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Project Management Institute (PMI)®

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First of all, let’s start by explaining what does this commercial strategy mean. Bundling is a marketing tactic that involves offering two or more goods or services as a package deal (consolidation of requirements) for a discounted price, which is negotiated and mutually agreed between Buyer and Seller.

My broad experience in the field of Purchasing and Logistics Management and Strategic Negotiations, as purchasing leader in offshore well exploratory campaigns in Africa (Tanzania, Namibia, Angola, Benin) and South America (Colombia, Peru), allows me to introduce this innovative strategy for optimizing the exploratory project costs.

In 2011, I had the opportunity to apply this strategy as part of the planning and execution of the contracting processes required to support a well exploratory campaign offshore Tanzania. During the planning phase of the project, the six (6) drilling services listed below were identified as potential targets to apply the Bundle Services Discount strategy:  

• Directional Drilling & MWD/LWD/PWD, Real Time Data Acquisition;
• Wireline Logging Services;
• Drilling and Completion Fluids and Services;
• Mud Logging Services;
• Liner and Casing Accessories; and
• Well Testing (DST) & Coiled Tubing & Nitrogen.

As part of the Invitations to Tender (ITTs) sent to the four (4) selected vendors to participate in the above-mentioned processes, the following commercial condition/strategy “Bundle Service Discounts”, was included in the ITT document package:

“BIDDER may submit the present commercial proposal with commitment for additional discounts in future BIDS related to the current project, which BIDS may result in multiple equipment/services packages awarding. The packages to be tendered for this project are:

• Directional Drilling & MWD/LWD/PWD, Real Time Data Acquisition;
• Wireline Logging Services;
• Drilling and Completion Fluids and Services;
• Mud Logging Services;
• Liner and Casing Accessories; and
• Well Testing (DST) & Coiled Tubing & Nitrogen.

To avoid future doubts and questionings, in the future BIDS the prices to be offered shall be stated without the previously proposed discount for the package so the Company (Buyer) will analyze the commercial proposals as they are and will apply the proposed discount in the previous BID at its own discretion.”

With the purpose to standardize the commercial proposals to be submitted by Bidders, the following “Matrix of Discounts for Consolidated Services” was designed and provided to Bidders. They should simulate and submit various rate discount scenarios for the provision of the requested services.

Throughout the operationalization of this original and innovative commercial strategy, Bidders had to simulate several price discount scenarios for the provision of the drilling services listed above, in response to the Request for Quotation (RFQ). The objective of this strategy was Bidders to offer as much discounts in the quoted prices as possible, based on the Bidders’ possibility to consolidate the largest quantity of services (Bundle Services) with the purpose to optimize their costs and reduce the quoted prices. In response to the RFQ, Bidders submitted their prices for the drilling services package (six services).

It is important to highlight that, as a result of the bidding process, the evaluations considered two GLOBAL price discount options, i.e., (i) price discounts in the case of the services were partially awarded to two (2) or more Bidders, with individual discounts ranging between 1% to 10% (average of 3.5%); and (ii) price discounts if FULL services package was awarded to only one Bidder, with discounts ranging between 2% to 11% (average of 5.3%).

After intensive negotiations with the best-classified Bidder, a revised proposal of discounts for the provision of the drilling services for the Tanzania exploratory project was received from such vendor. Emphasizing that, even though the revised price discounts continue ranging between 2% to 11%, as originally quoted by this Bidder for the FULL package option, the price discount for the drilling and completion fluids and services was increased, from original 6% to 8%, which improved the average price discount for the services package from 5.3% to 6.5%.

As a result of the bid processes execution, evaluation and negotiation under my responsibility, one (1) vendor was awarded with five (5) contracts for the provision of (i) Directional Drilling & MWD/LWD/PWD, Real Time Data Acquisition; (ii) Wireline Logging Services; (iii) Drilling and Completion Fluids and Services; (iv) Liner and Casing Accessories; and (v) Well Testing (DST) & Coiled Tubing & Nitrogen. This was a big professional challenge, even more considering to operate in a remote location, which supported the operations in the reliable provision of the drilling services, and contributed with the successful execution of the exploratory well drilling campaign in Tanzania. This negotiation approach was the first experience in regards to consolidate the supply of the offshore drilling services to a major operator, and represented a paradigm change with respect to the traditional scheme of individual/isolated contract negotiations with clients, resulting in financial and operational benefits to the parties, as well as the following gains to the Contractor:

• Cost reduction as per consolidation of the services provision;
• Optimization in the use of resources (personnel, materials, equipment);
• Service rates reduction due to economies of scale, based on a proportionate saving in costs gained by an increased level of production;
• Increase the Vendor’s Competitiveness in the Oil & Gas marketplace (service rates reduction).
• Reduction in the logistics activities and costs involved in mobilization and demobilization of personnel and equipment from the shore base to the drilling unit.
• Creating differentiation and greater value, enhancing the offer to the customer for a basic rate.

