies). Occupational illness: An Occupational Illness is any work-related

abnormal condition or disorder, other than one resulting from a Work Injury, caused by or mainly caused by exposures at work. The basic difference between an Injury and Illness is the single event concept. If the event resulted from something that happened in one instant, it is an injury. If it resulted from prolonged or multiple exposure to a hazardous substance or environmental factor, it is an Illness. Permanent Partial Disability (PPD): A

Permanent Partial

Disability is a disability resulting from a work injury/occupational illness which leads to: •

the complete loss, or permanent loss of use, of any member or part of the body, or



•

any permanent impairment of any member or part of the body, regardless of any pre-existing disability of that member or part, or

•

any permanent impairment of physical/mental functioning, regardless of any pre-existing impaired physical or mental functioning, or

•

a permanent transfer to another job.

Permanent Total Disability (PTD): A Permanent Total Disability is

a disability resulting from a work injury/occupational illness which leads to permanent incapacitation and termination of employment or medical severance. Restricted Work Case (RWC): A Restricted Work Case occurs

when an employee, because of a work injury/occupational illness, is physically or mentally unable to perform all or any part of his/her regular job during all or any part of the normal workday or shift. Restricted Workdays: The number of Restricted Workdays is the

total number of calendar days counting from the day of starting Restricted Work until the person returns to his/her regular job. Severity: Severity is calculated as the total Lost Workdays resulting,

and where necessary estimated to be going to result, from Accidents 1 9 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


which occurred during the reporting period divided by the total of Lost Workday Cases plus Permanent Partial Disabilities. It represents average days away. Total Reportable Cases (TRC): Total Reportable Cases are the

sum of Fatalities, Permanent Total Disabilities, Permanent Partial Disabilities, Lost Workday Cases, Restricted Work Cases and, in the case of work injuries, Medical Treatment Cases. Total Reportable Case Frequency (TRCF): The Total Reportable

Case Frequency is the number of Total Reportable Cases per million Exposure Hours worked during the period. Additional definitions, plus extensions and clarifications of those given above, can be found in the Guide for Safety Performance Reporting, the Guide for Health Performance Reporting and the Environmental Management Guidelines.

1 .2 .1 .3 A N X H N E HO O R RT T A T TI I O O N N Never ever say to yourself "I know this is not what I should be doing, but it will be alright this time".



1.2.2 Per s o n al s s af et y h h azar d s 1 .2 .2 .1 O N N T H HE E R I IG G F L LO OO OR R •

Stabbing drill-pipe

You will probably not be asked to help to run drill-pipe into the hole, but, if you should find yourself acting as a floorman, remember that a golden rule is never to put a hand on the pipe which is already in the hole. The driller may lower the additional pipe when you don't expect it. In earlier generations roughnecks were very well paid but were not given so much safety training. Most of them finished up with more gold rings than they had fingers left to put them on. •

Setting back drill-pipe

Similarly you may find yourself helping to stack drill-pipe by pushing a stand across the rig floor while it is hanging from the hook in the derrick. As the pipe moves away from you don't take such long steps that your foot gets underneath it.



Remember that suspended loads have a habit of dropping, sometimes without warning. This is one of the most common themes which run through safety awareness training. •

Core recovery

Coring is always interesting and you may be impatient to see whether a good core has been recovered. Do not be tempted to put your fingers into the bottom end of the core barrel while it is hanging an inch above the floor. Not only is the core barrel itself a suspended load, but the core inside it may be supported only by friction and may slide out at the wrong moment. •

Trip hazards

The derrick floor (or any other working area) should be clean and tidy but occasionally it may become cluttered up with equipment and tools. Watch where you walk - if you trip there are not too many things on a rig floor which you can safely get hold of to steady yourself . Trips on stairs can be hazardous. Always have one hand available for the railing - especially on a floating unit. It follows that anything too 2 2 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


heavy or too bulky to be carried in one hand should be moved between different levels by winch. •

Rotary table

It may seem obvious, but the rotary table can rotate and is therefore a special trip hazard. If you walk across the derrick floor, walk round the rotary table, even if it is apparently not moving as you approach it. •

Wire rope to back-up tongs

When the drilling crew are running pipe in or out of the hole they tighten or loosen the connections by means of tongs which are operated by pairs of wire ropes. One wire goes to the draw-works and does the pulling, the other goes from the so-called back-up tongs to a fixed point on the rig floor to stop the other half of the connection turning. When the driller tightens the pulling cable, the back-up tong will suddenly rotate a quarter of a turn round the pipe and the wire line which was lying loose will snap tight. Anyone standing too close to this cable could then be seriously hurt. If you go on the rig floor during a trip, or while running casing, approach it from the drillers side and stand behind him until you are sure you know how everything there is moving. 2 3 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

Drilling fluid sprays

When drill-pipe is being pulled out, the tongs are not the only hazard. Remember that there may be a column of drilling fluid almost 30 metres high inside the pipe. As the connection is unscrewed this liquid (commonly with a pH of 10 or 11) may spurt out into the eyes of the unwary spectator. •

Tubulars being lifted through the V-door

When drilling, running casing or running production tubing, single joints of pipe will be lifted from the pipe racks, through the V-door, and into the derrick. If the driller lifts one just a little too quickly the end will come up the ramp , over the edge of the floor, and the whole pipe will swing violently across the floor. Don't put yourself into a position where it could hit you. •

Wire line being run into hole

From time to time tools are run into the hole on wire line. If a tool is being run quickly and meets a resistance of some sort in the hole, the winch operator may not be able to stop quickly enough. In that case the wire will continue spooling off the drum and fall onto the derrick floor in loops. When the tool in the hole then falls free an instant later the loose wire will be dragged very quickly into the hole 2 4 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


and the loops will snap tight with enough force to sever a limb. Keep a safe distance away during this operation. •

High pressures

When high pressures are used, either during pressure testing or pumping operations such as cementing or formation stimulation operations, hoses and pipe connections occasionally fail. The result of a small leak may be a fine jet of high pressure liquid which can cut and penetrate soft material. If a hose or pipe fails during a high pressure operation the broken connection will flail around violently until the pump operator has had time to react. You will notice that during a high pressure operation the lines and hoses will be chained either to a fixed part of the rig structure or to a stake hammered into the ground. This is to restrain movement in case of a failure, but it is not always 100% effective. Avoid these two hazards by keeping your distance from high pressure lines, especially while pumping or pressure testing.



1 .2 .2 .2 O N A C N A A N ND D R O OU UN N D D T H HE E P I IP P E E R CK KS S •

Standing on tubulars

One of the jobs that may be given to you as a trainee is to measure the casing while it is laid out on the pipe racks. Before you walk on the casing, which you will have to do, make sure that the joints are tightly packed and that the first and last are firmly wedged in place, so that they do not roll as you step on them. •

Singles being laid down

The hazard associated with lifting single joints into the derrick has been mentioned. The opposite operation - laying down pipe involves allowing a joint of pipe to slide freely down the ramp and along the catwalk. In doing so it acquires a large amount of kinetic energy, which should be absorbed by a sprung barrier at the end of the catwalk. Occasionally a joint will jump over the barrier or slide down the ramp off-centre and go sideways off the catwalk. Don't put yourself into a position where one of these could hit you.

1 .2 .2 .3 A R A N RO O U UN N D D T H HE E D R RI I L L L LI IN N G G F L LU UI I D D T NK K S S The low pressure drilling fluid system has its own share of hazards for the unwary. 2 6 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Drilling fluid has, by design, lubricating qualities. Any minor spills, drips, etc., or spray being blown by a strong wind, may cause stairs and walkways to become slippery. This is especially the case near the drilling fluid mixing area where the wind may pick up powder as sacks are emptied into the mixing hopper. Dust around the mixing area is also unpleasant for the eyes, but this is an obvious hazard. With one exception drilling fluid products are fairly innocuous - they have been designed to be environmentally friendly - but cement dust is not. If sacks of cement are being cut open and emptied, either into the bulk tanks or while mixing cement slurry, the dust which may be blown around has a high pH and is bad for the eyes and lungs. The one exception mentioned in the previous paragraph is caustic soda, which is delivered as beads or crystals in metal drums. These solids will go through leather gloves and leather boots in no time ! Caustic soda is used because many drilling fluid systems require a high pH of 10 or 11. Even though it may not cause immediate caustic burns a high pH liquid is still bad for the skin. Don't put your hands into the drilling fluid; if you are splashed, wash it off; and if your clothes become wet with drilling fluid, change them. 2 7 7 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


There will be eye-wash stations at various locations on the drilling unit but specifically in the vicinity of the drilling fluid mixing area. It is probably a good idea to try it to see how it works while you can still see clearly what you are doing, but check with someone in authority first as some systems are designed for one time use only.

1 .2 .2 .4 I N N T H HE E C E EL L L L A R R It is very rarely that a well is drilled without any gas indications at all; there is thus always the possibility of gas coming out of solution from the drilling fluid. Most hydrocarbon gases are heavier than air and will therefore tend to gather at the lowest point on a location, which is normally in the cellar. Do not be tempted to climb alone into a deep cellar on a land location to look at the equipment or check the gauges - there may not be enough oxygen there to support life. If there also happens to be H2S present you may not stay alive for long enough for someone to get a line round you and lift you out, even if they see you collapse! When enclosed and unventilated spaces including the cellar are entered for operational reasons, a gas test will be made and the "buddy" system will be used with one crew member remaining outside the space in question. 2 8 8 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


1 .2 .2 .5 A R RO O U UN N D D T H HE E L O OC C A T TI I O O N N •

Cranes

Cranes lift relatively distant heavy loads high into the air and swing round to move them over intervening obstructions. The resulting hazard is that a load may pass over people on the location without them being aware of it. If there is a crane working on location, make sure that you remain aware of what it is doing. You will know by now that you should not be under a suspended load, what you might not realise is that you should not be close to the crane or under the jib. Cranes occasionally fall over, and jibs occasionally fail. In theory there are automatic safeguards to prevent safe working loads being exceeded; in practice it still happens. Even if you are not underneath the load, keep clear of the area where loads are being picked up or set down as they can swing unexpectedly - especially offshore. •

Moving vehicles, including fork lifts

Trucks, cranes and fork-lifts are fitted with reversing alarms. This is done for a good reason. If you can hear a rapid beeping above all the other noises on a location it means that there is a vehicle very close 2 9 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


to you going backwards, which in turn means that the driver may not be able to see you. Look around to check where it is and what it is doing. •

Welding

The easiest method for an anyone, including visitors, to injure themselves on a drilling location without actually doing anything is to be within sight of an arc-welder. If you see a welder about to "strike an arc", look away as the high intensity ultra-violet light can permanently damage the eye at surprising distances.

1.2.3 Si t e p p r ac t i c es a an d p p r o c ed u r es •

Safety is no accident !

That is a double-entendre worth remembering. The maintenance of the safety of people engaged in a drilling operation does not happen by chance; on the contrary a great deal of work goes into it. Safety, like any other part of the operation, has to be managed. The totality of what is done to manage safety is called a Safety Management System, SMS for short. All levels in the staff hierarchy play a part and the results are seen in the safety performance on the location. The key elements in the safety management of a drilling operation are 3 0 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


procedures and practices which, if followed, will minimise the probability of anything going wrong or minimise the consequences if something does go wrong. This section gives a short introduction to the safety procedures with which you will or may come into direct contact. The intention is not to describe these procedures in any detail but just to make you aware that they exist and may have some influence on your actions. The first five items are all concerned with preventing incidents. The following five are actions which are taken prior to and/or during normal operations in preparation for dealing with an incident if there should be one. •

Induction meetings

Everyone arriving on location for the first time will be met by a representative of the drilling unit operator and given an introduction to the operation with particular reference to local circumstances. This will

cover

such

matters

as

accommodation,

emergency

signals/actions, mustering points, general site rules including the wearing of personal protective equipment (PPE), safety meetings (see below) and the current state of the operations with any associated hazards. 3 1 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

Safety meetings

Everyone on site is obliged to attend at least one regular series of formal meetings at which safety related matters are discussed and minutes are kept. In these meetings action points are identified and action parties agreed. There are also less formal meetings, known as briefings or toolbox meetings, at the start of every shift and prior to all non-routine operations. •

The "permit to work" system

Only one person on a drilling unit has a complete overview of everything that is happening there - he may be called the toolpusher, the rig manager or the installation manager. If any department or section

plans

a

job

which

either

may

affect

other

sections/departments or is non-routine and potentially hazardous, the department/section head has to obtain a permit to work from the person in charge. Before issuing a permit the latter will verify that the work will not jeopardise other aspects of the operation and that the correct safety precautions have been taken. The types of work covered by this system are listed in the box in Appendix 2.



•

The sling register

Given the quantity and weight of equipment and material which is lifted and moved during a drilling operation there is a potential for accidents due to falling loads. One of the measures taken to avoid this is to have a sling register, in which is kept the physical details of each individual sling on location. •

Journey management and planning

Planning vehicle journeys properly can prevent accidents by allowing a supervisor to check that the trip falls within the allowable parameters of distance, speed, time of day, time on duty etc. and that appropriate equipment is being used or carried. If there is nevertheless an accident, it can minimise to some extent the consequences by ensuring that the accident is known about as soon as possible. •

SHOC (Safe Handling Of Chemicals) cards

A set of SHOC cards covering all the chemicals on location must be available. These contain data in a standard format covering such matters as storage, handling and medical treatment in case of accidental contact or ingestion. 3 3 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Anyone handling chemicals must be familiar with the data on the relevant SHOC cards. And if anyone has an accident with one of the many different types of chemical substance around a location, the medical attendant has quick access to details of the appropriate remedy. These cards are also known as MSDS (Material Safety Data Sheets). •

Personnel register

In dealing with an emergency situation it is essential to know whether anyone remains in a hazardous area or situation. For this reason a register of persons on the work-site, and their locations, is maintained. •

Drills

Knowing what to do in a critical situation is one thing, doing it properly in times of stress is a very different matter. A primary way to ensure that people do the right thing at the right time to stop a potentially hazardous situation turning into an emergency is to practise until the actions become familiar. Everyone on a drilling location will be expected to take part in: •

kick drills



•

fire drills

•

evacuation drills

•

H2S drills (if appropriate) •

Emergency signals

Each drilling unit has a set of signals given by a bell, whistle, siren, flashing light, etc. with at least one unique signal corresponding to each of the above-mentioned emergency situations. There may be more than one signal for each situation - for example a bell in the accommodation and a siren on the rig floor. You should make sure that you know the signals, and know what to do when you hear one. Regrettably these signals are not standard from area to area or even rig to rig. •

Contingency plans

In an emergency there is no time to stand around discussing what to do to minimise the consequences. This is all discussed and agreed beforehand, and formal contingency plans made (and publicised) to cover every reasonably imaginable situation. Contingency plans will typically cover: Accident/medical emergency

•



•

Blow-out

•

Fire

•

Man overboard

•

"May-day" call from aircraft/vessel at sea (including third parties)

•

Loss of contact with aircraft/vessel at sea

•

Loss of contact with road transport unit

•

Loss of stability of offshore unit

•

Diving emergencies

•

Oil spill

A release of H2S

•

•

Natural hazards appropriate to the specific area such as cyclones, icebergs, earthquakes, flooding, etc.)

1.2.4 Th e c c au s es o o f iin c i d en t s •

What Causes Incidents?

This is a deceptively simple question, and Shell has made major investments into finding an answer to it, including sponsoring academic research in universities in the Netherlands and the United Kingdom. A great deal of success has been achieved, and it is fair to say that within the Group there is now a good understanding of the 3 6 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


underlying causes of incidents. The current challenge is to put that knowledge to good use in preventing incidents in the future. This is not the place to go into the theory of incident causation resulting from the research (which is known as the "TRIPOD" concept) but a short, simplified, explanation of the aspects which are relevant on the work-site will be valuable for you in understanding what safety management is all about. The first reaction of witnesses after an incident will probably be to assign blame - either to a person who made a mistake (the notorious "pilot error") or to equipment breakdown. This may well be correct, but it is invariably only a part of the story. In fact the whole story is usually long and complicated, and only understood after a thorough incident investigation and analysis. From the point of view of the man on the work-site an incident can only happen if there are at least three elements present at the same time (hence the name TRIPOD). These are, in the order in which they make their presence known: •

Preconditions

An unsafe act

•

A failure of the system defences

•



One of these can almost always be present alone without there being an incident, and often two can be present without there necessarily being an incident. People do not deliberately perform unsafe acts which they know are likely to result in an accident. They have to be in a situation where their judgement may be faulty. In the jargon of safety professionals, there have to be pre-conditions. These are conditions which are imposed on the worker and which are, in the short term at least, outside his control. They are part of the working environment and as such are under the control of the line management of the company. Examples of pre-conditions are poor motivation, poor training, high workload, long working hours, an uncomfortable environment and distractions. There does indeed have to be an unsafe act. There was an error by the pilot! But pilots are people, and people do make mistakes however every mistake a person makes does not result in an incident or an accident (otherwise there would not be many people around !). In fact few real mistakes (as opposed to deliberate flouting of the procedures) actually result in accidents - they are necessary but should not be sufficient.



The reason for this is that built in safeguards are used which are given the name system defences. These are measures specifically designed to mitigate the consequences of either human or component failure. They are installed as a last line of defence, and the quality of the defence is related to the consequences of the mistake which they defend against. If a Boeing 747 hits the ground it can kill hundreds of people, so the system defences are very comprehensive including a co-pilot, redundancy of controls, flashing lights, aural warnings, and an automatic pilot which can over-ride the human pilot's inputs. In the drilling business it would be fatal to fall out of the derrick, but only to one or two people, so the derrick man is provided with a simple safety harness with a principal attachment plus a back-up line.

1.2.5 Man ag i n g H HSE 1 .2 .5 .1 S A F A N FE E T TY Y M N A G GE E M M E EN N T T Within HSE attention was focussed first on safety. There are three ways in which the management of a company can approach safety:



•

By not putting any employee into a potentially hazardous situation

•

By telling all employees that they are responsible for their own safety and leaving the rest to them.

•

By accepting the responsibility for safety itself.

It does not take much thought to realise that every action we take between waking up in the morning and falling asleep at night involves a certain amount of risk. We evaluate that risk, usually at a subconscious level, and if it seems to be below a certain threshold level we equate it to zero and carry on without further thought. The threshold level is very personal; it also varies with time. As an example not many people consider taking a shower to be a hazardous activity, but we probably all know someone who has slipped on the soap or on smooth tiles and either had a near miss, or done something more serious such as spraining a wrist or dislocating a shoulder. The conclusion is that there are no risk-free situations in practice and the first method is not in fact an option at all. The second method is very common in low technology jobs and until recently has been common in the oil industry in jobs where an accident would not result in immediate major damage to equipment. The thinking is that an employee will learn initially from his peers and 4 0 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


then by experience and will see the dangers for himself, or that he need only be shown once. There are many reasons why this approach is not effective, for example: •

Informal training given by peers can perpetuate bad practices as well as good.

•

"Learning by experience" really means learning not to repeat mistakes. Unfortunately the consequences of the first mistake may be such that the worker is no longer in a position to learn from it.

•

It may not be obvious to a worker how his actions may affect others.

•

The employee may not be able to evaluate how one change in a complicated set of conditions may affect the risk to himself

•

No matter how experienced, an employee may come across a new situation with risks which are not immediately obvious.

