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R RE E- -F FO OR RM MA AT TT TE ED D B BY Y: :
P PE ET TR RO OL LE EU UM M E EN NG G N NE EE ER R
M MO OH HD D Z ZO OU UH HR RY Y E EL L- -H HE EL LU U
E-Mail: peteng.mzhelu@gmail.com
Well Engineering Distance Learning Package (The DLP)
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Well Engineering Distance Learning Package (The DLP)




1.1 INTRODUCTION
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.
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Well Engineering Distance Learning Package (The DLP)
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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.
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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
Well Engineering Distance Learning Package (The DLP)
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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.
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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
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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.
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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
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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.
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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.
Well Engineering Distance Learning Package (The DLP)
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.
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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 Health, Safety and Environmental
Management


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1 1. .2 2. .1 1. .1 1 G GE EN NE ER RA AL L
In general you, the J unior 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
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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
Well Engineering Distance Learning Package (The DLP)
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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
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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 1. .2 2. .1 1. .2 2 D DE EF FI I N NI I T TI I O ON 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
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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.
I ncident: 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.)
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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 I llnesses: 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 J ob 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
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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
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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
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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 1. .2 2. .1 1. .3 3 A AN N E EX XH HO OR RT TA AT TI I O ON N
Never ever say to yourself "I know this is not what I should be doing,
but it will be alright this time".
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1 1. .2 2. .2 2. .1 1 O ON N T TH HE E R RI I G G F FL 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.
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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
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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.
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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
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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.
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1 1. .2 2. .2 2. .2 2 O ON N A AN ND D R RO OU UN ND D T TH HE E P PI I P PE E R RA AC 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 1. .2 2. .2 2. .3 3 A AR RO OU UN ND D T TH HE E D DR RI I L LL LI I N NG G F FL LU UI I D D T TA AN NK KS S
The low pressure drilling fluid system has its own share of hazards
for the unwary.
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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.
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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 1. .2 2. .2 2. .4 4 I I N N T TH HE E C CE EL LL LA AR 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 H
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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.
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1 1. .2 2. .2 2. .5 5 A AR RO OU UN ND D T TH HE E L LO OC CA AT TI I O ON 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
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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.
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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
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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.
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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.
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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.
J ourney 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.
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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
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fire drills
evacuation drills
H
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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
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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 H
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Natural hazards appropriate to the specific area such as
cyclones, icebergs, earthquakes, flooding, etc.)
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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
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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
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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.
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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.
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1 1. .2 2. .5 5. .1 1 S SA AF FE ET TY Y M MA AN NA AG GE EM ME EN NT T
Within HSE attention was focussed first on safety.
There are three ways in which the management of a company can
approach safety:
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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
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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
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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,
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there will be lower costs for evacuating injured workers from
remote locations
continuity in crews enhances teamwork and higher efficiency
1 1. .2 2. .5 5. .2 2 A AC CC CE EP PT TA AN NC CE E O OF F T TH HE E N NE EC CE ES SS SI I T TY Y T TO O
M MA AN NA AG 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
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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.
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1 1. .2 2. .5 5. .3 3 E EN NH HA AN NC CE ED D S SA AF FE ET TY Y M MA AN NA AG GE EM ME EN 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)
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3) Safety in technical operations (procedures and house-
keeping 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.
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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.
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1 1. .2 2. .6 6. .1 1 S SA AF FE ET TY Y M MA AN NA AG GE EM ME EN NT T S SY YS ST TE EM MS 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.
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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 non-
compliance - for instance, in 1992 criminal charges for HSE non-
compliance 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
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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 1. .2 2. .6 6. .2 2 T TH HE E H HS SE E M MA AN NA AG GE EM ME EN NT T S SY YS ST TE EM M ( (H HS SE EM 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
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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.
Well Engineering Distance Learning Package (The DLP)

