Turnkey contracts in production drilling

Abstract

Over the past few years, the drilling industry on the Norwegian Continental Shelf (NCS) and worldwide has faced a significant change. With declining oil prices, the margins for both oil companies and service contractors are under pressure and the companies now focus on reducing costs and increasing efficiency. The NCS is considered a mature drilling area, where the cost of extracting oil is high, due to increasing complexity, high operational costs, smaller fields, tail end production, and decreasing drilling efficiency. In response, the oil service industry is looking for new approaches to contracts and incentive designs that can gain market share in a declining market. This thesis reviews a case presented by an alliance of service providers to VNG Norge for the field development on the Pil & Bue field. The proposed format is unique to the NCS and is categorized as a turnkey drilling contract. The thesis investigates the proposed contract’s format and compares it with the theory of optimal incentive design to find areas of potential conflict, risk, and uncertainty.