The major advantage of this approach is that it enables supervisors and managers to go home with a clear conscience after an accident: "It was his own fault - I'm not responsible!” It may seem to the newly recruited drilling engineer who is undergoing months of training, including the safety aspects of specific operations and frequent reference to safety management, that the approach is now 4 1 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


obsolete. It should be, but it is an easy option and is very seductive. As long as we continue to see accident reports in which the supervisor reports the action he took to prevent recurrence as "I told him to be more careful", this method of safety management is alive and well. It is by now obvious to you that the only acceptable choice is that the top management of a company accepts the responsibility for all the assets of a company, including as a major asset the personnel. This acceptance of responsibility for damage to personnel as well as to the other assets of a company may initially have been motivated by public relations - not wanting to be seen as a company which injures a lot of people - but it also made good business sense. In the course of time no incompatibilities have been found between safety and production, and it has become an accepted cornerstone of safety management that "safety is good business." With lower overall accident rates: •

less equipment will be damaged,

•

fewer small accidents in turn means fewer major accidents,

•

the

operation

will

be

closed

down

less

for

accident

investigations •

there will be lower costs for training replacement workers,



•

there will be lower costs for evacuating injured workers from remote locations

•

continuity in crews enhances teamwork and higher efficiency

1 .2 .5 .2 A C CC CE EP P T T A N NC C E E

O F F

T H HE E

N E EC CE ES S S SI IT T Y Y

T O O

M A N N A G GE E With the recognition of the safety responsibilities of management it became a Shell Group policy that Safety, and later also Health and the Environment, must jointly be given equal priority with the technical content of any operation. The most recent version of the Group's HSE Policy, endorsed by the Committee of Managing Directors in 1997, is shown in Appendix 1, along with a statement affirming the Group's commitment to Health, Safety, and the Environment. Individual Operating Unit (OU) HSE policies are based on the Group policy. It is a primary responsibility of the Management of an Opco to ensure that all the contractors involved, as well as all staff members, are aware of the Opco policy, understand it, and are fully committed to adhering to it. The consequence of adopting this policy was that it became necessary to "manage" safety in a more formal manner than 4 3 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


previously and thus to have a "safety management system" integrated into the overall management of the business in the same way as a "quality management system" and a "finance management system". The acceptance of safety, and later HSE, as an integral element of business activities is reflected in the Group's Statement of General Business Principles (1994 version). Extract from the Group's Statement of General Business Principles

It is the policy of Shell companies to conduct their activities in such a way as to take foremost account of the health and safety of their employees and of other persons, and to give proper regard to the conservation of the environment. Shell companies pursue a policy of continuous improvement in the measures taken to protect the health, safety and environment of those who may be affected by their activities. Shell companies establish health, safety and environmental policies, programmes and practices and integrate them in a commercially sound manner into each business as an essential element of management. 4 4 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


1 .2 .5 .3 E N A F A N NH H A N NC C E ED D S FE E T TY Y M N A G GE E M M E E N NT T The concept of a Safety Management System (SMS) was not created overnight. An intermediate step in the evolution of the SMS was a stage in which emphasis was placed on a structured approach to managing safety but which did not go all the way to the formal management and control system which SMS and today's HSE Management System (HSEMS) later became. This was called Enhanced Safety Management (ESM) and was driven purely by a concern within the Group that the accident rate was too high. There was none of the legislative pressure which later had an input into SMS. ESM was introduced in 1985 and was followed by the Environmental Management Guidelines (1987, revised 1992) and the Occupational Health Management Guidelines (1989). ESM required that local management address the following specific concerns: •

1) Safety consciousness (commitment/alertness of staff, safe personal behaviour)

•

2) Safety in engineering and in project management (planning, monitoring, design, lay-out)



•

3) Safety in technical operations (procedures and housekeeping in seismic, drilling, production, maintenance)

•

4) Safety in supporting operations (transport, emergency, survival, fire/gas protection)

•

5) Safety in contractor activities (seismic, drilling, construction)

•

6) Safety audits/inspections (internal and external)

•

7) Safety performance monitoring

The first of the above points addresses safety in how the work is done; it relates to an employee's attitude, alertness and interest. This attitude aspect is of overriding importance as it will allow unsafe situations to be recognised and corrected at an early stage of their development. Points 2-5 address safety in what has to be done and applies in a specific way to each of the disciplines that make up the total of EP activities. They should result in specifications, procedures and instructions and will require appropriate training. In all these areas management must demonstrate that safe practices have been planned and prevail. Points 6 and 7 are management tools used to demonstrate the quality of company safety activities and practices. 4 6 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


In order to be able to address the above concerns effectively and successfully it was necessary for the management of an Opco to comply with certain conditions, to provide adequate resources and to provide staff with the appropriate tools. These requirements, all of which have to be in place before safety can be effectively managed, have become known as the eleven principles of ESM. ESM was successful in reducing the accident rate.

1.2.6 Th e H HSE m m an ag em en t s s y s t em 1 .2 .6 .1 S A F A N FE E T TY Y M N A G GE E M M E EN N T T S Y YS S T TE E M M S S Major accidents, including the Piper Alpha accident (1988) and the Exxon Valdez oil spill (1989), led to increased awareness within the industry and with the authorities that more effective management systems should be in place to avoid major incidents. The Cullen Inquiry Report (1990) on the Piper Alpha accident recommended safety management systems and safety cases based on a full formal safety assessment. This led to the development of the Safety Management System (SMS) in Shell E&P companies, guidance for which was first issued in 1991.



With the growing momentum of safety management within the industry it very soon became enshrined in the regulations of the more developed countries. The permission to operate major facilities is now only given once management has demonstrated that it has taken adequate steps to ensure safe operations. SMS provides a means of demonstrating this. At the same time there were other important developments related to civil and criminal liabilities. The European Union (EU) is contemplating strict civil liability for environmental damage. Courts world-wide increasingly impose criminal liability for HSE noncompliance - for instance, in 1992 criminal charges for HSE noncompliance were imposed by a Canadian Court and an important set of 'Due Diligence' requirements were formulated. The SMS thus evolved into the Health, Safety and Environment Management System (HSEMS) to cover such requirements, and took account of external developments such as Quality Management standards (ISO 9000) and Environmental Management standards (BS 7750). For simplicity the remainder of this Topic refers only to HSE and HSEMS (except where safety as such is meant, and with reference to ESM). It must be remembered however that initially the main focus 4 8 8 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


was on Safety with the Environment and Health (in that order) being brought into the scope of the System at a later date. The system itself did not change significantly with these additions (apart from the change of name).

1 .2 .6 .2 T H A N HE E H S SE E M N A G GE E M ME E N N T T S Y YS S T TE E M M ( H HS SE E M MS S ) ESM provided a list of the principles for effective safety management and promoted the necessary cultural environment for safety. It did not however provide a structured means for implementing these principles within a company. Nor did it give explicit detail on the safety management practices at line and supervisory level. HSEMS fulfils these roles; it does this by formally assessing and documenting the management of those activities which are critical to HSE within the company. It should be emphasised here that the "critical activities" with respect to drilling operations are not restricted to tasks carried out on the drilling unit - the term encompasses every activity within the company which may have an impact on the HSE aspects of those operations, from policy decisions by the General Manager of the Opco to, for example, the mechanics of a transport contractor. Historically, HSE has been assessed by the absence of negative outcomes i.e. reactively. The introduction of ESM within E&P started 4 9 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


the move away from this reactive approach (after the accident) towards a more proactive approach, i.e. taking preventive action before an accident occurs. HSEMS has taken this further by providing the structure for improved planning via the management of hazards. Having accepted that HSE is part of the business and incorporating it into the Statement of General Business Principles, the management of HSE becomes part of the overall system for managing the business. (In other words the HSE Management System is not really a system but a sub-system.) It becomes subject to the same procedures and quality controls as any other part of the business such as operations, finance, public relations, etc. The accompanying box shows the Management System model included in EP 95-0310, derived from ISO 9000, featuring the so-called "quality loop" i.e. Plan-Do-Check-Feedback-Improve. This is accepted as applying, on the appropriate scale, to any business activity and therefore applies equally well to HSE. Its purpose is to safeguard people and facilities by ensuring that the activities of a company are planned, carried out, controlled and directed so that the HSE objectives of the company are met.



The elements of the HSEMS structure are dealt with in turn in the following sub-topics; •

* Policy and strategic objectives

•

* Organisation, responsibilities, resources, standards and documentation

•

* Hazards and effects management

•

* Planning and procedures

•

* Implementation

•

* Performance monitoring

•

* Corrective action and improvements

•

* Audits

•

* Management review



It is very important to realize that although the HSEMS is a "Management System" it is not a "Manager's System". Everyone in the Opco, including contractors, from the highest level to the lowest, has a part to play in the management of HSE. It is thus vital that the HSEMS must be understandable at the appropriate levels in the company. It is also important that it should be documented

so that it can be audited and verified as effective.

1 .2 .6 .3 P O OL LI I C C Y Y A A N ND D S T TR R A T TE E G GI I C C O B BJ J E EC C T TI I V V E ES S The HSE policy of an operating company is the top management's statement of intentions and principles of action. It must be widely published (helping to demonstrate compliance with the first principle of ESM) including being translated into as many languages as are in common use among the personnel of the company and its contractors. As previously stated, it should be consistent with the Group policy by being based on the Statement of General Business Principles and the Policy Guidelines on Health, Safety and the Environment. The primary objective of good HSE management is to establish and maintain downward trends in incident frequency, severity and cost. The company HSE programme should have definite objectives on work incidents, property damage and business interruption losses. 5 2 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


These objectives may be quantified in absolute terms or trends. Similarly the objectives of an environmental protection programme are to reduce the impact of the Opco's operations on the environment and they should be quantified in terms of the amounts of solid, liquid and gaseous pollutants discharged and in terms of the effect of both pollutants and construction work (including roads) on the local flora and fauna. Where appropriate noise, light and smell should be considered as pollutants and corresponding objectives established. The quantification of short and medium term occupational health objectives in terms of target achievements is usually more difficult as the effects of poor practices may take years to manifest themselves. Normal practice is to set targets related to the implementation of preventive measures. In some cases there may be medical problems which can be quantified and for which short and medium term objectives may be set. An example of this would be the incidence of malaria among the staff. Again, having objectives is not sufficient - both objectives and results have to be published so that everyone knows what the objectives are and whether they are being achieved.



1 .2 .6 .4 O R RG G A N NI I S S A T TI I O O N N , R E ES S O OU UR R C C E ES S ,

R E ES S P PO O N NS S I IB B I I L L I I T T I I E E S S , S T T A N ND D A R RD DS S

A A N ND D

D O OC CU UM M E E N N T T A T TI I O O N N 1.2.6.4.1 ORGANISATION

The successful handling of HSE matters requires the participation of all levels of management and supervision, including the "line" (see below), advisers (both functional and HSE) and contractors, right down to the most exposed workers at "the sharp end" i.e. the rig floor. This has to be reflected in the organizational structure of the Opco. This structure not only has to define the relationships between the various positions in the company, but it also has to define the number of people required to fulfil all the requirements of the organization, including those relating to HSE. An important element in the development of an effective organization is that everyone within it should know what he/she is supposed to be doing, and how it should be done. This may sound obvious, but in practice it is difficult to achieve. The solution is to have a written job description for every position within the organization, defining both the responsibilities and the relevant reporting relationships. There must also be, within the organization, a set of documented equipment standards and standard procedures to cover every 5 4 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


foreseeable requirement. Job descriptions and standards have been a normal part of operations for many years, what is relatively new is that an HSEMS calls for the HSE aspects of a job to be formally included in a job description, and for HSE standards and procedures to be included in the Opco's reference documentation. Standards and documentation are covered in Topic 2.8. 1.2.6.4.2 RESPONSIBILITY FOR SAFETY

1.2.6.4.2.1

The only person who can be responsible for

doing a job safely is the person who is responsible for doing the job properly.

The above statement is another way of stating the third principle of ESM. Each person in the line is responsible to his supervisor for doing his job properly, which includes the jobs of his own subordinates, if any, and which also therefore includes the safety of those subordinates. "Line" in this context means the line (or chain) of command from the General Manager down to the most junior employee. This may seem self evident when set down in print, but it is surprising (or perhaps not) how many people will try to avoid accepting responsibility for an accident to a subordinate. 5 5 5 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


It follows from the above that the General Manager of a company is ultimately responsible for the accidents that happen to the most junior employee in the same way that he is ultimately responsible for the quality of the company's products and the company's profitability. This principle is illustrated in Appendix 3. This is one of the basic principles behind the management of safety within the Shell Group, being stated clearly in a letter sent out by the EP coordinator (Mr. M. Moody-Stuart at the time) in April 1990 to the Chief Executives of all Operating Companies, in which he asked them to acknowledge the fact that they accepted that responsibility. The text is given in the box below.



Reflecting on the 1989 results, it is a source of concern that the pace of our business in different parts of the world may have had an adverse effect on our safety performance. Our annual exposure in EP rose from 192 to 224 million manhours. Investigation of 1989 fatalities, accidents and incidents has time and again concluded that operations have commenced before the appropriate safety systems were demonstrated as being in place and functioning, or that staff continued to tolerate deficiencies and substandard working practices. There should be absolutely no question of operational urgency or other pressures taking priority over safety. It has been repeatedly demonstrated that improved safety in operations goes hand in hand with greater efficiency, quality and cost effectiveness. Clearly we need much more effort to ensure everyone's accountabilit towards safety, from the Company Chief Executive through to the operator. In managing our business, I can only yet again reinforce that responsibility and commitment at all levels for both our safety and that of our subordinates is crucial. In order to establish clear accountability, there should be a full under standing of responsibilities, including the role of each individual expressed in personal tasks and targets, within the safety implementation plans. 5 7 7 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


I would therefore request you to ensure that work does not start before it is confirmed that essential safety systems are in place and that staff are accountable for this requirement. Where we cannot ensure safety, operations should be suspended. This accountability should apply at all levels of the organisation; from the Chief Executive who should ensure that the corporate business programme is in line with resources and managerial/ supervisory capabilities, to the supervisor who should ensure himself that all precautions are in place and that his workers understand the job at hand. I should appreciate receiving your assurance that your programme can be managed in line with your own ambitious targets for the rest of the year. You can count on my full support if an internal review leads to the conclusion that your programme needs to be modified in order to achieve your safety targets.



Responsibilities are assigned to Line staff and to HSE Adviser staff (including HSE Advisers in the Opco) and the issue of Accountability has to be addressed. 1.2.6.4.2.2

"Line" staff responsibilities •

General Management

This is the level which sets the policy and priorities, establishes the framework for implementation, provides the resources, and monitors adherence and overall performance. It is not however sufficient for the top management of an Opco to perform its HSE responsibilities behind closed doors

it, and specifically the GM, must be seen to

demonstrate strong leadership and commitment. This visible leadership and commitment was the first principle of ESM; it is so important because it creates the atmosphere in which the whole Management System operates. In order to create a culture in which there is a concern for HSE matters throughout the Opco, and in which individual contributions from employees and contractors have a part to play, it is essential for the General Manager and the line managers to take an active personal interest in the HSEMS. This interest must extend from the development of the system and the preparation of the documentation 5 9 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


to the implementation at the lowest level. It is the single most important factor in the HSE performance of the Opco. If, on the contrary, the management of an Opco is paying lip-service to HSE without being truly committed, that will become obvious to the staff and contractors and will turn the HSEMS into a paper exercise with little effect on the HSE performance. Interest alone, vital though it is, is clearly not sufficient. The GM must demonstrate a willingness to provide the funds required for sufficient resources (in this case, man-hours) to develop, operate and maintain the HSEMS. •

Operations Management

Line management establishes the framework for implementation, ensures that the HSE policy is properly observed and monitors the attainment of targets. Line management should also provide support and resources for local actions taken to protect health, safety and the environment. •

The Department Head

This is the level which specifies the professional ways and means; which selects the appropriate objectives, standards, specifications and procedures in the technical and HSE disciplines; which verifies 6 0 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


adherence to these (among Opco and contractor staff) and which organises resources and training to achieve the objectives. It is thus the Department Head who puts into practice the fifth, sixth and seventh principles of ESM. •

The Line Supervisor

This is the level which activates, motivates and enforces safe practices at work. Line supervisors set the example for the workforce. •

The Crew

This is the level which actually does the job. They must flag all unsafe conditions and incidents, correct unsafe acts and give suggestions for improvements. It is also the responsibility of each person in the crew to watch out for the safety of his work mates. •

The Individual

In the last resort each individual is responsible for his own safety and should not rely on the "systems" to take care of him. 1.2.6.4.2.3

"HSE Adviser" staff responsibilities

HSE Advisers are not responsible for HSE matters. Such staff, sometimes known as "HSE professionals", have a very specific rôle to 6 1 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


play in a company. They are specialists in the techniques of HSE management and can provide details of HSE related standards and specifications. In Shell terms they have a functional responsibility, which means that they give advice to "line" staff when requested, but have no direct responsibility for the particular operation. The availability within an Opco of competent HSE advisers is the fourth principle of ESM. The following is a summary of the responsibilities of the various groups of advisory staff involved in HSE management, including those at Group Management level and in Central Offices: 1.2.6.4.2.4

At "Group" level

The Shell Group HSE policy is developed by the Steering Committee for Health, Safety and Environment. This committee is chaired by one of

the

Managing

Directors

and

its

members

are

Co-

ordinators/Division Heads from all functions. The Steering Committee is supported by three specialist committees with emphasis on the different areas: •

Shell Safety Committee

•

Shell Product Safety and Occupational Health Committee

•

Shell Environmental Conservation Committee



The functional heads of HSE participate in these three committees; for EP that rôle is filled by EPO/6. 1.2.6.4.2.5

In SIEP

Within SIEP the "Health, Safety and Environment" advisers (EPS/HE) have the following responsibilities: •

To provide co-ordination, guidance, information and advice on safety,

the

environment,

occupational

health

and

risk

assessment for the SIEP and Operating Units. •

To establish minimum standards for safety and environmental conservation in engineering and operations.

•

To co-ordinate and carry out HSE audits (at the request of the Operating Units).

•

To co-ordinate and carry out HSE training in SIEP and in Operating Units.

•

To co-ordinate and carry out safety and risk assessment studies for Operating Units and SIEP.

•

To

co-ordinate

and

carry

out

Environmental

Impact

Assessment for Operating Units and SIEP. •

To participate in SIEP projects in order to ensure HSE input and review during the design stage.



•

To represent SIEP in the HSE committees and work groups of the Shell Group.

•

To represent the EP function of the Shell Group in international industry or government bodies who are active in HSE, such as the EP Forum.

•

To co-ordinate staff planning and training of EP HSE staff.

1.2.6.4.2.6

HSE Advisers in the OU

It is the responsibility of the HSE Department to provide all levels of management and supervision with adequate up-to-date advice and tools, to enable them to execute their specific responsibilities. The HSE Department must provide all supervisory levels with: •

technical HSE information and experience (data, techniques, equipment, specifications, know-how)

•

guidance for HSE audits, reviews and inspections

•

advice on HSE training, instruction and exercises

and provide Company Management with: •

guidance on accident reporting, investigation and follow-up

•

Feedback on HSE developments generated in SIPM, other operating

companies,

industry

and

within

departments. 6 4 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]

government


1.2.6.4.2.7

Accountability

Accountability for unsafe and environmentally hazardous practices and resulting incidents, injuries or fatalities applies right down the "line" to all levels of the organisation, within every employee's own sphere of responsibility. All employees should therefore be aware of their own specific role and responsibilities for HSE. A common issue is how realistic it is to hold an individual worker accountable for a task that has been carried out in the absence of proper supervision or procedures. The answer is that an individual worker is responsible for the work he does but that his supervisor and the company remain accountable for assuring that he has adequate supervision and procedures to carry out the job safely. Accountability thus requires that every manager or supervisor is able to demonstrate that he has: •

formally given relevant instructions to his subordinates,

•

taken the appropriate implementation measures,

•

provided the necessary resources (money, manpower and/or training as appropriate to his level of authority)

•

regularly checked adherence.



Making staff accountable for HSE, in the same way that they are accountable for the technical aspects of the job, means that career performance ranking is as dependent on HSE performance as on technical performance.