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
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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 1. .2 2. .6 6. .3 3 P PO OL LI I C CY Y A AN ND D S ST TR RA AT TE EG GI I C C O OB BJ J E EC CT TI I V VE 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.
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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.
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1 1. .2 2. .6 6. .4 4 O OR RG GA AN NI I S SA AT TI I O ON N, , R RE ES SP PO ON NS SI I B BI I L LI I T TI I E ES S, ,
R RE ES SO OU UR RC CE ES S, , S ST TA AN ND DA AR RD DS S A AN ND D
D DO OC CU UM ME EN NT TA AT TI I O ON 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
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foreseeable requirement. J ob 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.
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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.
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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.
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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.
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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
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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
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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 rle to
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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
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The functional heads of HSE participate in these three committees;
for EP that rle is filled by EPO/6.
1.2.6.4.2.5 I n SI EP
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.
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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 government
departments.
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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.
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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 1. .2 2. .6 6. .5 5 H HA AZ ZA AR RD DS S A AN ND D E EF FF FE EC CT TS S M MA AN NA AG GE EM ME EN NT 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 ?
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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 ?
Recover
Mitigate
consequences

Emergency response
How to limit the
consequences ?
Reinstate 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.
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1 1. .2 2. .6 6. .6 6 P PL LA AN NN NI I N NG G A AN ND D P PR RO OC CE ED DU UR RE 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 1. .2 2. .6 6. .7 7 I I M MP PL LE EM ME EN NT TA AT TI I O ON N
Implementation means ensuring that the practices and procedures
specified in the planning documents (HSE Manual and HSE Case) are
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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
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his/her own group. Groups and individuals mentioned by name will
be motivated to maintain a high standard.
1 1. .2 2. .6 6. .8 8 P PE ER RF FO OR RM MA AN NC CE E M MO ON NI I T TO OR RI I N NG 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 pre-
set 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,
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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.
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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.
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1 1. .2 2. .6 6. .9 9 C CO OR RR RE EC CT TI I V VE E A AC CT TI I O ON N A AN ND D I I M MP PR RO OV VE EM ME EN NT TS 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 1. .2 2. .6 6. .1 10 0 A AU UD DI I T TS 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.
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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 1. .2 2. .6 6. .1 11 1 M MA AN NA AG GE EM ME EN NT T R RE EV VI I E EW 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
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technical improvement process but also in the light of changing
legislation and public opinion.
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1 1. .2 2. .7 7. .1 1 I I N NT TR RO OD DU UC CT TI I O ON 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.
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1 1. .2 2. .7 7. .2 2 H HE EA AL LT TH 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)
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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
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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.
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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 1. .2 2. .7 7. .3 3 T TH HE E E EN NV VI I R RO ON NM ME EN NT 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
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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 re-
establish 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,
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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
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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.
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1 1. .2 2. .8 8. .1 1 T TH HE E H HS SE EM MS S M MA AN NU UA AL 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.
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Part (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) 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) lists the (controlled) documents referred to in Parts 1
and 2 of the HSEMS Manual.
Part (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.
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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 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 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;
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The Opco's requirements for hazard analysis, risk
assessment and risk management; The HSEMS must
ensure the identification and assessment of hazards
throughout all activities and at all stages of
development (i.e. planning, design, 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
management structure and organisation, and its relation to the
implementation of HSE within the company. Included should
be:
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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.
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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 in hazard management and of the
programmes in place to ensure that 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
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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
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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:
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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).
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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 sub-
groups based upon the identified key HSE factors.
the setting of HSE targets for individuals derived from
and consistent with the corporate HSE targets and
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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
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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.)
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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
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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.
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1 1. .2 2. .8 8. .2 2 T TH HE E H HS SE E C CA AS 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.
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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
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1.2.8.2.2.1 PART 1- MANAGEMENT SUMMARY AND
I NTRODUCTI ON
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.
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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 operation-
level 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 ACTI VI TI ES 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.
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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 - DESCRI PTI ON OF THE OPERATI ON
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
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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 - HAZARD ANALYSI S, HAZARD
REGISTER, HSE-CRITICAL OPERATI ONS
PROCEDURES AND MANUAL 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.
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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.
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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.)
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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:
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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;
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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:
Well Engineering Distance Learning Package (The DLP)
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 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.
1.3 OPERATING COSTS