As a result of the aforementioned commercial strategy, 45 agreements for a total value of USD 232,000,000.00 were successfully executed; involving financial benefits of USD 6,000,000.00 because of the “Bundle Services Discounts”, obtained for the drilling service contracts (Mud Logging, Wireline Logging, Directional Drilling, Drilling Bits, Drilling Fluids, and Well Testing).

Other successful experience related with this commercial strategy was also applied in 2013 in an exploratory project in Colombia. I accurately identified seven (7) drilling services (mud logging, wireline logging, directional drilling, drilling & fishing rental tools, drilling bits, drilling fluids and well testing) representing between 10% (if Drill Stem Test was required in the well)  and 15% (if Dry Hole well) in cost with respect to the total value of the contracts portfolio required in this exploratory project, which were potentially supplied by the same group of top-quality vendors. I determined these references after analyzing the Authorization for Expenditure (AFE-Budget) of the project.  Because of the complex and productive negotiations conducted with the service companies, the seven (7) drilling services mentioned above were awarded to one Service Company involving price discounts per Bundle Services ranging between 3% and 15% (average of 7%). This effort resulted in savings for Operator of approximately USD 3,400,000.00 due to the consolidation of the provision of the drilling services in only one (1) vendor, increasing the commercial discounts when compared with the scenario to award the contracts to different providers and supported the first gas discovery in deep waters of the Colombian Caribbean Sea. 

It is important to highlight that this innovative and brilliant initiative designed and implemented in these projects can be applied in the United States with a high possibility to generate cost efficiency and profitability increase of the Oil & Gas Industry, as a result of obtaining potential rate discounts ranging between 8% and 12%. However, the above-mentioned potential discounts will be greater in the U.S. due to the existence of a large number of contractors in the Oil & Gas marketplace, which increases the competitiveness and demands from contractors an optimization in costs resulting in discounts increase, improvement of the business financial health and increase in cash flow.

LOGISTICS PLAN OF THE EXPLORATORY WELL PROJECT

1. Concepts.

• Logistics Chain: the logistics chain is the life cycle of processes encompassing the physical, informational, financial and knowledge flows and is intended to satisfy the needs of the final consumer with products and services from several interconnected suppliers.

• Logistics: logistics is the part of the supply chain process that efficiently and effectively plans, implements, and controls the dispatching of the reverse logistics flow and storage of goods, services, and related information between the point of origin and the point of consumption to meet customer requirements. It includes activities such as: procurement, sourcing, planning, physical distribution, information system, warehousing and transportation.

• Operational Logistics: from an organizational point of view, it is the area responsible for planning and implementing basic operation services, personnel and cargo transportation, custom procedures, storage of materials and equipment, repairs and inspections in the country and final disposal of produced waste.

• Operational Logistics Plan: A document that comprehensively specifies the most relevant logistics aspects of the project.

2. Objectives of the Logistics

It is a description of the main logistics activities in well operation intended to optimize logistics services, achieving the lowest project cost, customer satisfaction and minimizing environmental impacts.

3. Project logistics organizational chart and contact list

It is the organizational structure design of the exploratory project Logistics staff, including roles and responsibilities. It must include a contact list of all personnel involved in the project who have an operational interface with Logistics activities.

4. Identification of the main authorities

Information must be researched and the contact information and/or restrictions must be identified on agents related to: immigration, ports, airports, customs, police force, armed forces, medical services, national oil company, environmental agencies, communities and other sectors of local civil society.

5. General description of the Operations Logistics Chain

This description is a comprehensive design of the logistics chain diagram, including, among other information: the area or exploratory block map, exploratory well location, support base, sea, air and road distances, main relevant aspects, etc.

6. Identification of licenses required for the project

To meet local legislations, the following list contains the main licenses required for well drilling projects and logistics activities:

• License to operate aircrafts;
• Environmental license (EIA) for the support and operations base;
• Communications license;
• Licenses to operate the support vessels;
• Licenses to export and import of materials and equipment;
• Records/licenses associated with radioactive sources;
• Records/licenses associated with explosives;
• Records/licenses associated with chemicals;
• Work Permits for Expatriate Staff.