1 .2 .6 .5 H A Z A N Z A R RD D S S A A N ND D E F FF F E EC C T TS S M N A G GE E M M E E N N T T A crucial element in the management of HSE is the management of the hazards inherent in the business, and their adverse effects. The Hazards and Effects Management Process (HEMP) is the planning tool designed to do this. It provides a structured method of identifying hazards, assessing their importance, deciding on the steps which need to be taken to control them (which could be by means of equipment specifications, standard procedures, system defences and/or training) and of specifying the steps to take if something does go wrong. The process is illustrated in the diagram below and is described in detail in Appendix 2. It is a core element in the preparation of the Company's HSE Manual and in the HSE Cases applicable to individual sites - the latter are also described in the following Topic. Identify

What is the root cause ?



What could go wrong ? Assess

How serious will it be ? How probable is it ?

Control

Prevent/eliminate

Is there a better way ?

Reduce probability

How to prevent it ?

Mitigate

Recover

consequences Emergency response Reinstate

How

to

limit

the

consequences ? How to recover ?

Implementation of HEMP within the HSEMS will allow Opcos to assure themselves, shareholders and, where appropriate, regulators that: •

the

hazards

inherent

in

their

operations

have

been

systematically identified; •

arrangements are in place to control those hazards and to deal with the consequences should the need arise;

•

the necessary information, training, auditing and improvement processes are in place.



1 .2 .6 .6 P L L A N NN N I I N N G G A A N ND D P R RO OC CE E D DU U R R E ES S As previously stated the primary objective of good HSE management is to establish and maintain a downward trend in incident frequency, severity and cost. To achieve this a clearly defined programme should be drawn up and regularly reviewed and controlled by company management. The programme should be developed throughout the company's organisation as part of the normal planning cycle, and reflect the different responsibilities of the various management

levels.

It

should

specify

action

plans

where

improvements are required in order to meet the targets. The programme and the action plans need to be quantified wherever feasible so that progress can be measured and achievements verified. Following the fifth principle of ESM the programme should be based on high and well understood HSE standards This programme is documented in the Company's HSE Manual which is described in the following Topic.

1 .2 .6 .7 I M MP P L LE E M ME E N NT T A T TI I O O N N Implementation means ensuring that the practices and procedures specified in the planning documents (HSE Manual and HSE Case) are 6 8 8 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


used to achieve the Company's objectives. For this to happen, the eighth principle of ESM is crucial. There is only one way to ensure that people do use procedures and systems and that is to capture their hearts and minds. Their hearts have to be convinced from the start that the objective of safety management is (contrary to what may have been implied earlier in this document) not to achieve a low accident rate but to send them as individuals home in one piece to their families and friends. Their minds have to be convinced that the specified procedures are the best procedures. The latter is basically achieved by training, but it is also very important to involve the people who use the procedures in writing them, and to take seriously any suggestions they may have for modifications. Capturing the hearts can only be achieved by creating a HSE culture which permeates the whole company. Every manager and supervisor, at every level, must demonstrate by his own actions that the operation achieves success through the use of the correct procedures. There must be briefing sessions and HSE meetings to build and consolidate group motivation and to encourage individual participation in discussion. Each person should be individually informed, by means of newsletters, etc. of significant achievements within the company as a whole as well as within 6 9 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


his/her own group. Groups and individuals mentioned by name will be motivated to maintain a high standard.

1 .2 .6 .8 P E ER R F FO O R RM M A N NC C E E M O ON NI I T T O O R RI IN N G G The ninth principle of ESM is to have effective performance monitoring

techniques.

These

can

be

used

measures

the

effectiveness of management by the comparison of results with preset targets. Overall safety performance is normally monitored using injury statistics and quantified assessments of the safety of the workplace. Good performance is indicated by a decrease in injury frequency and severity and an increase in the reporting of near misses and unsafe acts. The pro-active element of an Opco's performance, which is in effect the implementation of the procedures specified in the hazard management process, has also to be verified and where possible quantified. It should be remembered here that it is safety management which is being monitored, not accidents. This is done by: •

programming drills, monitoring that they are being performed and analysing the results,



•

monitoring the documentation related to each procedure, for example permits to work, sling registers, journey management logs, minutes of HSE meetings.

•

monitoring the documentation related to equipment checks, including the "system defences".

•

internal audits, or spot checks, that the documentation reflects the reality of the situation.

•

monitoring the procedure that each supervisor uses to monitor the people he supervises.

•

monitoring the first aid treatments carried out by the medic.

Much of this is done during regular rig visits by middle management and department heads. Until the advent of formal HSE management the emphasis during such visits was on checking the equipment, now it is on verifying that the checking is being done by the people whose job it is and on verifying compliance with procedures. Last but not least there is the tenth principle of ESM - accident investigation. Strictly speaking this is not performance monitoring, however it is similar to monitoring in as much as any accident or near miss is a positive indication that the HSE management system has failed and provides feedback into the "corrective action" element of the quality loop. 7 1 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


With regard to accident investigations it can almost be said that the last thing to consider is the committing of an unsafe act in isolation. If the preconditions are completely removed there will be no more unsafe acts because people will be fresh, motivated and 100 % trained, they will be given the time to do their job properly in a pleasant environment without distractions. The danger then is complacency, but that can also be managed. System defences however are still required because of "real" incidents which are beyond management. For example an insect can fly into the eye of the driller at a critical moment, causing him to lose concentration as he is raising the block. This is a distraction which could not be foreseen, but the situation is saved by the system defences. (Note, however, that if the incidence of flying insects is known to be high on the drilling location that would definitely be a pre-condition to be dealt with by HSE management.) Thus the object of an accident investigation is not primarily to assign blame to someone who committed an unsafe act, but to determine what were the preconditions that had an influence and which system defences failed, and why.



1 .2 .6 .9 C O OR RR RE EC C T T I I V V E E A A C CT TI I O O N N A A N ND D I M MP PR R O OV V E EM M E EN N T T S S Corrective action is an essential part of the feedback loop. The important point is that it has to be specific and documented, so that everyone involved knows exactly what the problem is, who is supposed to take action and a date by which the action has to be completed. The very act of writing down the deficiency and how to remedy it may well bring realisation to the supervisor that the deficiency in question is a merely a symptom of a problem which lies elsewhere (preconditions). You will already have realised that top management will be ensuring that the quality loop is being closed by monitoring the corrective actions being taken by the operations management.

1 .2 .6 .1 0 0 A U UD D I IT T S S Regular audits are part of the normal business control cycle as specified in the eleventh principle of ESM. In HSE management they serve to highlight areas where complacency has crept in and to verify to top management that the operations management is acting effectively. This is a theme which is common in HSE management as it is in any quality cycle - there is no point in giving an instruction or setting up a system if compliance is not verified. 7 3 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


There are two levels of audits, internal and external. Internal audits are more thorough versions of the routine rig visits, done by a larger team and taking longer. They will also look at the procedures within the office organisation. The result will be a formal report which goes further up the line than the rig visit reports. External audits are done (at the request of the top management of the operating company) by a team led by SIEP and include members from the operating company itself and from partners, if there are any, and/or contractors. They are as comprehensive as possible taking a team of four people up to two weeks to complete. There will be a formal report sent to the operating company by SIEP over the signature of the EP co-ordinator, who will require regular progress reports on the corrective actions taken. External audits will be done every three years or so.

1 .2 .6 .1 1 A N 1 M N A G GE E M ME E N NT T R E EV VI I E E W W The final stage before re-commencing the business cycle is the management review in which the external audit plays a large part. The review allows top management to focus on how the top level policy decisions are affecting the HSE aspects of the workplace, and gives the opportunity to revise those policies not only as part of the 7 4 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


technical improvement process but also in the light of changing legislation and public opinion.

1.2.7 Heal t h a an d tth e e en v i r o n m en t 1 .2 .7 .1 I N NT T R R O OD DU U C C T TI I O O N N Having presented a relatively detailed introduction to the subject of Safety Management this section gives an introduction to the other components of HSE, that is Health and the Environment, and gives a very brief idea of the practical issues involved. The key distinction to be made at the outset between Safety on the one hand and Health and the Environment on the other is between acute and chronic conditions. Safety management is mostly about acute problems while the management of health and the environment is mostly concerned with the chronic condition. Both types of condition can be regarded as the result of the release in some way of a potentially damaging hazard. The hazard can be an energy source, a substance which is harmful to people and/or the environment, physical modification of the environment. Whether this hazard is the result of a short term action or a long term effect, the basic HEMP process of identification, assessment (or evaluation), control, and recovery is equally applicable. 7 5 5 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


1 .2 .7 .2 H E E A L LT T H H Health comes into HSE in two distinct areas. It is part of the mitigation process within the safety process. In case someone is hurt medical attention has to be quickly available. Occupational health refers to the focusing on the chronic conditions mentioned above. The major hazards which are relevant around a drilling location are: •

Noise (Very many of the older generation of drillers are deaf)

•

The effect of constant contact with drilling fluids

•

The breathing of drilling fluid chemical dust

•

The incorrect handling of radioactive material

•

Ergonomics

Within the industry there are trades with their own specific health hazards, such as: •

Divers (the bends)

•

Welders (eye problems)



1.2.7.2.1 OCCUPATIONAL EXPOSURE LIMITS

One of the main tools for controlling occupational illnesses arising from contact with the materials used in any activity is the concept of Occupational Exposure Limits (OELs). These refer to airborne concentrations of chemical agents and levels of physical agents, and represent conditions under which it is believed that nearly all workers may be repeatedly exposed day after day without adverse effect. Because of wide variations in individual susceptibility

however,

a

small

percentage

of

workers

may

experience discomfort from some substances at concentrations at or below the exposure limit; a smaller percentage may be affected more seriously

by

aggravation

of

a

pre-existing

condition

or

by

development of an occupational illness. Smoking of tobacco is harmful for several reasons. Smoking may act to enhance the biological effects of chemicals encountered in the work place and may reduce the body's defence mechanism against toxic substances. Individuals may also be hyper-susceptible or otherwise unusually responsive to some industrial chemicals because of genetic factors, age, personal habits (smoking, alcohol, or other drugs), medication, or previous exposures. Such workers may not be adequately 7 7 7 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


protected from adverse health effects from certain chemicals at concentrations at or below the OELs. OELs are based on the best available information from industrial experience, from experimental human and animal studies, and when possible, from a combination of the three. The basis on which the values are established may vary from substance to substance; protection against impairment of health may be a guiding factor for some, whereas reasonable freedom from irritation, narcosis, nuisance or other forms of stress may form the basis for others. OELs are guidelines or recommendations in the control of potential health hazards. THEY ARE NOT FINE LINES BETWEEN SAFE AND DANGEROUS CONCENTRATION nor are they a relative index of toxicity. OELs may be found in national regulatory documentation such as the German "Maximale Arbeitsplatzkonzentrationen und Biologische Arbeitsstofftoleranzwerte", the British Health & Safety Executive's "Maximum Exposure Limits", the Dutch "MAC waarden", in European Directives, in the American Conference of Governmental Industrial Hygienists' Threshold Limit Values (TLVs) and Biological Exposure Indices (BEIs) booklet, and in Shell Safety and Health Committee and Shell HSE publications. 7 8 8 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


1.2.7.2.2 HYGIENE

As well as medical attention and occupational health there is an area, somewhere between the acute and the chronic, which is of great importance on a drilling unit either on- or off-shore. That is hygiene. Inspecting kitchens, toilets, septic tanks and soak-aways is not a very glamorous aspect of the industry but if the senior man on location does not take this seriously and keep on top of it there can very quickly be a major problem.

1 .2 .7 .3 T H HE E E N NV V I IR R O O N NM M E E N N T T The environment is currently the topic with the highest profile. The drilling business creates two very different hazards for the environment; pollutants are discharged and, onshore, the topology is modified. It is difficult to know which has the greater long term effect, both have to be controlled and mitigated, and much has already been done in those respects. The pollution resulting from blow-outs is what gets all the publicity, but that, thankfully, is rare in our operations. What has not been rare, and only began to receive significant attention in the early nineteen eighties, is the discharge of liquid drilling fluid. If the drilling fluid properties started to deviate from what was required, usually by 7 9 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


taking up clay from the drilled formation, the easy option was to dump it and mix new drilling fluid. The chemicals used were simple and cheap, and solids removal equipment was limited to the shakers, desanders and desilters. The alternative was, and is, to use a more sophisticated system, easier to maintain but more expensive to start with, and to use more efficient solids removal equipment so that formation solids taken up by the drilling fluid are completely removed and are discarded dry. As the Group became concerned about the effect of our operations on the environment - in parallel with public pressure, not as a result of it - the weights in the balance changed and the low discharge option became preferred. As usually happens in such cases, it turned out in the end that when the appropriate engineering attention was turned on the subject the clean option became no more expensive than the dirty option. A land drilling operation is a major modifier of the topology of an area. In the short term the cleared areas will obviously stand out like accusing fingers, but in the medium term bushes and trees will reestablish themselves - always assuming that the soil has not been contaminated and that a waste pit of semi-liquid drilling fluid was not left behind. There is however one situation with a long term effect, 8 0 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


which may prevent the area ever returning to its original state, That is a change to the natural drainage of the area. The natural drainage is an equilibrium state which has developed over geological time. A step change will not be reversible and it is difficult to estimate what the final effect will be. An access road may for example cut across a dry stream bed. When the rainy season comes the stream may then follow the road and create a completely new stream, in the process virtually destroying a village which had always relied on the original stream for irrigation. Building a dam to provide drill-water may create changes which will not revert to the original state when the dam is eventually removed. Actions which the Group is currently taking to minimise this type of environmental problem is to promote the drilling of smaller hole sizes. This has many consequences. •

There are less cuttings to dispose of

•

There is less drilling fluid used which has to be transported and then disposed of

•

Less water is required

•

Less casing is required, reducing both purchase and transport costs



A smaller rig is required which in turn has the following

•

advantages: 

It weighs less, so transport and handling costs are lower

  

Fuel costs are lower A smaller location is required Lower grade access roads can be used.

1.2.8 HSEMS D Do c u m en t at i o n 1 .2 .8 .1 T H H S M A N HE E H SE E M MS S M NU U A L L The purpose of the HSEMS Manual is to document the Opco's HSE Management System. It should enable all staff and any interested outside parties to understand how HSE is managed throughout the company's business and should set out the responsibilities and accountabilities of the various levels of top and line management. A key element of the HSEMS Manual is a description of the objectives which management see for the HSEMS. In the majority of Opco's the HSEMS is documented in four parts as described below.

8 2 2 Petroleum E Engineer: M Mohd. Z Zouhr y E El-Helu.



•

Part (1) (1) presents the operating company's policy, objectives, organisation, and the principal management controls and programmes as they apply to HSE. The HSEMS is an objective setting system and it falls to the management of the company to set their own specific goals against which the

HSE performance must be measured. It sets the scene for the various HSE Cases that will be prepared as demonstrations of effective HSE management at the local or site-specific level. The various sections within Part 1 are listed below. •

Part (2) (2) is the implementation of HEMP. It comprises the HSEMS Activities Catalogue and contains the detailed analysis of all activities which contribute to the management of hazards. The techniques used to define HSE critical activities and to document them are described in detail below and in

Appendix 2. •

Part (3) (3) lists the (controlled) documents referred to in Parts 1 and 2 of the HSEMS Manual.

•

Part (4) (4) presents the Remedial Action Plan, the company's programme of work to address any system deficiencies found during the process of assessing and documenting the HSEMS.




1.2.8.1.1 PART (1) POLICY, PROCEDURES & SYSTEM REQUIREMENTS

The first part of the HSEMS Manual will normally be divided into the following sections, reflecting the management of HSE within the structure of the Model Management System •

Introduction to the HSEMS Manual (This Manual (This section of the manual defines the HSE Management System, its scope, its use and its benefits. It describes the structure of the HSEMS Manual and its relationships with other management systems.)

•

Policy and strategic objectives (This objectives (This section contains: 

The Opco's policy for Health, Safety and Protection of the Environment;



Other HSE related policies such as Drugs and Alcohol, Security and Road Safety;



The Opco's HSE, hazard management and risk reduction objectives;



The objectives are explained. Performance standards and acceptance criteria are established. The goal must be to reduce risk to a level that is as low as reasonably practicable;






The Opco's requirements for hazard analysis, risk assessment and risk management; The HSEMS must ensure the identification and assessment of hazards throughout development

all

activities

(i.e.

and

planning,

at

all

design,

stages

of

construction,

operation and abandonment) of the project life cycle. It requires that all reasonably practicable measures are taken to prevent, control and mitigate identified hazards. It calls for the preparation and maintenance of a HSE Case to demonstrate that these objectives are being met for each site or operation; 

The legal requirements; The legal framework, both national and local, within which the company conducts its business is described;



The Opco's methods for disseminating the policy and objectives to all relevant staff.)

•

Organisation,

responsibilities,

resources,

standards

and

documentation (This section describes the overall corporate documentation management structure and organisation, and its relation to the implementation of HSE within the company. Included should be: 8 5 5 Petroleum E Engineer: M Mohd. Z Zouhr y E El-Helu.





the Opco organisational structure;



the

key

HSE

responsibilities

of

managers,

line

supervisors, employees and contractors' staff; 

the means by which all personnel are involved in HSE matters, including the setting up of an interlocking HSE committee structure so as to ensure that the HSE policy, objectives and targets are fully communicated to the workforce. It also defines a structure for the discussion and communication of HSE issues between work force and management;



the role of HSE advisors by defining job descriptions, training requirements, competency and qualifications;



the way the competence of employees is assured and documented

in

order

to

ensure

that

the

staff

understand the HSE implications of their actions and that they are competent to perform them to the required standard; 

The Opco's policy on the the HSE considerations used in selecting and reviewing the performance of contractors, and a description of how the company's HSE policy and HSE objectives are translated into effective Contractor HSE Management.





Opco policy on performance standards for HSE-critical activities, technical training, HSE-specific training, safety drills and exercises.



a description of the company's use of standards and procedures programmes

in in

hazard place

management to

ensure

and that

of

the

controlled

standards and procedures are being utilised. 

An explanation of how the company identifies and controls the minimum required standards, design codes and acceptance criteria to be used during the entire life cycle of the enterprise.)

•

Hazards and effects management (This section describes describe how the objectives of the HSE MS are to be achieved through the management of hazards and effects. Included are: 

an overview of the Hazards and Effects Management Process as applied to company operations.



an assessment of HSE impacts or potential impacts on people, on communities, on the environment and on assets over the full life cycle of the operation.



a description of the techniques for early identification, review and documentation of hazards and effects





a description of the procedures and techniques used in the company to assess risks fram hazards and effects and to put in place the controls needed to achieve HSE objectives.



a description of the requirement to record hazards and effects identified and the results of all risk evaluations, with guidance on how this should be done



a description of requirement to establish and document appropriate performance criteria and related indicators to provide assurance that activities are being performed to the standards necessary to achieve HSE risk management objectives.



a description of the methods to be used to provide a tolerable level of risk in accordance with company risk management objectives-



a description of the requirement to demonstrate that HSE risks are as low as reasonably practicable (ALARP) - this demonstration should comprise HSE Cases for all facilities or operations in which hazards have been identified





a description of the risks not only in terms of risk to health, safety and the environment but also in terms of risk to reputation.)

•

Planning and procedures (This section should describe the company' s use of various plans and procedures aimed at achieving HSE objectives and should identify the key HSE procedures used in the company. Included should be: 

a description of the company's HSE Plan with a statement of how often such a plan is produced, and who is responsible for its production and endorsement and how the objectives are achieved.



a statement of the requirement for adequate planning of all HSE-critical activities to manage HSE risk.



A description of how the company uses procedures and work instructions in hazards and effects management. This can be divided into the following sub-sections: •

Change Control Procedures

This sub-section demonstrates how hazards that could arise from or be associated with all elements of change are identified and described. It covers: 8 9 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

change control procedures for HSE related documents, hardware, software, personnel, procedures and modes of operation;

•

key checks and balances built into the change control system;

•

methods by which work is authorised, prioritised and resourced to ensure timely completion;

•

a discussion of which documents are to be routinely updated, how they are updated and how information concerning the change is communicated to the appropriate personnel. •

Risk Management Systems

This sub-section defines the minimum requirements for safe working practices, including: •

Shift Handover procedures;

•

The Permit to Work system;

•

the Permitted Operations System, explaining how the system applies to periods of escalated risk and simultaneous operations. (A key element of the HSE Case is the Manual of Permitted Operations or MOPO).