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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,
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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.
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1 1. .3 3. .2 2. .1 1 T TI I M ME E- -D DE EP PE EN ND DE EN NT T C CO OS ST TS S
Time-dependent costs fall into the fallowing categories:
Contract payments
Personnel
Consumables
Service fees
Company overheads
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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.
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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.
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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 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.
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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.
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1.3.2.1.5 COMPANY 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
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1 1. .3 3. .2 2. .2 2 D DE EP PT TH H- -D DE EP PE EN ND DE EN NT T C CO OS ST TS 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 off-
shore and in a remote area or not.
1 1. .3 3. .2 2. .3 3 F FI I X XE ED D/ / O ON NC CE E- -O OF FF F C CO 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
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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
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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
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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.
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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
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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.
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1 1. .3 3. .4 4. .1 1 T TH HE E C CO ON NC CE EP PT TU UA AL L E ES ST TI I M MA AT 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
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proposed area and also for variations in the market costs for
equipment and services.
1 1. .3 3. .4 4. .2 2 T TH HE E B BU UD DG GE ET T E ES ST TI I M MA AT 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 1. .3 3. .4 4. .3 3 T TH HE E W WE EL LL L C CO OS ST T E ES ST TI I M MA AT 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.
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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 1. .3 3. .4 4. .4 4 M MA AK KI I N NG G T TH HE E E ES ST TI I M MA AT 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
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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.
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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.
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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.
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Daily rental
US$/day
Total
Operating cost
US$/day
Semi submersible 30-40,000 70-80,000
Drillship in Single String. 85-165,000185-250,000
Semi sub North sea. 45-50,000 165-180,000
Platform North sea. 20-25,000 100-125,000
J ack-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 Contracting




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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.
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Drilling services
Cementing services
Directional Surveying
services
Deviated drilling
services
Coring services
Well-head services
Liner hanging services
Diving services
Tubular inspection
services
Explosive cutting
services
Rental of equipment not
provided by the drilling
contractor
Mud Engineering
services
Mud Logging services