7. Support base

The following aspects must be accounted for the design of the support base:

a) Conceptualization of the Support Base: location, access roads, proximity to airports and ports, support base operation schedule (start and end of operations), flow of materials (operational peak support).

b) Defining materials and equipment reception activities;

c) Availability of an area to install and support facilities of other service companies to be located within the base;

d) Types of available storage (closed and/or air-conditioned sheds, etc.);

e) Cargo handling capacity, and inspection & certification program for equipment and accessories to handle cargo (containers, baskets, slings, etc.);

f) Defining the vehicle fleet and cargo handling equipment inventory;

g) Daily logistics routine. Description of how the following controls will be managed: personnel and cargo movements; tracking of support-base daily costs(fixed costs, the cost of consumables, material handling and other disbursements), daily operational tracking of support vessels, diesel and water consumption, delivery control, transportation and delivery of third party equipment and materials.

h) Structure and services offered: mecanization, inspections covering tools, equipment pipes and casing for drilling and, property safety and maritime safety.

8. Bulk materials and liquids

a) Bulk materials and liquids to be supplied to the drilling unit must be defined and described;

b) Fuel supplies: Legislations for fuel supply or importation, specifications, storage, estimation of monthly volumes to be mobilized (fuel for ships, vehicles, support base and drilling unit), potential suppliers and alternative supply sources, origin and delivery capacity, aviation fuel for helicopters;

C) Potable and industrial water supplies: estimated monthly volume to be mobilized, supply and storage locations;

d) Fluids used in drilling operations;

e) Silos for cement, barite, bentonite, etc.

(This information will continue to be developed in future publications as part of a series of articles related to MANAGEMENT SYSTEM METHODOLOGY - LOGISTICS PLAN)

PLANNING THE EXPLORATORY WELL DRILLING PROJECT

Management System is a methodology that can be applied in projects to deploy of offshore exploratory well operations in order to develop the Logistics Plan. 

After approval of the exploratory drilling project proposal, project coordination should define the breakdown structure and processes for project management in order to optimize operation planning and minimizing changes throughout execution and project deployment phases, guiding actions so that the objectives defined in the scope are accomplished.

The suggested process intended to achieve the above strategy is the Well Delivery Process. This tool is defined as the project execution planning map which accounts for Front End Loading (FEL) methodology, and it subdivides the project into sequential phases, where each phase is assessed before commencing the next one, prioritizing the execution of the project’s most critical items. The exploratory well drilling project Coordinator is responsible for developing a specific Well Delivery Process for the project.

Figure 1 shows the project phases and the list of required macro products.

It is important to emphasize that the Project Coordinator should comprehensively elaborate the Well Delivery Process model, including or gathering activities and information, according to the specificity of the project.

Validation of each stage in the context of the company's management portfolio is of particular importance. To accomplish this, between stages, gates are set to define whether the business studies of the enterprise will advance or not to the following stages. After each stage, a performance analysis is carried out on these studies, often relying on independent audits, comparisons with similar projects, and using benchmarking as conceptual framework.

A schematic representation of the gates’ logics is illustrated in Figure 2 below.

Figure 2 - Validation of FEL stages (stage gates)

 (Source: VALE/DIEP, 2007 – apud ROMERO; p.5)

SCOUTING PROCESS

To ensure success in defining the logistics plan of exploratory well drilling projects, carrying out one or more scouting missions in advance is essential and indispensable. The process aims at obtaining technical, logistical, legal and additional information on the status of the upstream oil industry in the place or country hosting the exploratory offshore operation, as well as the participation of reputable international service companies in this market, for planning, programming and obtaining information, with focus on:

• Local conditions of sale and incurred costs;
• Equipment and materials lead times;
• Local structure of suppliers of goods and services;
• The availability of special services, equipment and trained personnel;
• Data on correlation wells, well programs, including operational problems and related solutions;
• Applicable local legislation and logistical aspects.

(This information will continue to be developed in future publications as part of a series of articles related to MANAGEMENT SYSTEM METHODOLOGY - LOGISTICS PLAN)

Dear Friends, now available on Amazon the VOLUME I and VOLUME II of my book “Logistics Planning for Exploratory Well Projects in Remote Locations”.

After covering the first portion of this study, the first book (Volume I), which provides a comprehensive description of the conceptual basis for project management based on the PMBOK® Guide together with the information gathered by this research, I now continue my project planning path by carrying on with Volume II viewing and applied a methodological approach to project management planning focused on the logistics, planning and procurement activities required to deploy offshore well drilling operations in remote locations, based on the experience by offshore oil & gas drilling companies and acquired knowledge throughout my thirty (30) years of professional experience in the Oil & Gas field.

These publications are available in “eBook” and “Paperback” formats.

Beyond the monetary value of these books, the main contribution is to transmit my experiences to my readers, with the desire that they contribute to the development of their abilities and the applicability on their professional responsibilities.

Find links below:

VOLUME I:

https://amzn.to/2MkLQYX

VOLUME II:

https://amzn.to/2Aub3gY