•

Contingency and Emergency Plans

This sub-section describes the company requirements for emergency response, comprising Contingency Plans for the safe evacuation, escape and rescue of personnel following incidents. The requirements for exercises and drills is also covered.) •

Implementation and monitoring (This section describes how the company measures and monitors HSE performance. The emphasis should be upon both reactive and active indicators. This section will include: 

a description of how these critical activities and tasks are identified, how business controls on them are established and accountabilities defined for their execution.



a description of how these critical activities are defined and specified to be performed to selected standards, and how these performance standards are set.



the setting of HSE targets for the enterprise and subgroups based upon the identified key HSE factors.



the setting of HSE targets for individuals derived from and consistent with the corporate HSE targets and



objectives, and interlocking from level to level in the organisation; 

the criteria by which HSE performance is measured against the HSE targets;



the definition of suitable performance indicators;



the means to monitor locally the HSE performance of the enterprise;



the means by which data are collected, recorded and disseminated and the analysis carried out, in order to identify common failures and trends in management, procedures or hardware;



the means by which HSE performance is communicated to all staff on a regular basis;



the way all incidents, including near misses as well as accidents, are recorded and investigated to identify immediate and underlying causes;



the procedures for carrying out follow-up actions to prevent recurrence.)

Auditing and review. (This section describes the programme to

•

ensure

regular

and

independent

auditing

of

the

HSE

Management System and its associated HSE Cases. Auditing is defined here as assessing the effectiveness of HSE-critical 9 2 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


controls. The whole range of audit techniques should be described, ranging from Unsafe Act Auditing at the individual level, to externally led HSE Management System and HSE Case audits. This section includes: •

a reference to the relevant audit policies and procedures;

•

the way in which the audit programme is produced (ensuring adequate coverage of the business);

•

an explanation of the structure of the audit programme;

•

the way action recommended by an audit is agreed, carried out and monitored;

•

the means by which the lessons learnt from such audits are communicated across the company to relevant personnel for follow up.

Management Review and Improvement Processes

This section describes the plan and the process for periodically reviewing and improving the effectiveness of the HSE Management System. The review should include a review of the methods used to measure and monitor performance. A plan for the review and improvement of HSE Cases should be described.) 9 3 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


1.2.8.1.2 PART 2 - HSEMS ACTIVITIES CATALOGUE

The second part of the HSEMS Manual consists of a catalogue (the HSEMS Activities Catalogue) describing those activities within the company where hazards are managed. The means for judging this is to assess if a business activity involves identification, assessment, control of and/or recovery from a hazard. Any activity which involves one or more of these categories is HSE critical and needs to be considered further for possible inclusion in the HSEMS Activities Catalogue. The activities are then defined in terms of their hazard management objectives and the methods for achieving these objectives are specified. The preparation of the HSEMS Activities Catalogue is the application of the HEMP process (ref. Topic 2.6.5 and Appendix 2). The information concerning each identified hazard is recorded together with associated business controls on a Specification Sheet. The compilation of these sheets forms the Activities Catalogue. The individual HSEMS Activities Specification Sheet(s) must be prepared by those persons involved in, and recognised as accountable for, the specific business process(es) under review. It



follows that much of the HSEMS Activities Catalogue has to be prepared by the contractors performing the operations. 1.2.8.1.3 PART 3 - REFERENCES, DOCUMENTS AND STANDARDS

This part draws together into a comprehensive list all the documents and standards referred to in Parts 1 and 2, together with a description of their purpose, revision date, their custodians and review cycle; cross referenced to the appropriate activities and hazards. In addition, as HSE Cases are developed, and site specific controlled documents identified, the latter must be included in Part 3 of the HSEMS Manual. 1.2.8.1.4 PART 4 - SHORTFALLS AND REMEDIAL ACTION PLAN

This section describes how shortfalls (identified through preparing the HSEMS, through audits and reviews and through other forms of deficiency identification) are corrected as part of the company HSE plans. It explains how HSE plans and programmes are developed at the various levels within the organisation. The plans must show action parties and realistic estimated completion dates.



1 .2 .8 .2 T H A S HE E H S SE E C SE E 1.2.8.2.1 INTRODUCTION

The HSE Case is the translation of the four part Company HSEMS Manual into an operation/facility-specific demonstration of the HSEMS in action. It is a demonstration of how the company's HSEMS objectives are reflected in practice and is a more focused expression of the level of local risk management. It documents the programme of formal HSE assessment that has been conducted by the operating company to assure itself that an operation is safe, and can be used to demonstrate that: •

the company has an effective HSE Management System for the operation;

•

all potential major hazards to the operation have been identified, assessed, controlled and recovery preparedness measures are in place;

•

the risks have been evaluated and measures taken to reduce the risks to the lowest reasonably practicable level.

An effective HSE Case must be prepared by those directly involved with the specific operation and be owned by the Operations Group.



1.2.8.2.2 THE HSE CASE STRUCTURE

The intention is that the HSE Case should be a stand alone document, concisely and clearly documented so it can be used for regular reference. It must document in a simple, methodical and auditable manner, all information relevant to the safety and health of the operation's personnel, the safety of the company's assets and the protection of the environment. Of necessity this involves both the hardware (physical installation and mode of operation) and management (corporate and operational) of that operation. The HSE Case is documented in seven linked parts in a single document. The link between the HSE Case and the Company's HSEMS is contained in Parts 2 and 3 of the HSE Case documentation: •

Management summary and introduction

•

Operations HSE management system

•

HSE case activities catalogue

•

Description of the operation

•

Hazard analysis, hazard register, HSE-critical operations procedures and manual of permitted operations

•

Remedial work plan

•

Conclusions and statement of fitness



1.2.8.2.2.1

PART

1-

MANAGEMENT

SUMMARY

AND

INTRODUCTION

Part 1 of the HSE Case contains a Management Summary and an Introduction. The Management Summary provides a brief overview of the HSE Case findings, a summary of the objectives established by operations management (based upon the HSEMS objectives but made specific and relevant to the operation), a description of historical HSE performance permitting an analysis over time of how the HSEMS is actually performing in the operation, and an endorsement of the HSE Case by management and all parties associated with its compilation, review and validation. The Introduction provides the name, description, location, function, owner and operator of the site covered by the HSE Case. It offers a brief explanation of the contents of each part of the HSE Case. The HSE Case Review Cycle is defined and identifies the person responsible for maintaining the HSE Case and ensuring its review at specified intervals.



1.2.8.2.2.2

PART 2 - OPERATIONS HSE MANAGEMENT

SYSTEM

Part 2 of the HSE Case translates the material given in the HSEMS Manual Part I from the corporate level to a demonstration of practice at the level applicable to the management of the specific operation. When there is no difference between corporate-level and operationlevel material this section demonstrates the implementation of what was said in the HSEMS Manual. It details contact persons, relevant meetings, site specific controls and plans e.g. contingency planning. The HSEMS content of the HSE Case is related, and cross referenced, to the appropriate parts of the hazard analysis and installation description. 1.2.8.2.2.3

PART 3 - HSE CASE ACTIVITIES CATALOGUE

Part 3 of the HSE Case contains an Activities Catalogue which translates the material given in the HSEMS Manual Part 2 from the higher, corporate, level to a level applicable to each site. It will contain a sub-set of those activities which are then broken down (by applying the HEMP process in more detail) to provide documented control at the appropriate level i.e. at the level of accountable* line supervision. 9 9 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


This part of the HSE Case should demonstrate the connection between the hazards inherent in the operation and the activities and associated business controls that manage the hazards (covering only those activities actually taking place in the operation under consideration). The Activity Specification Sheets should demonstrate that controls are in place and that the working practices and procedures are sufficient. *In this context accountability is defined as responsibility plus sufficient delegated authority 1.2.8.2.2.4

PART 4 - DESCRIPTION OF THE OPERATION

Part 4 of the HSE Case provides sufficient straightforward background knowledge of the operation to make possible an understanding of how major hazards, discussed in Part 5, could affect the operation and its HSE systems. The description should include all facilities and sytems that are in place to control, reduce the likelihood of loss of control, mitigate and prepare for recovery from hazards. Design features for HSE enhancement should also be included. The description should be able to demonstrate that equipment and operations that must remain

1 0 00 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


operational during an emergency are protected and will be functional during any accidental event for which they are required. Any relevant visual aids in the form of drawings, 3-D perspectives, maps, photos, Hazardous Area Classification drawings etc. are included in support of the description. 1.2.8.2.2.5

PART

5

-

REGISTER, PROCEDURES

HAZARD

ANALYSIS,

HSE-CRITICAL AND

MANUAL

HAZARD

OPERATIONS OF

PERMITTED

OPERATIONS

Part 5 provides a demonstration that all potential significant hazards have been identified, the risk from the hazards evaluated and understood and that necessary controls to manage the cause and consequences of the hazards are in place. This is the core of the HSE Case and provides in summary form the results of any risk analyses carried out. A major product of this Part is the Hazard Register. Part 5 contains four sections: •

Hazard analysis

•

Hazards Register

•

HSE-Critical Operations Procedures

•

Manual of Permitted Operations.



•

Hazard analysis

The first section of Part 5 is a summary of the investigations carried out into all types of accident scenarios and hazardous conditions. This section provides evidence that a full and systematic check has been made for hazards and that potentially significant hazards have been analysed in terms of associated risks. It demonstrates that: •

adequate levels of safety and environmental protection have been achieved;

•

adequate occupational health standards are being maintained;

•

acceptance standards have been met and that the risk is as low as reasonably practicable (ALARP for short) •

Hazards Register

The Hazard Register is a hazard management communication document that can be readily understood by all staff and should present, in a clear and concise form, the results of the analysis made of each hazard present at the installation. It is a demonstration that all the major hazards have been identified, are understood, are being properly controlled and that the installation, as built and as will be operated, is prepared and adequately defended to handle any consequence that could result, if control is ever lost. 1 0 02 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


The Hazard Register documents, for each hazard: •

Identification of where and when the hazard is encountered at the installation/operation;

•

Identification of the probable incident initiating events (threats) that could "release" the hazard;

•

Identification of possible consequences that would result if control of the hazard is lost;

•

Identification of escalating factors that would increase the likelihood, or consequences,of an incident;

An assessment of the worst case risk associated with the

•

hazard (no defences) and an assessment of the risk carried by the people/installation once this risk is defended against - the residual risk. A description of the controls required for each and every threat

•

or initiating event identified. (Any threat not controlled in accordance with the Company's acceptance criteria should be included in the Remedial Action Plan.) A description of the recovery methods and facilities required to

•

mitigate each consequence identified. (Any consequence not prepared for in accordance with the Company's acceptance criteria should be included in the Remedial Action Plan.) 1 0 03 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

HSE-Critical Operations Procedures

This section sets out the key hazard control and recovery procedures for the operation. It includes: •

detailed procedures for operating, monitoring and inspecting key items of plant, including baseline inspection data and acceptance criteria; and

•

emergency and contingency plans and procedures including training and testing methods.

Each procedure includes a statement of the hazard management objectives and the design assumptions inherent in its preparation. An example of a SCOP document is "Guideline for entry into Confined Spaces", issued in April 1992 by the Shell Safety and Health Committee. •

Manual of Permitted Operations

Risk management is the process of using all the information obtained from the HSE assessment to control and to improve, if necessary, the level of risk. The "Manual of Permitted Operations" (MOPO) will be distilled from the hazard analysis and the analysis of the HSE critical activities and defines how risk is to be managed: 1 0 04 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

if defences are reduced either deliberately, for example while working on an alarm system, or due to an equipment failure;

•

during periods of escalated likelihood of loss of control or consequence compared with the base conditions,for example driving during extreme weather conditions or taking a kick when the wind is (unusually) blowing towards a residential area;

•

during concurrent operations each of which has its own, independent, hazards.

1.2.8.2.3 PART 6 - REMEDIAL WORK PLAN

The HSE Case contains a demonstration of commitment to improvement by providing a plan, known as the "Remedial Work Plan," to resolve any deficiencies found by the various assessments and thereby improve the HSE aspects of the installation/operation. The contents of Part 6 include: •

a status report list of all findings of the HSE Case, and also findings from subsidiary studies or similar (e.g. audits) that have not been satisfactorily resolved;

•

a plan to ensure resolution of any deficiencies in the HSE Management System as applied to the installation/operation;



•

a plan to ensure resolution of any deficiencies in the management of hazards;

•

a

plan

to

ensure

resolution

of

any

risk

reduction

recommendations. The Remedial Work Plan shows action parties and completion dates. 1.2.8.2.4 PART 7 - CONCLUSIONS AND STATEMENT OF FITNESS

Part 7 of the HSE Case presents the conclusions reached on achievement of the HSE Case objectives in as simple a fashion as possible. In particular it notes those events that were assessed as large risk contributors. The part concludes with a Statement of Fitness, which explains that the hazards associated with the installation or operation have been evaluated and measures have been taken to reduce the risks to the lowest level that is reasonably practicable. Such a statement is signed by the Manager in charge of the operation. It may take the form of the following example: Given the findings of the hazard analysis and the measures already taken, or in hand, to lower risk associated with the operation, it is concluded that this HSE Case demonstrates that, to the extent reasonab1y possible: 1 0 06 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

1) there is [or will be by {give date}] a management system in place for the operation, adequate to enable the company to comply with all relevant statutory and Company provisions in relation to [name of operation] and any activity in connection with it;

•

2) there are adequate arrangements in place for the audit and review of that management system at appropriate intervals;

•

3) all hazards with the potential to cause a major accident have been identified, assessed, controlled and the plans are in place for recovery in the event e vent that control is lost; and

•

4) risks have been evaluated and measures taken to reduce the risks to persons affected by those hazards to a level that is as low as reasonably practicable

In view of the above, the installation is considered safe to operate.

1 0 07 7 Petroleum E Engineer: M Mohd. Z Zouhr y E El-Helu.



1.3.1 In t r o d u c t i o n Responsibility for the budgeting, securing finance, monitoring and control of any Operating Unit's operating costs and drilling costs rests exclusively with the Operating Unit (OU) itself. This responsibility ultimately lies with the OU's chief executive, but he in turn delegates portions of it to his various managers charged with managing different portions of the OU's business. Although not yet implemented in all Operating companies it is the ultimate aim that the accountability and responsibility for budgeting, monitoring, control and optimization of all costs related to the specifically defined activities of the well engineering function is delegated by the OU's chief executive to the Heads of Well Operations, Well Engineers and Site Representatives responsible for the execution of a drilling and/or completion program by managing the operations of one or more rigs It is clear that in order to be able to accept these responsibilities the above-mentioned drilling staff need to: •

Have a thorough understanding of cost elements related to the well engineering function,




•

Capture and record in an accurate and timely fashion the operating costs of all activities.

•

Use these data to produce reports and cost indicators which will enable them to measure, understand and improve the cost effectiveness of the operations

Apply the same general principles to the budgeting process as

•

to the monitoring of operating and drilling costs. It follows that Well Engineers, Civil Engineers, Transport Supervisors, etc., require an understanding of the different types of cost element, and must also be provided with the actual values of lump sums and unit rates that are applicable to their own operation. opera tion.

1.3.2 Dr i l l i n g c c o s t e el em en t s 1 .3 .2 .1 T I IM M E E- - D DE E P PE E N ND D E E N N T T C C O OS S T TS S Time-dependent costs fall into the fallowing categories: •

Contract payments

•

Personnel

•

Consumables

•

Service fees

•

Company overheads




1.3.2.1.1 CONTRACT PAYMENTS:

Included in the time related costs are all contractual payments for services applicable during the contract period of the rig that are specified as a daily rate. For example: •

Rig and crew hire

•

Cementing

•

Diving

•

Wireline logging

•

Geological surveillance

•

Drilling/Completion fluid engineering

•

Telecommunications

•

Transport on/offshore

•

Insurance

•

Tool rental.

The above mentioned types of contract mostly specify a daily rate for the rental of equipment with in addition a rate for executing a specific activity with that equipment. The latter normally will be converted to a daily rate for estimating purposes.




1.3.2.1.2 PERSONNEL

These time-dependent costs relate to costs for Company personnel specifically dedicated to the relevant well. For office-based operations staff working on only one well, the latter will be charged with all their costs; this is often the case in a Single String Venture or a small OU. In the larger OUs there may be more than one well being drilled at the same time, and preparation work for future wells will also be undertaken. In this case the cost of staff will be allocated to the wells according to the time spent on each. Examples of the office-based personnel meant here are: •

Operations Manager

•

Head of Well Operations

•

Well Engineers

•

Site Representatives

Administrative assistants in the Well Engineering Department

•

•

Civil Engineer (if solely concerned with access road and location construction/rehabilitation)

•

Geologists

In an OU solely engaged in drilling activities, i.e. an exploration company, Materials/Transport staff would also be included in this list. 1 1 11 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


If production and/or engineering activities are being undertaken they would be treated in the same way as non-operations staff and taken up in the OU overheads which are described in sub-section 2.1.5. 1.3.2.1.3 CONSUMABLES

The cost per day for consumables usually only includes payments for the fuel and lubricants for the rig, supply vessels, standby vessel and helicopters if they are not already covered by the day rates for contract payments. The sum of the above mentioned time-dependent costs is often referred to as the DAILY OPERATING COST for the rig. In Appendix In Appendix 1 there is a table that will provide an impression of the order of magnitude of the daily operating cost for various types of rig and location. It is only given as an indication because rates change quickly in response to supply and demand; any actual figures quoted would probably be out of date within a month. 1.3.2.1.4 SERVICE FEES

New Venture Operations (NVOs) are normally set up and supported by SIEP, who levy charges for support up-front and during actual drilling operations. 1 1 12 2 Petroleum E Engineer: M Mohd. Z Zouhr y E El-Helu.



SIEP charges all OUs, including NVOs, for general support on the basis of a specified amount per string-month, which is evidently a time-dependent cost chargeable to each individual well. Other than that SIEP also carries out specific tasks at the request of the OU in the same way that any other contractor would do. Such tasks are invoiced at so much per man-hour. The type and amount of work involved depends on the size of the OU. A large OU will have its own geologists, reservoir engineers and petrophysicists and will only ask for SIEP assistance with major projects which are not related to specific wells and will thus not be included in well costs. On the other hand a small OU, or NVO, will typically ask SIEP for assistance with geological interpretation and well evaluation, or advice on specific borehole difficulties, on a well-by-well basis. These costs will be charged to the well to which they refer. Although this assistance is not strictly time-dependent there is a general correlation between the amount of time spent on a well and the amount of assistance requested, and for convenience these service fees are both estimated and charged in the time-dependent category. SIEP may also makes reconnaissance visits and/or audits on behalf of OUs and NVOs. These are once-off costs as described below.




1.3.2.1.5 COMPANY COMPANY OVERHEAD OVERHEAD

Costs allocated to company overhead include expenditure by departments providing services to other "customer" departments. In the case of a Single String Venture all overhead costs are charged to the well being drilled (but still under the heading "overheads". In the case of the larger OUs, they may be treated in different ways, either as an independent budget item or by being allocated among the "client" departments by means of a time-based system of internal fees. Examples of the type of expenditure covered by such overheads are: •

the salaries of administrative staff

•

the cost of housing

•

office rental

•

the rental of yard space, wharves and warehouses

•

the cost of company vehicles

•

the cost of air fares for company personnel




1 .3 .2 .2 D E EP PT T H H - -D D E EP P E EN N D D E EN N T T C C O OS ST T S S Costs for depth-dependent items are those payments for equipment and consumables which are used and/or remain down hole. These items include: •

Bits

•

Casing and casing attachments

•

Cement and additives

•

Mud chemicals and lost circulation materials

•

Completion tubing and attachments

•

Completion fluids and chemicals

Depth-dependent costs can vary from approximately 350 to 600 US$/meter of well depth depending on whether the well is on- or offshore and in a remote area or not.

