Economic Report 2011

Operators’ Contracting Strategies

The extraction of oil and gas from several thousand metres below the seabed is a complicated process, but is based on reasonably simple concepts. Conversely the supply chain which is simple in origin can become very complicated. With day rates for chartering drilling rigs varying from $100,000 (jack-ups) to $500,000 (semi-submersibles), individual wells costing up to $100 million and development projects budgeted in hundreds of millions or several billions, it is essential for the economic success of a venture that the products and services are delivered at the right time and the right cost by the supply chain.

The strategy with which an operator chooses to contract for goods and services will depend on the project and the organisational capacity of the operator. Big, multinational companies generally have large in-house resources that can manage whole projects, whilst other operators may well be targeting smaller, but technically demanding oil and gas fields, requiring a nimble means of outsourcing much of the project management, as and when it is needed. The UKCS contains a wide range of field sizes and, in order to maximise recovery of the nation’s offshore oil and gas, a variety of contracting strategies is necessary.