Helicopter support services
Fixed wing support services
Rental of trucks
Land transport services (road
and/or rail)
Chartering of Supply/Anchor
handling Vessels
Chartering of other water
transport vessels (Tugs,
Barges, Fuel Barge)
Marine transport services
Construction of materials base
Rental of materials base
Materials base operations
services
Rental of materials handling
equipment
Rental of yard space at
consolidation port
Clearing agency services at
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MWD services
Wireline logging services
Drill Stem Testing
services
Production Testing
Services
Water well drilling
services
Construction of location,
access road and/or
airstrip
Construction of
survey/positioning
beacon site with access
road construction
Surveying services on-
and/or off-shore
Camp services
(associated with
construction activities
and/or materials base)
consolidation port
Clearing agency services, local,
for air/sea freight
Purchasing agency services in
central foreign location
Telecoms services, including
construction of microwave
relay stations
Meet & greet services
Courier services
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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.
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1 1. .4 4. .1 1. .1 1 R RE EA AS SO ON NS S F FO OR R C CO ON NT TR RA AC CT TI I N NG G O OU 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.
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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 1. .4 4. .1 1. .2 2 W WH HA AT T I I S S A A C CO ON NT TR RA AC 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."
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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
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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:
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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.
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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;
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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 1. .4 4. .1 1. .3 3 T TH HE E C CO ON NT TR RA AC CT TI I N NG G P PR RO OC CE ES SS S
In general the contracting process can be divided in five distinct sub-
processes.
Decision to contract out
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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
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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 1. .4 4. .1 1. .4 4 T TH HE E T TE EN ND DE ER R B BO OA AR 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.
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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.
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1 1. .4 4. .1 1. .5 5 S SH HE EL LL L' 'S S " "D DR RI I L LL LI I N NG G I I N N T TH HE E N NI I N NE ET TI I E ES S" "
I I N NI I T TI I A AT TI I V VE E ( (D DI I T TN 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:
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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.
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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 exchange
e.g. less hierarchical communications
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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.
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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
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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 1. .4 4. .2 2. .1 1 D DE EV VE EL LO OP PM ME EN NT T O OF F A A C CO ON NT TR RA AC CT TI I N NG G
S ST TR RA AT TE EG GY 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
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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.
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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
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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:
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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 1. .4 4. .2 2. .2 2 C CO ON NT TR RA AC CT TS S A AN ND D S SU UB B- -C CO ON NT TR RA AC 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 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 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
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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)
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
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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.
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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 1. .4 4. .2 2. .3 3 T TY YP PE ES S O OF F C CO ON NT TR RA AC 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)
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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
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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
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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 Lump-
Sum 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 day-
rate contract, which is managed by the OU on a daily basis.
1 1. .4 4. .2 2. .4 4 I I N NC CE EN NT TI I V VE 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
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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
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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
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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
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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
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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.
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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.
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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.
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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 win-
win incentive situations for service contractors because of their lack
of individual control over the final product. Hence building incentives
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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 rgime 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
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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
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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
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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
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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 1. .4 4. .2 2. .5 5 D DE EF FI I N NI I T TI I O ON N O OF F T TH HE E C CO ON NT TR RA AC CT T S SC CO OP PE E O OF F
W WO 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:
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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 Scope of Work Remuneration
Turnkey Fully Defined
Fixed Price for defined work
scope
Unit
rates/mini-
lump sums
Uncertain number of
defined work units
Fixed Price for defined work
units
Day rates
Skills and equipment
defined, effort and usage
uncertain
Fixed rates for effort
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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.
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Ambiguous scope of work
The Opco has contracted a cantilever J ack-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
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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 defined-
including possibly the actual detailed drilling programmes.
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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
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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 1. .4 4. .3 3. .1 1 T TY YP PE ES S O OF F T TE EN ND DE ER 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.
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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.
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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 1. .4 4. .3 3. .2 2 P PR RE E- -Q QU UA AL LI I F FI I C CA AT TI I O ON 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
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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).
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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
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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").
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Quality Assurance information such as copies of the
contractor's Quality Assurance Manual, 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 bid-
list. It should mention the potential bidders reviewed, address their
capability to do the work, highlight possible results of pre-
qualification activities and give the rationale for the proposed
selection.
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At this time the Tender Board will also approve the dispatch of tender
documents to those contractors listed.
1 1. .4 4. .3 3. .3 3 T TH HE E I I N NV VI I T TA AT TI I O ON N T TO O T TE EN ND DE ER 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;
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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
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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
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"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
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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.
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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.
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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.
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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
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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.
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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
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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.
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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
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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 pre-
qualification. Tenderers to whom this is applicable need only be
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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
Resums
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
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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
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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,
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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.
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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 J une 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.
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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 Resums
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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 J une 1996
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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
CONDI TI ONS 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.
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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.
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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.
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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
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(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.
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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
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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.
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(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 J une 1996.
Appendix 3
Form VI I - Technical information
TenderNo.:T-UW/D/94001
Tender title: Urdaneta West Drilling Services
Drilling Unit Data
A. GENERAL
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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 WEI GHT DATA
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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):
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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):
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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:
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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 MATERI AL DATA
Yield and ultimate tensile stresses for:-
Leg chords:
Diagonals:
Horizontals:
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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:
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* 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):
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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
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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:
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Gravity load factor:
Dynamic response effects included (method):
Deterministic effective leg drag area (C
d
D):
Deterministic effective leg inertia volume (C
m
D
2
):
Stochastic effective leg drag area (C
d
D):
Stochastic effective leg inertia volume (C
m
D
2
):
B.11 MISCELLANEOUS
Maximum airgap above MSL:

C. MINIMUM PERFORMANCE DATA
C.1. GENERAL
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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. OPERATI ONAL CONDI TI ONS
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.
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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. SURVI VAL CONDI TI ONS
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
: mph
Maximum wave
height
: ft
Associated wave
period
: (seconds)
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Maximum surface
current velocity
: knots