1 .3 .2 .3 F I I X E ED D / / O O N NC C E E- -O O F FF F C C O OS ST TS S In addition to time-dependent and depth-dependent costs a large part of the total well costs can be taken up by costs which do not fall into either category. These are known as fixed or once-off costs. In general the term fixed cost usually refers to a single "lump sum" payment specified in a contract, whereas a once-off cost is the cost 1 1 15 5 Petroleum E Engineer: M Mohd. Z Zouhr y E El-Helu.



of something that happens or is used only once per well. The exact magnitude of such a once-off cost is not necessarily known beforehand. 1.3.2.3.1 FIXED COSTS

The costs for mobilising a rig and all related service contract equipment and personnel from one part of the world to another is very much dependent on the distance to be covered and the means by which the transport is to take place. This is usually specified as a fixed amount in the contract(s) and can be in the order of 1 to 4 million dollars, depending on the circumstances. Another example of a fixed cost would be the drilling of one (or two) water wells per location or group of locations for a fixed price. Fixed costs which are independent of the number of wells drilled (eg mobilisation) are normally allocated equally to all the wells which benefit from that expenditure. Rig-moving may be done on a fixed price basis, or on unit rate per kilometer basis. In the latter case it would be classified as a once-off cost. But in any case all costs related to moving a rig from one well to another are normally charged against the well to which the rig is 1 1 16 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


moved (which is admittedly not consistent with the principle of sharing mobilisation/ demobilisation costs between all the wells). 1.3.2.3.2 ONCE-OFF COSTS

In new areas, all facilities that have to be set up specifically for the execution of a project are once-off costs charged to the well or wells that are to be drilled. These can, especially in remote areas, be the costs for the installation of an infrastructure such as office construction, installation of long distance telephone network etc. (With established companies these costs are usually charged to overheads.). As mentioned above reconnaissance visits and audits by SIEP would be classed as once-off costs. The cost of a reconnaissance visit would be shared equally among the wells drilled, but the cost of an audit would normally be charged to the well being drilled at the time. For onshore wells, costs related to building drilling locations and access roads are "well specific" and added to the well account as once-off costs. The same would apply to water wells if they are drilled on a unit rate basis (but the mobilisation of a water well drilling unit would still be a fixed cost). For an offshore operation the



costs related to seabed surveys, seabed preparation and rig positioning are similarly once-off costs Other than the cases mentioned above once-off costs are those relating to non-time- and non-depth-dependent costs for permanent well equipment and work undertaken for a specific well only. The major item is the wellhead and its related equipment. If the wellhead is recovered, often the case with exploration wells, the costs allocated to the well are those of refurbishment and depreciation.

1.3.3 B u d g et s & & c c o s t r r ep o r t i n g The prime purpose of any budget is to serve as a vehicle to secure the funds necessary to execute a given activity. In addition however a budget should be seen as a meaningful device which will assist in monitoring and controlling costs. For this to happen the preparation of a budget requires the same attention to detail as the reporting of operating and drilling costs. To be able to produce realistic and justifiable budget proposals, reliable cost data for historical performance must be available. It is therefore of fundamental importance that drilling and completion costs, broken down as described in Topic 3.2, are consistently 1 1 18 8 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


monitored, reported and recorded. This data is included in the daily activity reporting system, which requires the OU Site Representative to enter the cost data for services, well equipment and consumables, in addition to the operations details. With the available well cost data, a well cost data base has been set up in SIEP and is used for estimating future well costs based on historical performance.

1.3.4 Co s t e es t i m at i n g 1 .3 .4 .1 T H HE E C O ON NC C E EP PT T U U A L L E S ST T I I M M A T TE E This is required in a feasibility study to determine whether a venture is economically viable. Very limited well requirements will be available; probably only the approximate TD, the main lithology and a location description (desert, water depth). Many assumptions need to be made and the accuracy that can be expected is no more than ±40%. Historical data is usually the basis for these estimates, with adjustments made for location differences between historical and the 1 1 19 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


proposed area and also for variations in the market costs for equipment and services.

1 .3 .4 .2 T H HE E B U UD D G GE E T T E S ST TI I M M A T TE E This is required for annual expenditure calculations normally included in the OU's Country Business Plan and Budget Data Books (Volumes 1 & 2)" Although the actual well programme is unlikely to have been prepared more information will be available than for the conceptual estimate. As a result a combination of historical costs and local information can be used to compile a simplified drilling cost break down along the lines described in Topic 2. The accuracy required for this type of estimate is 15% to 20%.

1 .3 .4 .3 T H HE E W E EL L L L C O OS S T T E S ST TI I M M A T TE E This is the last cost estimate made prior to drilling the well. A well proposal, a well programme, a detailed well design and the costs related to specific service contracts need to be available in order to meet the accuracy requirements of this estimate. 1 2 20 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


It is this estimate on which the Approval For Expenditure (A.F.E) will be based and which becomes the reference cost for the end of well reconciliation of actual and planned well costs. Comparing the actual final well costs with the well cost estimate, and analysing the differences, is a powerful cost control tool which can lead to increased efficiency in future wells. Such differences can be due not only to estimating errors or cost variances, but also due to performance variances. In case of the latter, future operations can be modified and tuned towards better performance and efficiency.

1 .3 .4 .4 M A K KI IN N G G T H HE E E S ST TI I M M A T TE E A cost estimate should always be broken down into the smallest elements for which individual estimates can reasonably be made on the basis of the information available. Initially this involves more work than using so-called "broad brush" estimates, but in the longer run it will save time and effort. There are several reasons: •

It reduces the amount of uncertainty that has to be built in when

combining

historical

costs

with

the

specific

circumstances. In any given situation it will usually be possible 1 2 21 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


to find a precedent for each of the elements but not necessarily from the same historical operation. •

The well cost estimate described in the previous sub-topic is in practice made by starting off with an approximate figure and refining it as additional information becomes available until the final well cost estimate is made when all contracts have been awarded and rates have been fixed. The additional information becoming available will always be at the level of the individual cost elements. Updating and refining the estimate as new information arrives is then a question of a few minutes if it is a matter of changing one unit rate figure for another, but there would be no logical method at all for updating an estimate made on a global basis.

•

It is a fact of life that the Well Engineer will have to make cost estimates on the basis of insufficient information. Estimating the individual cost elements and then summing them enables the known data to be included and the uncertainties of the remaining data to be quantified. The resulting cost estimate, expressed as a range, can be justified and will be accepted by the OU management whereas quoting unjustifiable figures would not.



It is always necessary to include a "miscellaneous" category for small amounts of expenditure that do not fall into any of the other categories, but this should be restricted to a very low amount and not used as a safety net for inaccuracies in the estimates of specific elements.

1.3.5 A A p p en d i x

(Ty p i c al

o p er at i n g

costs) The tabulation below is presented only to provide an impression of the order of magnitude of the daily operating costs for various types of rigs and operations. These figures reflect the situation at the beginning of the year 2000. Rig rates can however fluctuate quite aggressively and normally follow the oil and gas market price. This was demonstrated in 1998/99 when the oil price more than halved followed by a reduction in drilling activity. The normal supply and demand situation that developed resulted in a 50% reduction in rig rates. In offshore operations, especially in the North Sea, the same market conditions will also heavily influence total operating rates are through the supply boat/transport market situation. 1 2 23 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Total Daily rental Operating cost US$/day US$/day Semi submersible

30-40,000 70-80,000

Drillship in Single String.

85-165,000 185-250,000

Semi sub North sea.

45-50,000 165-180,000

Platform North sea.

20-25,000 100-125,000

Jack-up North sea.

40-50,000 120-130,000

Land rig Single string remote area. 20-25,000 50-60,000 Land rig Europe. (Sensitive area) 15-25,000 40-80,000



1.4.1 In t r o d u c t i o n This Part is intended to give guidance on key aspects of contracting by providing an overview of the various types of contract and contracting activities. It also highlights some of the commercial and practical aspects. The Part is written as one element in the training of you, a drilling engineer, and therefore focuses on the contracts required to operate a drilling unit plus the ancillary services required on location. You must not forget however that it is not only a drilling unit which is required in order to drill a hole in the ground. Many supporting services and materials are required for the operations, and they all need contracts. To illustrate the point a fairly comprehensive list of what may be required is given below.



•

Drilling services

•

Helicopter support services

•

Cementing services

•

Fixed wing support services

•

Directional

•

Rental of trucks

•

Land transport services (road

Surveying

services •

Deviated

drilling

services

and/or rail) •

•

Coring services

•

Well-head services

•

Chartering

of

Supply/Anchor

handling Vessels Chartering

of

Liner hanging services

transport

vessels

•

Diving services

Barges, Fuel Barge)

•

Tubular

inspection

services •

Explosive

cutting

services •

•

Mud

•

Construction of materials base

•

Rental of materials base

•

Materials

base

operations

services •

Rental of materials handling equipment

Engineering

•

services •

(Tugs,

Marine transport services

contractor •

water

•

Rental of equipment not provided by the drilling

other

Mud Logging services

Rental

of

yard

space

at

consolidation port •

Clearing agency services at



•

MWD services

consolidation port

•

Wireline logging services

•

Drill

Stem

•

Production

•

Water

•

well

Telecoms

services,

construction

drilling

•

Meet & greet services

access

•

Courier services

road

and/or

Construction

of

survey/positioning beacon site with access road construction •

Surveying services onand/or off-shore

•

microwave

Construction of location, airstrip

•

of

including

relay stations

services •

Purchasing agency services in central foreign location

Testing

Services

Clearing agency services, local, for air/sea freight

Testing

services •

•

Camp (associated construction

services with activities

and/or materials base)



You should note that: •

not all of these are required in the same operation. For example if a materials base is rented there is no need to construct one, etc.

•

many of these services are usually bundled together into single contracts in which the contractor provides the services directly or provides some of the services through sub-contracts. For instance all the ancillary drilling services such as cementing, deviated drilling, mud engineering, etc. could be provided by one integrated services group. Further service contracts may also include the requirement to provide some of the materials need to construct a well, e.g. mud chemicals provided by the mud engineering contractor. The extent of this contract integration will depend on local circumstances and the local contracting strategy.

•

in large OUs the Drilling Engineering Department will use existing contracted services that are used or put in place by other OU Departments, e.g. construction, transport and materials administration services. In small OUs the Drilling Engineering Department may have to handle them all.

•

this list does not include the "non-operational" contracts such as for office space, housing, personal transport, etc.



1 .4 .1 .1 R E E A S SO ON N S S F O OR R C O ON NT T R R A C CT T I IN N G G O U UT T Reasons for a OU deciding to contract out work include: •

The contractor's ability to supply the works, services or goods at lower cost/risk than that which the OU is willing to assume. The OU's decision may be affected by: 

external factors, e.g. geographical availability and logistics;

international

market

forces;

political

constraints: 

internal factors, e.g. no spare operational capacity; availability of financial resources; internal logistics:



the short term nature of the operations to be undertaken

•

The availability to the contractor of suitably qualified and experienced personnel which cannot be furnished efficiently by the OU. In this respect the OU's decision may be based not only on the relative availability and skills of its own and the contractors personnel, but also on the political requirements of the host culture or country with regard to the balance of national/expatriate personnel.



•

The corporate experience of the contractor in the type of operation to be undertaken, especially in the specific geographical area and environment, which may be much greater than that available within the Shell Group. For example the OU will contract out drilling services because the direct ownership of drilling rigs, logging or cementing units, etc., are not normally seen as part of Shell's business. At the end of a drilling project it will wish to have the opportunity to close-out and stop its commitments for the equipment and personnel required for the drilling project.

•

The Research and Development (R&D) efforts of Contractors can be much more focused on their own speciality and thus be more effective.

1 .4 .1 .2 W H H A T T I S S A A C O ON NT T R R A C CT T ? ? 1.4.1.2.1 THE AGREEMENT

Very simply, a contract is an agreement between two parties, A & B, that if A does something for B then B will do something for A, and vice versa. In practice the contract will state that "in consideration of A performing a certain operation, B agrees to pay a certain amount to A; and in consideration of B paying that amount to A, A agrees to perform the operation." 1 3 30 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


An example of the Form of Agreement of a Drilling Services contract is given in Appendix 4. Compare the above paragraph with paragraphs 4 & 5 of this example. Note that the few pages of Appendix 4 are the heart of the contract and tie all the contract documents together clearly identifying the order of precedence of each section. A good contract clearly defines: what each party has to do, when, where and how, what price will be paid by for this, and what happens when something goes wrong or either party does not fulfil its obligations. An important part of the document is the one that defines the general conditions under which all conditions of the same type are performed. This is known as the "Conditions of Contract". It covers such matters as: •

the definitions of terms,

•

the rights and obligations of Shell and the contractor,

•

defining how payments are to be made

•

specifying the law which applies to the contract, and, most importantly

•

defines what happens when something goes wrong (including such things as someone getting hurt) or either of the parties



fails to fulfil its contractual obligations i.e. their liabilities and responsibilities. It is in respect of responsibilities and liabilities that lawyers need to be involved, as they are experts in the interpretations which courts will put on the wording of this part of the contract. The Shell Group has attempted to standardise the Conditions of Contract throughout the world. It should not be changed without legal advice. A contract should of course be valid and enforceable not only under its governing law but also under the law of any country where it is to be performed. These can be different. It is important in those cases that any specific local legal requirements with regard to the general conditions are also taken into account, and the proper advice must be obtained. The "promises" with regard to what each party has to do, when, where and how including the price to be paid, and other matters which are specific to each contract, make up the bulk of the document and are described as the "Specific Conditions of Contract".

These include: 1 3 32 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

the Scope of Work,

•

any relevant dates

•

the Specifications and Standards applicable to the Work, and

•

the Schedule of Prices and Rates which have been agreed.

In Topic 2 there are more detailed discussions on the various types of contract possible. In Topic 5 there are descriptions of each of the specific parts of the drilling contract document as used by most OUs. 1.4.1.2.2 MYTHS

There are two myths about contracts which you need to recognise. These are that: •

contracts are written in complicated legal language, and

•

contracts are the business of lawyers

•

Since the whole object of the contract is to define what each party has to do, both have to be able to understand it - not only at company executive level but, especially, at the site supervisor level. A good contract will ensure that the operations staff of both parties will never be uncertain about the actions that both may or must take. The language must therefore be simple but precise, and the document may, when appropriate, include the use of drawings and worked examples.



•

It follows that contracts are the business of the engineers who have to operate them.

1.4.1.2.3 SUPPORT

Two groups normally support engineers in the contracting process, lawyers and Commercial/Contract Services. Lawyers help the engineers identify risks, suggest structures and approaches. They also ensure that the contract documents correctly reflect the allocation of risks decided upon and that this can be enforced in the appropriate country. Legal advisors therefore also review and endorse all standard contract forms and any changes. Neither the Form of Agreement or Conditions of Contract should be changed

without

legal

advice.

Further, in the event of a claim or potential claim under the contract, legal advisors need to be consulted as early as possible. Commercial/Contract Services are normally available in larger OUs to act as the focal point for all contractual matters of a non-technical nature. Their prime responsibilities are to: •

ensure that a consistent and commercially sound contracting approach is adopted;



•

provide advice on best practices in contracting particularly in the development of contracting strategies

•

ensure that comprehensive input is obtained from all advisory functions-including lawyers;

•

ensure that the administration of the various contracts is properly co-ordinated.

It is however important to take note of the fact that although "Commercial Services" will assist (with drafting of contract clauses, negotiations, claims, etc.) the responsibility for drafting and managing the contract remains with the "Contract Holder", the originator of the contract. In the case of a drilling or drilling services contract this will often be a designated drilling engineer. Exactly how contracts are managed varies between OUs. It is important that drilling engineers new to an area acquaint themselves with the local contract management practices.

1 .4 .1 .3 T H HE E C O ON NT T R R A C CT T I I N N G G P R RO OC CE ES S S S In general the contracting process can be divided in five distinct subprocesses. •

Decision to contract out



•

Development of Contract Strategy (Preparation)

•

Enter into Contract (Contract Award)

•

Execution of the Work (Contractor Management)

•

Demobilisation/close out.

It important that you appreciate that whilst this Part will address in more detail the process of Preparations and Contract Award, steps such as Execution of the Work (Contractor Management) and Demobilisation/close-out are also important parts of the whole contracting process. Readers interested in further details of guidelines and good practices are refereed to the SI-CP document Supply Chain Management. When working on the wellsite or in supervisory roles in the office it is important that you are familiar with the contents of the contracts under which work is being performed. Typically 80-85% of the costs incurred in the drilling of a well are spent through contracted services and materials. It is clearly important that line feedback on improvements to contracts is given to the drilling engineers responsible for drafting contracts and contractor performance is monitored. Typically feedback should be given on areas such as over/under specification of equipment required, and ambiguities on either parties roles and responsibilities. Field staff should be 1 3 36 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


particularly familiar with the "Specific Conditions of Contract" for all the contracts applicable to their operations and have copies of the contracts on site for reference. Contracting (especially with respect to major contracts such as those for drilling and drilling-related services) is usually subject to fairly strict company rules and regulations to control the process. All OUs have a formalised policy defining why, what, when and how work should be contracted out to other parties. In general the following applies: •

The work to be contracted out is subject to competitive bidding or negotiation as appropriate, in accordance with the OU's contracting policy and the local legal framework.

A representative selection of qualified contractors or suppliers

•

is invited to tender or negotiate. •

Tenders and tenderers are dealt with according to a fair and impartial procedure.

•

Tenders and tenderers are subject to proper evaluation.

1 .4 .1 .4 T H HE E T E EN N D DE E R R B O O A R RD D The Tender Board is a group of nominated senior OU staff who have a controlling responsibility with respect to the process of contracting. 1 3 37 7 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


The composition of the board depends on the OU's organisational structure and the size and nature of the work to be contracted out, but is cross functional and always should include a representative of the Finance section. Its prime responsibilities are: •

to ensure that the OU's commercial procedures are complied with;

•

to make an independent assessment of the proposed contracting strategy

•

to make an independent assessment of the proposed award of a contract;

•

to verify that the contract is in accordance with the commercial policies and interests of the OU.

Normally there are several levels of Tender Boards in a company. In general, contracts with larger financial values will be managed by Tender Boards drawn from higher levels of management within the OU. For smaller contracts, companies set a financial value limit below which no Tender Board approval is required.



1 .4 .1 .5 S H HE E L LL L ' ' S S " D DR R I I L L L LI I N N G G I N N T H HE E N I IN N E E T TI I E E S S " " I N NI I T T I I A T TI I V V E E ( D DI I T T N N ) This initiative is concerned with the development and implementation of the strategies necessary for improving the cost-effectiveness and efficiency of well drilling through better utilisation of contractors. The old traditional type of contract involved the provision of personnel and equipment to the OU for use under its direct supervision. The contractor was only indirectly accountable for the attainment of the objectives, which were the direct responsibility of the OU. There was no convergence towards a joint objective concerned with drilling and maintaining cost-effective, high-quality wells. The DITN initiative recognises the need for structured approaches which will enable a change towards basing the Scope of Work on the end product rather than on the tools used. This will result in common objectives and more effective involvement and usage of contractor resources. Service providers therefore need to be made aware of Shell's expectations on: 1 3 39 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

safety

•

environmental protection

•

health

•

quality management

•

financial management

Drilling costs represent a major expenditure in hydrocarbon exploration and production, and will continue to increase because of geological, technological, social and environmental pressures and constraints. The DITN initiative aims to address this cost increase through three main strategies: •

Drilling Engineering efficiency and improvement

•

The development and introduction of new technology, and innovation

•

Improved contracting strategies.

Contracting strategies are being reviewed and improved with the aim of incorporating and integrating the best features of incentive contracts, subcontracting and turnkey arrangements into mutually beneficial contracts where commercial and operational issues are managed so as to produce a 'win-win' situation. 1 4 40 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


This 'win-win' principle is a paramount element in the Shell "Drilling in the Nineties" initiative. Benefits will be mutual and identifiable, and can be summarised as: •

improved

efficiency

e.g. cost reduction and improvements in performance and profit •

improvement

of

quality

e.g. joint responsibility for delivery of project objectives •

appreciation

of

joint

achievements

e.g. enhanced motivation as a result of shared decision responsibility and incentive payments •

proactive implementation of Health, Safety and Environment policies e.g. partnerships instead of adversarial relationships

•

attainment

of

joint

business

objectives

e.g. increased investment opportunities and maximisation of return •

improved

technical

opportunity

e.g. shared Research and Development costs, application of innovative technology •

increased

information

e.g. less hierarchical communications 1 4 41 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]

exchange


•

development

of

partnerships

with

selected

suppliers

e.g. co-operative, supportive business relationships where both parties work together to reduce well costs The Shell "Drilling in the Nineties" initiative therefore is aimed at facilitating the management of the change from the dayrate contract, with its narrow scope of work and accompanying partisan operating environment, towards the multi-functional scope of work agreement with more autonomy and sharing of responsibility for the quality of the end product. The standards and norms for the management of this transition are still being refined at the time of writing (1995). The relationship between Shell drilling/contract engineers and contractors therefore needs nurturing with the requisite care and support. The aim is to avoid conflict and coercion and the final objective is the realisation of the 'win-win' relationship.

1.4.2 Th e p p r ep ar at i o n p p h as e The three most important results of the preparation phase are: •

Definition of the overall scope of work for the project

•

Definition of the contracting strategy



•

Definition of the detailed scope of work for each contract

The contract strategy will have an impact on all aspects of the project organisation, the resourcing of the project team and the definition of the work scope and specifications. The approval of this strategy is usually the first formal involvement of the Tender Board.

1 .4 .2 .1 D E EV VE EL L O OP PM M E E N NT T

O F F

A A

C O ON N T T R R A C CT T I I N N G G

S T TR R A T TE EG G Y Y 1.4.2.1.1 GENERAL PREPARATION

Once the project has been defined there is a period of general preparation which includes information collection, the acquisition of local knowledge relevant to the proposed project, and the structuring of this data in such a way that it provides assistance with the later definition of tendering and contracting strategy. If this information is not readily available within the OU there may be a need to establish a research programme, including scouting visits to the area of operations. Such general preparation can be expected to include information relating to (not in any order of priority): •

Local business practices



•

Local infrastructure

•

Logistics and travel

•

Local organisations, institutions and government offices

•

Security restrictions

•

Local cultural customs and constraints

•

Opportunities to share resources with other companies in the area

In an established operating area more emphasis would be put on reviewing current contracts in place, and identifying opportunities for using existing contracts or improving existing contracts. The intelligent acquisition and use of information during this preparation phase will be beneficial in the later preparation work associated with defining and establishing the conditions, constraints and milestones for the tendering and contractual processes, and ultimately in the successful future execution and conclusion of the contract. The early stages of the preparation phase establish the constraints, qualifications and conditions which will shape the future execution of the project.



The aspirations of host Governments may also be an important factor in the selection of contract type e.g. development of the local industry or National oil company so as to maximise local involvement. Other considerations include deciding on the contract duration, payment mechanisms to use, levels of control required, capabilities of contractors, the desired relationship with the contractor, and many more. Thorough evaluation of alternative contracting strategies at this stage will identify the most cost effective method of getting the well drilled and completed. 1.4.2.1.2 TIME

From a operational point of view the time required to go through the contracting process up to the point of having a signed contract should not be underestimated. It may take five to six months to complete, depending on prevailing market conditions for the particular type of services required and the complexity of the scope of work. In general the more detailed the scope of work the longer the preparation time. It will take one to two months to prepare an invitation to tender, say one and a half months for the contractor to prepare a bid, two weeks



for evaluation and two months for clarification, inspection and approval, and award. It should also be noted that there will normally be a mobilisation period which will be site specific. One to two months would be a reasonable allowance, in a period of average rig utilisation, which brings to a minimum of six to eight months the lead time for organising a drilling campaign. If the campaign is in a remote area on land the time required for constructing access roads, locations, an airstrip, perhaps even a jetty, will form the critical path, not forgetting that the construction work is also subject to the contracting process. No meaningful time estimate is possible for construction work since the range of possible requirements is almost infinitely wide. Estimation of the time requirements and outline project plans are key matters to be addressed in the Development of a Contracting Strategy step of the Contracting Process. 1.4.2.1.3 CONTRACT STRATEGY

Taking into consideration all the constraints identified in the preparation phase, the two major decisions with respect to the contract strategy have to be addressed: 1 4 46 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

How work is to be grouped - i.e. how many contracts to have

•

Which type of contracts to use

These questions are covered in the following two sub-Topics.

1 .4 .2 .2 C O ON NT T R R A C CT TS S A A N ND D S S U UB B - - C CO ON NT T R R A C CT TS S Historically it was normal for the OU to enter into many contracts in the course of one drilling operation. A list of the services which may be required is given in the box at the beginning of Topic 1, the Introduction. The OU would have had a separate contract with an individual contractor for the majority of these, and each one would have required a similar tender exercise. After reading about tender exercises in the following Topic you will realise just how much work that involved. (If you remember that word processors have been with us for very few years, and photocopiers for not much longer, you will have sympathy with the drilling engineers of previous pre vious generations). In recent years there has been a move to reduce the number of contracts directly held by the OU in order to make contractors more responsible for their performance, and to achieve a chieve costs savings. Provided the payment methods are also suitable, the OU's role in this process is more geared to that of Quality Control and more emphasis 1 4 47 7 Petroleum E Engineer: M Mohd. Z Zouhr y E El-Helu.



is now being put on the management of the contract instead of involvement with the day to day execution of the work. Performance improvements will have a direct and positive impact on the contractor's profit margin, which provides the incentive to invest in good quality personnel, equipment and techniques. Reducing the number of contracts can been achieved in two ways. •

Contracting with a company that can provide all the work scope using its own resources (many service companies can supply a variety of the services listed in the box of Topic 1) 1)

•

Contracting with a company that then contracts some of the services from one or more other companies - the latter are called subcontractors as they are contractors to the company that is our contractor.

Integrating (or bundling) contracts offer savings to the OU in addition to simpler administration. The contractor only needs one office, one local manager, one set of accountants, one materials yard, etc. and in some cases one crew on site can cover two complementary services (sometimes referred to as multi-skilling). Savings can also be achieved by being able to make the contractor more responsible for defining exactly what is required from the other 1 4 48 8 Petroleum E Engineer: M Mohd. Z Zouhr y E El-Helu.



services-an example is making a land drilling contractor responsible for constructing the location - if in a tender the drilling contractor over specifies the location requirements this will add cost to his bid that could make the contractor's bid uncompetitive. The contractor will also have an additional responsibility to verify that the location is constructed adequately to meet the needs of the rig, and the OU will not have to bear all of the responsibility and costs for any future problems caused by poor construction. A further reason to "bundle" services together is that it gives the contractor more responsibility and control over the selection and performance of personnel and equipment used to deliver a defined scope of work and hence increase the contractor's willingness to accept responsibility and payment based on the delivery of the work. For example, any prudent drilling contractor would be reluctant to be paid a fixed price (lump sum) to drill a well to TD, if he had no control over the mud, cementing, or directional drilling contractors performance - This will be discussed in more detail under types of contract below. Exactly how the services are integrated will depend on many factors and considerations which are beyond the scope of this document. 1 4 49 9 Petroleum E Engineer: M Mohd. Z Zouhr y E El-Helu.



The most commonly used groupings in the Group are: •

Lead Contractors: where one contractor is responsible for providing all the services and sometimes the material required to drill and complete a well. These contractors are usually drilling rig contractors or one of the major international service companies such as Schlumberger, Baker Hughes, Halliburton or Dresser.

•

One contract for the rig and one for all the drilling services such as directional drilling, mud, cementing, etc.

In large OUs a number of drilling rig contractors may be used but most of the service contracts will be integrated into large contracts that provide services on all the drilling rigs. For example one directional drilling contract which will cover all the OU's requirements to plan and drill directional wells.

1 .4 .2 .3 T Y O F YP P E ES S O F C C O ON NT T R R A C CT T The three types of contract utilised for the Group's drilling operations are: •

Day Rate (historically most common)

•

Unit Rate (the preferred type and becoming the most common)




•

Turnkey (still used only infrequently)

As you will see the name of the types are derived from the payment method. 1.4.2.3.1 DAY RATE

With a day-rate contract the drilling contractor and the drilling contractors are paid on a fixed daily rate (cost + profit) for the duration of the contract. This type of contract is normally used when the scope of work cannot be defined at the start of the contract, or in cases where the risks involved in the execution are of such a nature that they can only be poorly assessed. Although the contractor has his reputation at stake he does not have any financial risk, other than that associated with mechanical breakdowns. He does exactly what he has been contracted to do, and has little incentive to make additional efforts and/or initiatives to improve his performance. On the contrary, for example in periods of depressed markets, the contractor would benefit from his own slower performance which would have the direct effect of extending his rig commitment beyond the initial contract completion date in an otherwise idle market. The only incentive which the contractor has is to keep his equipment properly maintained and operational as, in cases of excessive downtime due to equipment failures, he will be put on the so-called 1 5 51 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Reduced Rate (90% of the full day rate), the Special Rate (70%) or even on the Zero Rate. Day rate contracts require additional OU supervisory personnel due to the necessary day-to-day management of, and direct involvement in, the drilling process. 1.4.2.3.2 UNIT RATES

This type of contract is intermediate between the Day Rate and the Turnkey types of contract. The work is divided into smaller parts for which individual pricing schedules have been agreed, each of which provides the contractor with a financial incentive to operate more efficiently. This could be lump sums for hole sections, or a logging job. The overall objective is to have the well drilled for a lower price in a shorter time than would have been done under a day-rate contract, and in such a way that both parties gain. 1.4.2.3.3 TURNKEY

In a Turnkey contract the drilling contractor and the drilling contractors are paid a fixed amount of money (one lump sum) to deliver the "end product" in accordance with the specifications laid down by the OU. Examples might be a well, ready for producing hydrocarbons, or, in the case of an exploration well, a set of 1 5 52 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


evaluation logs. This type of contract can only be used when the "end product" and its specification can be very accurately defined prior to the preparation and award of the contract. Any changes in the Scope of Work identified after award of the contract can have extremely significant consequences regarding the total contract value (cost). The financial risk to which the contractor is now exposed is certainly higher than that in the day rate type of contract. However it is the OU's intention to limit his exposure to performance related risks only. For this reason the drilling contract contains special clauses dealing with unexpected and severe problems; the LumpSum mode of reimbursement is temporarily suspended and replaced by a Day-Rate until the situation is resolved. It is apparent that for a Turnkey drilling contract much more effort has to be put into the preparation phase (Scope of Work and specifications), and less into the actual operations, than for a dayrate contract, which is managed by the OU on a daily basis.

1 .4 .2 .4 I N NC C E EN NT T I I V V E ES S Performance related incentives are added to most contracts to encourage the contractor to meet the well objectives. These can vary but often aim to pay bonuses for one or more of the following 1 5 53 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

delivery of the well faster than planned

•

delivery of a well with higher productivity than planned

•

delivery of a well at a lower cost than planned

The OU gains because the cost is less and the well (or information) becomes available earlier. A contractor's own costs are mostly time based (payroll, rentals, equipment depreciation, etc.) thus he will only gain from a lower income per operation if the time taken is reduced even more. Incentive arrangements have to be designed to make this result possible. However, the same condition is applicable to incentives as was mentioned for the day-rate contract - a higher daily income is only an advantage (i.e. an incentive) to a contractor if he can keep his equipment and personnel continuously occupied, either on a long term contract or moving from one contract to another. Otherwise the contractor would prefer to spread the same income over a longer time and minimise the idle periods during which he has to store the equipment and lay off staff-unless the incentive is large enough to offset these additional costs. Because of the very different degrees of control which the drilling contractor and the services contractor(s) have over the drilling of a well the incentives have to be designed to suit the circumstances of 1 5 54 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


each. In fact, because most service companies have little control over the overall progress of the operation it is difficult to design realistic individual incentive schemes for them. The following links describe what was being done in 1994-5 with respect to the various services, but you should bear in mind that the application of incentive contracts is evolving, and practices may have changed by the time you read this; •

Incentives for the drilling contractor

•

Incentives for the services contractors •

MILESTONES

Given the mixture of rates in an incentive contract, not all of which are time-based, and in order to provide an additional incentive, the concept of "milestones" has evolved. A set of logically related activities are grouped together, with the completion of those activities being marked by a milestone. The whole operation thus consists of a series of milestones on the way to the destination, which is completion of the well. Payments under the contract are made as the milestones are passed rather than monthly as is done under day-rate contracts. In this respect an incentive contract is similar to a turnkey contract, with the difference being that the payments vary according to the performance. For those service 1 5 55 5 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


contractors on a day-rate contract the payments only depend on the time taken to reach the milestone. The number of activities grouped together under one milestone can vary according to circumstances, and is specified by the OU in the invitation

to

tender.

A

common

arrangement

for

an

exploration/appraisal drilling campaign would be for there to be milestone at the end of each hole section. Thus the activities for successive milestones could be •

Mobilisation and rigging up

•

Drilling for, running and cementing the foundation pile and nippling up. Drilling for, running and cementing the conductor, including running logs, and nippling up.

•

Drilling for, running and cementing the surface string, including running logs, and nippling up.

•

Drilling for, running and cementing the intermediate string, including running logs, and nippling up, etc.

For a development drilling project a more appropriate arrangement might be to have longer stages with the milestones marking the following achievements: •

Mobilised and rigged up on first well



•

First well drilled to TD and logged

•

First well tested, completed and handed over to Production Dept.

•

Rig move completed. Ready to spud second well

•

Second well drilled to TD and logged

•

Second well tested, completed and handed over to Production Dept.

•

Rig move completed. Ready to spud third well, etc.

Within an incentive type contract the OU still has the flexibility to modify the programme. As the Milestone payments are made up out of a number of unit rates the financial impact of any variation from the originally planned Scope of Work can be allowed for by using methodology already specified in the contract. This will avoid disputes about exactly what is and what is not contained in the Scope of Work of a lump sum agreement. In practice it is unfortunately very often the case that in order to have all the services in place at the required spud date, the contract preparations have to commence whilst the detailed scope of work for a project has not been defined. For example in Single String Venture (SSV) operations, generally drilling exploration wells in new (greenfield) and remote areas, the seismic programme or seismic 1 5 57 7 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


interpretations may not be completed until only weeks prior to the intended spud date. Therefore, the final well design (diameters, casing setting depths, final TD, even its co-ordinates) cannot be incorporated in the contract Scope of Work. By applying Unit Rates, Milestones and Milestone payments this, which is in principle an inadequate planning practice, can be accommodated. The Scope of Work would contain the drilling of a "specimen" well for which contractors can put in their bid. The impact of any changes which are known at the time of bid evaluation can then be accounted for. However safeguards will have to be built into the contract to limit the consequences to the contractor of gross changes in the programme, for instance if the planned TD changes from 5,000 m to 3,000 m which would halve the time available to him to recoup expenses.

1.4.2.4.1 Incentives for the drilling contractor

To illustrate the principle of an incentive drilling contract consider the four common activities which make up the operation of drilling to the planned TD. These are making hole, logging, running & cementing casing, and nippling up the well-head/BOPs.



•

Making hole

One of the simplest forms of incentives for a drilling contractor is a "footage" contract. In a footage contract the contractor is paid per metre(foot) drilled rather than a day rate. For example:

Day rate agreed is US$ 60,000/day •

Expected well duration is 60 days

•

Well Total Depth is 3,600 m

•

The agreed footage rate would then be US$ 60,000 x 60/3,600=US$ 1000/m drilled

Under such a payment system the contractor would only be paid if progress has been achieved on the well. While drilling ahead the contractor has a major influence on the penetration rate but he still does not have 100% control in as much as he cannot know what formation characteristics he will encounter as he progresses. The contractor then will be unwilling to drill on a 100% footage rate - so many dollars per foot (or metre) - since he cannot guarantee his income.



What is done in such cases is to split the payments so that a proportion is still dayrate (A $/day) and the other portion is footage. Using the above example: •

The day rate is US$ 60,000/day

•

Expected well duration is 60 days

•

Well Total Depth is 3,600m

Agreed portion of dayrate on footage is 0.4

•

•

The contractor would be paid US$ 60,000 x 0.4 = US$ 24,000 per day irrespective of meters drilled.

•

plus

•

US$ 60,000*(1-0.4) x 60/3,600 = US$ 600/m drilled

Thus by varying the portion on footage (often referred to as an "x" factor the drilling contractor's exposure can be controlled.-This type of payment system is often referred to as a modified footage contract. •

Logging

To a first approximation the drilling contractor has no control at all over the progress of wireline logging operations. It is thus common for an incentive type contract to specify 100% day rates during logging operations. 1 6 60 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


You will be asking why the expression "to a first approximation" was used. In practice the logging operations are influenced by hole conditions, which the drilling contractor can control. With enough experience in the area, and a logging programme defined within close limits, the contractor may be willing to accept a rate during logging which is a combination of day-rate and lump sum. •

Running and cementing casing, and nippling up

These operations almost completely within the control of the drilling contractor, with very few geological or other uncontrollable risks. It is thus common to agree on a unit rate per length of casing plus a lump sum for nippling up. The incentive is given by reducing the rates according to an agreed formula as experience is gained. The art again is to reduce the rates by a factor which is large enough to require a meaningful increase in efficiency to obtain the same reward, but small enough for it to be feasible for the contractor to beat it and thus increase his effective daily income. 1.4.2.4.2 Incentives for the services contractors

As mentioned above, it is in general difficult to create realistic winwin incentive situations for service contractors because of their lack of individual control over the final product. Hence building incentives 1 6 61 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


into contracts goes hand-in hand with decisions on how services are bundled together. Therefore selection of contract scopes and types need to be made together. The services which can have an incentive rate easily applied are drilling fluid engineering and coring. The former is described below; the latter is merely a variation of the "drilling ahead" arrangement. Directional surveying/drilling and mud logging services are active from spud to completion, and both can have an effect on the overall performance, thus incentive schemes are being applied for them. These are also described below. •

Drilling fluid services

The system under a day-rate régime is for the OU to purchase the required products from the service company, and to obtain from the latter the services of an advisor on a day rate basis. The result is that the drilling fluids company representative on site has no incentive to produce a drilling fluid which will increase the drilling performance, and every incentive to waste the fluid and add large amounts of the products to the system. It is very easy to reverse this approach by agreeing on a performance-based rate for materials under which the service 1 6 62 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


company agrees to provide the mud required at a fixed cost per unit length of hole drilled (a different rate for each hole section, of course), with the mud specifications being between well defined - but not unnecessarily narrow - limits agreed in advance. The contractor then has a high incentive to use the minimum quantities of products, reducing not only cost but also pollution. In a known area the drilling fluid contractor may also be willing to include the engineering services in the (increased) rate per unit length. This then gives the incentive to provide a fluid which will assist the drilling contractor in raising the penetration rate. •

Directional drilling/surveying services

A directional service company has a great influence on the average rate at which a drilling contractor can drill a directional well, whether it be a deviated well or a vertical well which has a tendency to deviate. There are two factors in the performance of such a service the distance of the well-bore from the target position at the target depth, and the time taken to reach that depth. There are two extreme approaches for drilling a directional well. One is to go slowly and carefully, with frequent surveys, and deliver a well which follows the planned line exactly to achieve a bulls-eye on the theoretical target. The other is to make hole quickly, with less 1 6 63 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


frequent surveys, but with several correction runs to bring the well back onto course. Both extremes are inefficient. The ideal is to make hole as quickly as possible without requiring correction runs and certainly without wasting time following a theoretical line to a theoretical point - as long as the well is within the defined target area it is acceptable. Obviously, however, the closer to the ideal

point the better. The incentive arrangement should reflect the priorities. What is done is to agree a basic "footage rate" with the directional service company and allow him to bid a factor "x", just as for the drilling contractor, but also to pay him a bonus inversely proportional to the distance of the well-bore from the theoretical target point at the target depth. It is then up to the contractor to optimise his performance. •

Mud logging

The mud-logging services are provided continuously from spud to completion and have an influence on drilling performance, although it is a much less direct influence. What they do is monitor and record drilling data. The manner in which they can improve the efficiency of the operation is by choosing the correct plots to illustrate a possible scope for improvement and presenting them in a timely fashion to 1 6 64 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


the drilling contractor so that he can take appropriate action. This would include, for example, merging data from several wells to demonstrate a consistent trend. Accepting that this type of service can assist the drilling contractor to improve the overall efficiency, it is still virtually impossible to put a value on each individual action of the mud-loggers. The incentive which is used is to pay as, a bonus, a percentage of the cost savings made for the company by the drilling contractor under his own incentive scheme. This type of bonus scheme can be applied to all the various contractors involved in the drilling of a well

it is not

always easy though to agree how the percentage splits should be made!! •

Other services

Services for which incentive schemes are more difficult to devise are: •

Cementing and pumping services

•

Sometimes bonus/maluses are built into the contract based on achievement of operational targets-for example percentage of slurry pumped on programmed weight, meeting the planned pumping schedule/rates etc.

•

Provision of drilling bits/hydraulics services



•

The most common is a no-cure-no pay system. This means agreeing a cost/ft or ROP target prior to running the bit. If the bit does not achieve the target nothing or only a percentage of the agreed bit price is paid. If the targets are exceeded the bit price is paid plus sometimes a bonus.

•

Wireline logging services

•

Drill-stem and production testing services

•

Completion services

These contractors are compensated according to a straightforward schedule of prices and rates. However the so-called "Milestone" system of payments provides an indirect incentive for all contractors to assist each other in making improvements.

1 .4 .2 .5 D E EF FI IN N I I T T I I O O N N O F F T H HE E C O ON NT T R R A C CT T S C CO OP PE E O F F W O OR RK K Having decided on the contract strategy, the corresponding Scope of Work then has to be defined for each individual contract. The proper definition of the Scope of Work is of major importance for two reasons:



•

the contractor must be able price the work and uncertainties (which may result in cost increases) are minimised

•

both parties need to have a clear understanding of their roles and responsibilities in execution of the work.

In general one can say that the larger the proportion of work for which unit rates (lump sums) or incentive rates are paid, the more accurate the definition of the work must be and the more time it will take to prepare. A summary of the relationship between scope of work and contract type/remuneration system is given below: Type Turnkey Unit rates/minilump sums

Scope of Work

Fixed Price for defined work

Fully Defined

Uncertain

scope number

of Fixed Price for defined work

defined work units Skills

Day rates

Remuneration

and

units

equipment

defined, effort and usage Fixed rates for effort uncertain



Good lines of communications with the receivers of the "end product", being the Exploration department and/or the Production department, are essential to ensure that their specific requirements are incorporated in the contract and that the objectives of the well can be met. For example in the case of an exploration venture it is important to know what suite of electric logs will be required; if a geological side track is likely; or if extensive coring is expected and whether or not the target formations need to be extensively production tested if found to be hydrocarbon bearing. This may have a major impact on the well design and in some cases also even on the rig selection. The Scope of Work must state what is to be performed clearly and unambiguously in order to avoid disputes in the future, between company and contractor operations staff who usually were not involved in the preparation of the contract document, about the intention. Requirements and results should be communicated in the simplest terms necessary for clear comprehension. Likewise, clear Specifications are vitally important. An example of a Scope of Work which was found in practice to be ambiguous is given in the box below.



Ambiguous scope of work

The Opco has contracted a cantilever Jack-up drilling unit for drilling six wells from a platform deck. The contract stated the requirement for all the wells to be drilled without moving the drilling unit therefore the derrick on the cantilever must be able to be skidded in a pattern which is large enough to reach each well with the centre of the rotary table. There is also a contractual requirement to "batch" drill and complete the wells. One year later all the wells have been drilled and cased-off to a depth of 2000 metres. The first well has reached its final depth and is cased-off satisfactorily at 4000 metres At finalisation of the Morning Report it is noticed that the last line reads: "18.30-06.00 Prepare for skidding to Well Number 2, laying down drill pipe, drill collars and stabilisers" The Opco's representative immediately telephones the rig who are surprised at the excitement and agitation. The rig management make it clear that the derrick's skidding system is not designed to skid the



rig with a full complement of pipe in the derrick. The Opco refer urgently to the appropriate section of the contract and realise that this obvious omission will now incur additional costs which will offset some of the envisaged savings associated with "batch" drilling and well completion. The strategy was sound, but the contract did not reflect the full expectations. The final contract document becomes an increasingly important daily working tool as the detail of the Scope of Work increases. For example when supervising a turnkey project it is vital that the field supervisors have a detailed knowledge of the entire contract-because this is where the detail of what the contractor has to do is definedincluding possibly the actual detailed drilling programmes.

1.4.3 En t er i n g iin t o a a c c o n t r ac t Once the preliminary work has been done and all the decisions made concerning the scope of work, contract strategy, etc. the following stage is to obtain a price from each of the companies that is capable of performing the specified work. This process is known as "going out to tender" or, more formally, as "issuing an invitation to tender". The 1 7 70 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


companies which wish to be considered for the work will submit their tenders, and are called tenderers. The word "bid" is often used instead of "tender" as it is virtually synonymous - but you would not say "going out to bid" or "invitation to bid".

1 .4 .3 .1 T Y YP P E ES S O F F T E EN N D D E E R R The types of tender include: •

OPEN COMPETITIVE TENDERING

No limitations are imposed on the number of contractors who can bid for the work. This is generally used for work of a low level of technical and management complexity. Open competitive tendering is unusual in the drilling industry. •

LIMITED COMPETITIVE TENDERING

A number of known and selected contractors, from a company (OU) "approved" bid list, are invited to bid. These contractors are all considered to be qualified for the job. This method is the more common approach in the oil industry.



•

SOLE/NEGOTIATED TENDER

A single tender document is sent to one, or a few, qualified contractor/s as if it were a competitive tender. This is unsatisfactory since

the

contractor/s

will

quickly

become

aware

of

the

circumstances. The preferred method in those circumstances is to directly negotiate with him/them. This type of tender strategy is either driven by necessity/availability or by circumstances whereby it is very obvious that a competitive tender will not result in a more favourable outcome for the company. An example would be where the scope of work is difficult to define and understand or is technically very complex. Another is that in a very remote area with very few current drilling activities the preference would be for contract negotiation with a drilling contractor who is shortly due to terminate operations with another local operator. In the latter case it is self-evident that that contractor will provide the cheapest package because of his low mobilisation cost, and the OU can reduce its own preparation costs substantially by avoiding entering into discussion with contractors who have no chance of being awarded the contract. It also avoids putting the latter to the expense of preparing bids , which would be irritating to a contractor who subsequently discovers that he never had a chance. 1 7 72 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


In the latter example, if the obvious contractor tries to take advantage of the situation by increasing his rates unreasonably then the negotiated tender approach could be dropped and other contractors invited to tender. To leave this option open the negotiations have to be initiated in good time. Even with a negotiated tender it is good practice to prepare a complete invitation to tender document, to use as a basis for the negotiation. Much of it will in any case be required for inclusion in the contract document. The procedure to be followed in the case of a negotiated tender is not dealt with in this DEDLP but in more advanced training material. In practice sole/negotiated tenders may often be excluded from consideration by the terms of agreements with host governments or partners.

1 .4 .3 .2 P R RE E - -Q QU U A L LI IF F I IC C A T TI I O O N N In order to ensure that contracts are placed only with contractors of known integrity, adequate financial standing, acceptable HSE performance and proven workmanship, SIEP and OUs have procedures in place for the appraisal and approval of contractors. A 1 7 73 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


standard

Pre-qualification

document

called:

"Standard

Pre-

qualification to Tender Document for Drilling and Drilling Related Services" is available from CPS-EP and is used to record the Commercial, Technical and Experience information necessary for the pre-qualification of contractors. Guidelines for the evaluation of contractors on the basis of this information can be found in the document called: "Guidelines for use of Standard Pre-qualification, Invitation to Tender and Contract Documents for Drilling and Drilling Related Services" also available from CPS-EP. The pre-qualification document can be used on a "once-off" basis or form part of a routine to update the qualified contractors file. Prior to the preparation of the tender documents it is useful to send out an Enquiry message to contractors and service companies who will potentially have suitable equipment available at the envisaged time of spudding the first well. The responses expressing interest and the ability to bid for the project may include replies from contractors about whom insufficient information is available. In the latter case the pre-qualification document will be sent to them for completion and return prior to making up the bid list (see below).



As mentioned above, pre-qualification is not required in the case of an open tender which is, however, unlikely to be encountered by a drilling engineer. •

INFORMATION FOR EVALUATION

Typically the following information is required to pre-qualify contractors: •

General information: 

Contractor details such as names, office addresses, fax, telephone etc.



Parent

and

Associated

Companies

(Affiliations/Subsidiaries)

•



Company ownership (Public or private)



Main line of business.

Financial information: 

Summary of Assets and Liabilities, copies of the Financial Statements for the previous three years



Total amount and Type of Credit Line and by which Bank





List of ongoing contracts with approximate values and durations



List of Insurances and Values:



Workman's compensation



Employers liability



General Third Party liability, Pollution liability,



•

All risk,



Marine Hull (Offshore)



Protection and indemnity insurance (Offshore).

Experience record in the industry and specifically with Shell or Shell affiliated companies.

•

Equipment, Consumables and Facilities available for the services.

•

Organisation and Staffing: 

organigrams (line and corporate structure)



qualifications



Details of the responsibilities and authorities for base and site management and personnel.

•

Sub-contractors (i.e. service companies contracted by the "Drilling Contractor").



•

Quality

Assurance

contractor's

information

Quality

such

Assurance

as

copies

Manual,

of

the

maintenance

procedures and equipment inspection programme. •

Safety Assessment questionnaire to be completed by the contractor providing information regarding Safety policy and manual,

accident

and

incident

reporting/investigating

procedures, safety inspection, training, occupational health, waste disposal, driving safety programmes and their historical Lost Time Incident Frequency. •

THE BID LIST

Based on the responses to the Enquiry message a bid list will be prepared of qualified contractors who have expressed their interest in participating in the Project. A "Tender Board note" should be prepared and should contain a summary of the analysis which forms the basis of the proposed bidlist. It should mention the potential bidders reviewed, address their capability to do the work, highlight possible results of prequalification activities and give the rationale for the proposed selection.



At this time the Tender Board will also approve the dispatch of tender documents to those contractors listed.

1 .4 .3 .3 T H HE E I N NV VI I T T A T TI I O O N N T O O T E EN ND D E E R R 1.4.3.3.1 INTRODUCTION

1.4.3.3.1.1

Purpose

The purpose of the "invitation to tender" document is obviously to solicit bids for a project, and as such its structure should be designed to allow potential tenderers to put a price on the work, but the structure and content is also designed to ensure that: •

bids contain all the information required for the evaluation in a format that can be easily compared with other bids, and

•

tenderers submit legally binding bids.

Information must be requested and given in an unambiguous straight forward manner which will ensure clear, specific answers. 1.4.3.3.1.2

Contents

The tender document as issued can be seen as a contract proposal issued by the OU from which only the commercial prices and binding signatures are missing. The standard tender package is divided into eight main sections; 1 7 78 8 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

The "Invitation to Tender" letter

•

Instructions to Tenderers

•

Tender Acknowledgement

•

Secrecy Declaration

•

Company Information

•

Form of Tender

•

Contract Documents

•

Reference documentation

The contract documents are included in the tender package, excluding only the details of the contractor and the figures in the Schedule of Prices and Rates, so that the tenderer knows exactly what he is bidding on, not only the Scope of Work but also the conditions attached to the work. For example he will know what insurance cover he needs, the maintenance and inspection schedule which the OU requires him to follow, and the training courses which he will be committing himself to provide for his personnel. Providing the complete contract ensures that the tenderer will allow for the cost of all the necessary insurance premiums , the third party inspections of his equipment and the training courses; this will in turn will both avoid unpleasant surprises on the part of the contractor and prevent the contract being awarded to a tenderer who puts in a low 1 7 79 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


bid and who then subsequently claims an adjustment to the price "because he had not realised that he was expected to provide .... This method is not foolproof. It has been known for major international contractors to submit a bid worth hundreds of millions of dollars and then claim that they had never had time to read the draft contract in the tender package ! For this reason among others the Form of Tender in the tender package includes for the Tenderers signature the Tender Letter, which is the covering letter to accompany the bid submission. This letter includes the statement "we have read and understood the tender documents". The eighth section is any Group reference documentation which will be incorporated into the contract, e.g. the Pressure Control Manual. The contract will also refer to external standards, for instance API Procedures, but copies of these need not be sent unless it cannot reasonably be expected that the contractor will have them. •

INVITATION TO TENDER LETTER

This letter formally invites the tenderer to submit a bid for the Work described in Part 9 of the Contract documents and gives an overview of the work to be performed. Basic instructions regarding the



"Closing Date" and time and the manner in which the completed tender documents are to be returned to the OU's office are given. •

INSTRUCTIONS TO TENDERERS

General

The purpose of the Instructions to Tenderers is to inform the tenderer of the proper procedures which must be adopted to satisfy the requirements of the OU for the submission of tenders and the award of a contract. They advise among other things that: •

deviations from those procedures may result in a tender being rejected

•

the OU does not undertake to accept the lowest bid

•

the OU shall not be deemed to have accepted an offer until a contract is signed.

Although deviations from the procedures may result in a tender being rejected it can happen that the deviation occurs through no real fault of the tenderer or that the OU does not wish to penalise the contractor for a relatively minor infraction. A relatively common situation is that a contractor sends a panic message a week before the tender closing date that he cannot meet the deadline and that his bid will be three days late. If his explanation is reasonable (post 1 8 81 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


office strike, fire in his office, etc.), and if the OU feels that it would also be punishing itself by rejecting his tender, it may decide to change the closing date, which would have to have the approval of the tender board. In that case it is essential not to disadvantage the other tenderers, who may also be rushing to complete the documents, and to send out an advice to all parties that they have additional time to prepare their bid. This would be done by means of a Tender Bulletin (see "communications" below). These instructions also describe the remainder of the package and give precise details of how the various documents and Forms of Tender are to be completed and returned. There are several elements of these instructions which are worth highlighting. These are: Alternatives and Qualifications

Qualifications: In the past tenderers have submitted bids under the proviso that certain conditions in the Invitation to Tender will be changed in a way that suits them. These are called Qualifications. Sometimes they are genuine but often these are tactics employed to cloud the clarity of the bid price and to provide an opportunity for negotiations and increases at a later stage. 1 8 82 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Critical issues can arise as a result of qualifications. For example changes to certain Shell standard documents can completely destroy the carefully modelled liability regime. It would then be very difficult if not impossible to compare a qualified bid with correctly submitted, unqualified, bids on a "like for like" basis. To do so the evaluator would have to remove the financial effect of the qualification on that particular contractor. Alternatively the OU would need to re-invite all tenderers to re-bid against the newly changed conditions which would be inefficient and impractical. For these reasons the tenderer is instructed to give prices and/or rates for the Work exactly as it is described in the tender documents, and in the format provided. However it can be foreseen that there are occasions when the tenderer is unable to do this. There is therefore provision made in the Forms of Tender for "Qualifications" and the prices submitted in the Schedule of Prices and Rates must then assume that the qualification is accepted. The Instructions to Tenderers make it clear that a qualification should only be submitted if the tenderer feels that he cannot comply with the conditions of the tender at any price, and go on to warn the tenderer that the OU may reject a tender with qualifications prior to evaluation of all the tenders. 1 8 83 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Alternatives:

Contrary

to

qualifications,

which

are

strongly

discouraged, the OU welcomes "Alternatives", for which there is also provision made in the Forms of Tender. There are two types of Alternative which can be listed: •

If the invitation to tender documents contain conditions that the tenderer prefers not to comply with, but will accept at the price he is quoting, he may list his preferred alternative(s) with the corresponding price and/or rate proposal.

•

If the contractor wishes to propose technical or operational

Alternatives to the Scope of Work, or to the Provisions by Contractor/Company, which would result in the same product for a lower total price, these should also be listed along with the corresponding price and/or rate proposal. To clarify: the bid price must still be based upon the understanding of acceptance of all conditions. In both of these cases the actual bid contains the prices and/or rates for the original scope of work. Each Alternative must be clearly described with reference to the applicable clause in the documents, and the Contractor must fully explain the effect of his Alternative on the final contract sum. It is then at the OU's discretion whether any or all of the Alternatives are incorporated into the contract. 1 8 84 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Alternatives acknowledge the fact that contractors have expertise which may be complementary to the expertise of the OU and that all available resources should be utilised for the job in hand. Communications

The Instructions to Tenderers give details of how communications between tenderer and OU are to be handled, naming a single contact person. Such communications may be required to give the tenderer an opportunity to raise matters needing clarification. There will however be a final deadline for such communications, typically ten days prior to the Closing Date, after which enquiries to the OU may not receive a response. After that deadline, but before the closing date, communication from the OU to the tenderers is by means of Tender Bulletins sent to all tenderers in order to ensure that they all have access to the same Company information. Tender Bulletins are numbered and, if they are in response to an enquiry from a tenderer, they should not reveal the identity of the original enquirer. Tender Bulletins normally convey information

relating

to

queries,

advice,

modification

and

interpretation, and are issued only to tenderers who have made themselves subject to the Secrecy Declaration. For the sake of clarity, it is frequently considered necessary to convey information in the 1 8 85 5 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


form of "Questions" and "Answers". This format ensures simplicity and transparency of communication, and avoids convolution and ambiguity. Site Visits

Site visits are actively encouraged for contractors who are not familiar with the area so that the OU can be sure that bids are based on realistic local conditions. It is usual to arrange a group visit for all the contractors so that they all have the opportunity to discuss specific points with the OU, and all are given the same information. If any point of significance to the execution of the contract is raised by a contractor during such a visit, any relevant information should be circulated formally by the OU in the form of a Tender Bulletin. Licensing and registration

An international contractor operating in a particular country may have to comply with several licensing and registration requirements set by the government or the national oil company. It would be unreasonable to expect a contractor to be completely familiar with the rules in a country where he is bidding for a job and therefore, to avoid unpleasant surprises in the future, all such requirements are listed in the Instructions to Tenderers. 1 8 86 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


•

ACKNOWLEDGEMENT

Basically this is an official statement which is required to be returned by the tenderer upon receipt of the tender documents. He confirms in writing that he has received the tender documents and states whether or not he intends to submit a bid. He also provides the details of the communication channels which he wishes the OU to use. •

SECRECY DECLARATION

If the tenderer has acknowledged that he will submit a bid in accordance with the tender requirements he must sign a Secrecy Declaration stating that he will undertake to preserve the Secrecy of any confidential information contained in the tender documents or attachments. It is only after receiving the signed Secrecy Declaration that the OU will send the tenderer any confidential documents or information that he needs for the bid preparation. (e.g. drilling programmes, offset well data, geological profile, Pressure Control Manual and other "EP" manuals, etc). •

COMPANY INFORMATION

Tenderers need to have information about the work and environment in which the work is to be undertaken so as to be able to submit a 1 8 87 7 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


meaningful bid. Specifically, the higher the quality of information in the tenderer's possession, the lower the "risk factor" which will be applied to, and incorporated within, the quoted rates. This applies particularly to incentive or lump sum (Turnkey) work. However, contractors must perform as independent contractors. They must not rely upon the OU, nor must the OU be held liable for errors of judgement concerning the work (e.g. quantities) nor the operational environment. As much relevant information as possible should be included to assist with the resolution of these conflicting requirements. The type of information given in this section is: •

information about the site such as its approximate position, the topology, distance from the nearest road, etc.

•

general information about the area where the site and the OU office are, including the means of access and the availability of such things as accommodation, telecommunications and industrial support facilities.

•

information on agreements with the local government where such agreements are relevant to the contractor's interests.



Information about the main criteria used by the OU in the tender evaluation process is also included in this section, as are statements of the OUs contracting principles and HSE policy. When information such as the above is given to a prospective contractor then it should be born in mind that legal effect can be given to written or spoken words which, although not incorporated into the contract, are deemed to be a statement of fact and are accepted by the party to whom they are communicated. Disclaimer

The information given by the Company in this section is considered by the Company to be accurate at the time of issue. The Company does not however accept any liability for inaccuracy of such information and it is tenderer's responsibility to ensure that his offer, if necessary, clarifies any points of ambiguity in Company supplied information. Therefore this section always begins with an important statement, which is called a "Disclaimer", and is quoted in the accompanying box Although this section physically does not form part of the final contract, this statement avoids exposure of the OU during the 1 8 89 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


execution of the contract, and potential litigation alleging that Shell supplied wrong factual information. Information given in the contract document itself is of course binding. Whilst the headings disclaim responsibility for accuracy they are not intended to support erroneous or inaccurate data. The issuing of inaccurate data will have a long term negative effect on the contractor's price and performance and upon the contractual relationship in general. A similar "Disclaimer" (and more) will be found in the Contract Document (Part 2, clause 3.4) but excluding specific information given by the OU in the contract. •

THE FORM OF TENDER

Introduction

The Form of Tender is the means whereby the OU obtains the contractor's commitment to do the work and the information to evaluate the tender. It comprises a set of fifteen tender forms as listed below which need to be completed by the tenderer. Some information may have been routinely requested during the prequalification. Tenderers to whom this is applicable need only be 1 9 90 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


asked to confirm its applicability to prevent duplication and unnecessary preparation work Letter of Tender Conditions

of

Tender Form I

Administration Information

Form II

Schedule of Prices and Rates

Form III

Tenderer's Proposed Equipment

Form IV

Qualifications

to

Tender

and

Contract

Conditions Form V

Tenderer's Proposed Alternatives

Form VI

Contractor's Insurance

Form VII

Technical Information

Form VIII

Management, Organisation and Personnel Resumés

Form IX

Tenderer's Corporate Structure

Form X

Tenderer's proposed sub-contractor(s) and Part(s) of the Work to be subcontracted

Form XI

Tenderer's Commercial Information

Form XII

Tenderer's Health, Safety and Environmental



Assessment Questionnaire Form XIII

Tenderer's Execution Plan

Form XIV

Tender Performance Guarantee (optional)

Form XV

Tenderer's Bond (optional)

The forms must be carefully modified for each tender to ensure that the necessary information will be submitted in all bids. Failure to meet these requirements may lead to a need for further clarification by the OU and/or tenderers, with a consequential delay and potential rate increases. Some of the Forms of Tender are designed to be included "as is" in the contract document. Letter of Tender

The Letter of Tender, sometimes referred to as "bid cover letter", is the letter which the OU expects the tenderer to use as a covering letter with the tender submission. It contains all the declarations and commitments which the company wishes to receive from the tenderer, including the date up to which the tender should be valid (the validity period is the period between receipt of the bid and the Final Award and must be carefully selected to give the OU sufficient 1 9 92 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


time for evaluating the bids and if necessary resolve any classifications.) The tenderer only has to fill in the numbers of any tender bulletins which have been issued, then date and sign the letter and add the formal name and address of the company submitting the bid. This letter is the only form in which a full signature is required by the tenderer as it commits the tenderer to the contents of the annexed forms. The latter only need to have the tender title and reference number added, with an initial to confirm that they are in fact part of the tender submission. An example of a tender letter is included in Appendix 1. Appendix 1 Letter of Tender

To: Secretary of the Tender Review Board Shell Training B.V., Noordwijkerhout, 1 9 93 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Netherlands "STRICTLY CONFIDENTIAL" Tender No. T-NWH/D/96001 Tender Title: Noordwijkerhout South Drilling Services Sir, We the undersigned, hereby offer to supply the Plant, Materials and Personnel and otherwise provide services to execute and carry out the Work more particularly described and referred to in the Conditions of Contract, Specification, Schedules and Drawings (if any) in your Invitation to Tender Documents and hereto annexed, including Tender Bulletins Nos. issued for this Tender, and which under the terms thereof are to be supplied, executed and done by the Contractor and to perform and observe the provisions and agreements on the part of the Contractor contained in or reasonably to be inferred from the Conditions, Specification, Schedules and Drawings for the rates and prices quoted in Form II the Schedule of Prices and Rates submitted herewith. We confirm that we have adhered to all the Conditions of Tender duly initialed and returned herewith. 1 9 94 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


We further declare that we have undertaken all necessary research by carrying out a site visit or otherwise and have read and understood the tender documents. We hereby undertake in the event of your acceptance of this Tender, if required, to execute the Form of Agreement within 45 days from receipt of the Letter of Acceptance and if required to furnish a satisfactory Performance Guarantee guaranteeing fulfilment of the Contract, and in accordance with the Conditions of Contract to obtain all insurances stipulated in the Conditions of Contract. We undertake to do any extra work not covered by the above schedule of prices which may be ordered by the Company and hereby agree that the value of such extra work shall be determined as provided for in the Conditions of Contract. We understand that you reserve to yourself the right to accept or refuse this Tender for any reason. We agree that this Tender is irrevocable as from 17:00 hours local time in Noordwijkerhout on the 30th June 1996 and shall remain firm and free of any adjustments whatsoever and open for acceptance by you for a period of 90 days from the date hereunder.



We agree that unless and until the formal Contract is prepared and executed your Invitation to Tender, this Tender in conformance with and in response thereto and any subsequent mutually agreed modifications, together with your written acceptance thereof, would constitute a binding contract between us. We hereby confirm that the following forms are attached and form part of this Tender and may be inserted into the Contract if awarded to us. Letter

of

Tender Conditions

of

Tender Form I

Administration Information

Form II

Schedule of Prices and Rates

Form III

Tenderer's Proposed Equipment

Form IV

Qualifications to Tender and Contract Conditions

Form V

Tenderer's Proposed Alternatives

Form VI

Contractor's Insurance

Form VII

Technical Information

Form VIII

Management, Organisation and Personnel Resumés



Form IX

Tenderer's Corporate Structure

Form X

Tenderer's proposed sub-contractor(s) and Part(s) of the Work to be subcontracted

Form XI

Tenderer's Commercial Information

Form XII

Tenderer's

Health,

Safety

and

Environmental

Assessment Questionnaire Form XIII

Tenderer's Execution Plan

Form XIV

Tender Performance Guarantee

We understand that you reserve the right to disregard this Tender if we have in any way other than provided for in Form IV above qualified your Invitation to Tender. You may consider our alternative proposals set out in Form V. Each Alternative may be considered for acceptance individually or in total together with the stated effect on the other terms of our offer in paragraph one above. We submit our Tender in one (1) original accompanied by one (1) photocopy of the complete Tender together with one (1) unpriced photocopy in accordance with the Instructions to Tenderers. Dated day of June 1996 1 9 97 7 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


this

Signature:

Initial:

Name:

Position held:

Duly authorised to sign Tenders for and on behalf of: (Registered Name and Address) Appendix 2 Conditions of Tender CONDITIONS OF TENDER

Tender No.: T-NWH/D/96001 Tender title: Noordwijkerhout South Drilling Services 1. Definitions

The definitions included in Section F, Contract Documents apply throughout this Tender.



Tender: means the Tender submitted by the Tenderer to Company in response to this Invitation to Tender. Tenderer: means the Company specified in Section E Form I as "Tenderer's Company" 2. General

(2.1) This Tender is made strictly in accordance with the requirements of the Invitation to Tender which included the following Tender Bulletin numbers to inclusive. (2.2) All copies of Confidential Information issued as part of this Invitation to Tender by Company shall at all times remain the property of Company and will be returned to Company within five days of the Tenderer receiving either notification that the Tenderer has been unsuccessful or a written request from Company for the return of the documents. (2.3) Tenderer warrants that copies of these Invitation to Tender documents were only made for preparing his bid and were only disclosed to Third Parties on a need to know basis to support preparation of the Tender in accordance with the Secrecy Declaration. 1 9 99 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


3. Preparation of Tender

(3.1) This Tender was prepared at the sole cost of Tenderer and Company is not responsible for any costs or expenses incurred by the Tenderer in connection with the preparation, collection, delivery or in the evaluation of the Tender, together with any costs or expenses incurred during the formation of a Contract should the Tenderer be successful.

(3.2) By submission of a Tender, the Tenderer warrants that: The prices in the Tender have been arrived at independently, without consultation, communication, agreement or understanding for the purpose of restricting competition, as to any matter relating to such prices, with any other Tenderer or with any competitor. Unless otherwise required by law, the prices which have been quoted in the Tender have not knowingly been disclosed by the Tenderer, directly or indirectly, to any other Tenderer or competitor, nor will they be so disclosed.



No attempt has been made or will be made by the Tenderer to induce any other person or firm to submit or not to submit a Tender for the purpose of restricting competition. The Tenderer has adhered to the highest standards of business ethics and, in particular, has established precautions to prevent any of its officers, employees, or agents from making, receiving or offering substantial gifts, entertainment, payment, loans, or other considerations which may influence individuals in respect of this Invitation to Tender. All requirements set forth in the Tender Documents have been reviewed to ascertain the nature, extent and detail of the Work in the light of the responsibilities which will be imposed on the successful Tenderer under any Contract. Tenderer has, therefore, obtained all necessary information as to risks, contingencies, local conditions and other commercial, technical or other circumstances which may affect the Tender. Tenderer agrees that failure to do so shall not relieve Tenderer from responsibility for carrying out the Work and/or Services in accordance with the Contract. 4. Information



(4.1) Even though Company considered information supplied by it to be accurate, Company shall not be liable for or be responsible to any Tenderer or to any other person in respect of the suitability, correctness, accuracy, exactness or otherwise of any information, opinion on any matter, issue or material supplied to the Tenderer unless explicitly specified in Section F - Contract Documents. Where reasonably possible, it is the Tenderer's sole responsibility to independently

and

fully

ascertain

the

correctness,

accuracy,

exactness, suitably and reliability of such information or opinion. If any doubt exists, the Tenderer shall clearly define the basis of his interpretation in his Tender. (4.2) The Tenderer shall be deemed to have satisfied himself as necessary, regarding existing roads, railways, waterways, ports or other means of communication with and access to the Site, the terrain, the risk of injury or damage to property adjacent to the Site or to the occupiers of such property the nature of the materials (whether natural or otherwise), the conditions under which the Work have to be carried out, the supply of and conditions affecting labour, the importation of Plant, Equipment and Materials, the facilities for obtaining the materials or other items referred to in the Tender Documents and generally to have obtained his own information on all matters affecting the execution of the Work and the prices tendered. 2 0 02 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


5. Communication

(5.1) All communications in respect of this Invitation to Tender were referred to the person named in the Instructions to Tenderers in writing (or as minuted meetings). No communications with any other persons who have been engaged in activities leading up to the Invitation to Tender (such as the design and specification of the work) or in the preparation of the Invitation to Tender have taken place. (5.2) The Tenderer has obtained the written agreement of Company prior to entering into any negotiations related specifically to the subject matter of this Invitation to Tender with any governmental authority or agency. (5.3) The Tenderer will provide any further information Company may deem necessary to evaluate the Tender, which shall include but not be limited to, a breakdown of or supplement to any unit rates, prices or percentages tendered; evidence of Tenderer's credit worthiness, financial soundness and financial capacity to perform the work and additional information necessary for the appraisal of the Tender when requested to do so. 6. Acceptance of Tender 2 0 03 3 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


6.1 The Form of Tender was completed by the Tenderer and constitutes an offer by the Tenderer that the Tenderer is prepared to enter into a contract as the "Contractor" with Company under the terms and conditions of the documents comprising Section F of this Invitation to Tender (the "Contract Documents") together with all Forms in the Form of Tender and all Tender Bulletins. 6.2 Tenderer confirms that this Tender is a firm offer which is not subject to negotiation. 6.3 Tenderer confirms that Company can at its discretion award any part or all of this Tender in accordance with Form II and Form IV of this Tender and confirms that acknowledgement of receipt of this Tender shall not constitute any actual or implied agreement between Company and the Tenderer. 7. Visits

(7.1) Tenderer confirms that Company may visit any location relevant to this Tender for the purposes of inspecting the proposed equipment and the performance of the Tenderer including but not limited to modus operandi and procedures.



(7.2) Tenderer will make every effort possible to secure all necessary approvals for Company to visit any desired locations for the purpose of 7.1 above. This Tender has been made in accordance with these Conditions of Tender by: Name: Position: who is a legally authorised signatory for (Tenderers registered Company Name) Dated this day of June 1996. Appendix 3 Form VII - Technical information

TenderNo.:T-UW/D/94001 Tender title: Urdaneta West Drilling Services Drilling Unit Data A. GENERAL



Rig name Rig designer Rig owner Rig operator Rig class

Certifying authority

B. STRUCTURAL DATA AND DRAWINGS

All the data and drawings detailed in this section are to be supplied. Units must be given as appropriate. B.1 PRINCIPAL DIMENSIONS

Hull depth: Hull length: Hull breadth: Leg length (including spud can): Longitudinal leg spacing (centre to centre): Traverse leg spacing (centre to centre): (supply sketch showing plan arrangement of legs at hull level for clarity) B.2 WEIGHT DATA 2 0 06 6 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Hull dead weight (excluding legs): Maximum variable load: Maximum variable load (survival conditions): Available preload tank capacity (weight): Elevated weight during preload (excluding legs): Total leg weight plus spudcan (each): Dry spudcan weight (each) - (Bow): - (Aft):

Submerged spudcan weight (each) - (Bow): - (Aft): Leg buoyancy (each, excluding spudcan): Centre of gravity (survival model): 2 0 07 7 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Position of centre of gravity envelope corresponding to drilling envelope (supply sketch for clarity): B.3 LEG-HULL CONNECTION B.3.1 General

Type of jacking system (e.g. opposed): Holding system (e.g. rack chocks): Rotational stiffness of connection (each): Assumed (designer) distribution of leg bending moment between guides and jacking system: Percentage of lower guide leg moment carried by guides: Percentage of lower guide leg moment carried by vertical jacking system: B.3.2 Pinion data

Number per chord: Safe holding capacity (each pinion): Ultimate holding capacity (each pinion): 2 0 08 8 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Vertical stiffness (each pinion): Vertical distance between pinions: Vertical distance of lowest pinion above hull base: B.3.3 Fixation system

Rack chock elevation (above hull base): No. of chocks per chord: Safe holding capacity (per chord): Ultimate holding capacity (per chord): Vertical stiffness (each chord): B.3.4 Guide data

Centre line of lower guide above hull base: Centre line of upper guide above hull base: Length of lower guide: Length of upper guide: Top of jackhouse above hull base: 2 0 09 9 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


B.4 LEG DATA Number of legs: Number of chords: Bay height: Chord spacing (between pitch points): Horizontal braces (diameter & wall thickness): Vertical braces (diameter & wall thickness): Span breakers (diameter & wall thickness): Dimensions of leg appurtenances (sketch of caissons, piping, ladders, anodes, etc., to be attached): B.5 MATERIAL DATA

Yield and ultimate tensile stresses for:Leg chords: Diagonals: Horizontals: 2 1 10 0 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Span breakers: B.6 CONDUCTOR DATA

Maximum conductor diameter: Maximum top tension applied to conductor: B.7 DRAWINGS

In addition to the drawings and or sketches specified elsewhere in this Section B, the following drawings/details are to be supplied: * General arrangement of hull and superstructure: * General arrangement of legs (showing chords, scantlings and spudcans): * Drilling envelope diagram complete with capacities: * Construction drawings: * Arrangement drawing of jacking system: * Arrangement drawing of fixation system (if applicable): * Detailed load plan with all live loads and tankage marked with contents and volume of tanks: 2 1 11 1 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


* Details of leg joints and chord cross-section: * Details of conductor support structure: B.8 OPERATORS CLAIMED PERFORMANCE CRITERIA B.8.1 Maximum water depth conditions

(All quoted parameters must act concurrently) Maximum water depth (including storm & surge tide): Maximum wave height: Associated wave period: Maximum concurrent current velocity (surface & seabed): Max. concurrent wind speed and reference height above sea level: Assumed marine growth profile: Airgap above maximum water depth: Maximum penetration: B.8.2 Minimum water depth conditions

Water depth (including storm & surge tide): 2 1 12 2 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Maximum leg penetration: B.9 TOWING REQUIREMENTS

Underwriter's requirements for the following: 1) For mobilisation of the rig to the location 1 tug bollard pull (Tonnes): 2 tugs bollard pull (Tonnes + Tonnes): 3 tugs bollard pull (Tonnes + Tonnes + Tonnes): others (Tonnes): 2) For intra field moves 1 tug bollard pull (Tonnes): 2 tugs bollard pull (Tonnes + Tonnes): 3 tugs bollard pull (Tonnes + Tonnes + Tonnes): others (Tonnes): B.10 MAXIMUM UTILISATIONS



With reference to Point C.2 Operational conditions below, provide utilisation ratios for the unit under the specified operating conditions (utilisation ratio is defined as factored load divided by factored resistance): Leg chord: Vertical leg bracing: Plan leg bracing: Leg span breakers: Overturning: Maximum vertical reaction: Associated horizontal reaction: Minimum vertical reaction: Associated horizontal reaction: Ratio of max. vertical reaction to max. preload reaction: Analysis parameters Environmental load factor: 2 1 14 4 Petroleum E Engineer: M Mohd. Z Zouhr y El-Helu. E-Mail A Address: [email protected]


Gravity load factor: Dynamic response effects included (method): Deterministic effective leg drag area (CdD): Deterministic effective leg inertia volume (C mD2): Stochastic effective leg drag area (C dD): Stochastic effective leg inertia volume (C mD2): B.11 MISCELLANEOUS Maximum airgap above MSL:

C. MINIMUM PERFORMANCE DATA C.1. GENERAL



1.1 The area of operations shall be Company's concession area Offshore Noordwijkerhout where the water depth is between 20 ft and 100 ft. Operations shall continue throughout the year. 1.2 The drilling unit shall be so designed, equipped, manned and operated as to be capable of safely performing all operations which form part of, or are associated with, the drilling, testing and completion of wells and shall perform these operations and be subject to environmental conditions at least equal to the limiting conditions set out in paragraph 2 below. 1.3 The drilling unit shall be capable of remaining on location and safely withstanding attacks from wind, sea and current up to and including the anticipated maxima set out in paragraph 3 below. C.2. OPERATIONAL CONDITIONS

Contractor hereby states that the drilling unit meets the requirements of paragraph 1.2 above under environmental conditions at least equal to the following criteria which shall be considered as acting simultaneously and from any compass direction.



Within the context of the above criteria "Drilling" shall include but not be limited to all normal drilling operations, i.e. drilling, reaming, circulating, running casing, cementing, round trips, etc. C.3. SURVIVAL CONDITIONS

The conditions under which the drilling unit shall be capable of remaining safely on location, although not necessarily operational as defined under paragraph 2.2 above, shall be at least equal to the following criteria which shall be considered as acting simultaneously and from any compass direction: Maximum

"1-

minute" wind speed Maximum

wave

height Associated period

wave

:

mph

:

ft

:

(seconds)


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