Non-productive time vs Net-present value.
As Engineers, it’s drummed into us from the beginning of our careers that cost efficiency is a critical factor in any successful well construction project.
The way we typically manage this is to focus on elimination of non-productive time (NPT) through detailed planning and risk management. We need to have structured processes to monitor operations, consistently apply practises which lead to improvement and reject those which don’t.
In a development drilling project, we must be aware of the factors which affect project net present value (NPV), the metric with which the economists and management teams use to gauge the value of a particular project to the overall business. Some of these factors can’t be controlled easily (for example oil price), whiles others can (for example development drilling costs).
The fact is, not all of these factors affect the result to the same extent. In general terms a 10% decrease in drilling cost is unlikely to move the value ‘needle’ in the same way that a 10% decrease in time to first oil would.
This is where the question of ‘looking for the value’ really kicks in. If you view the situation from this bigger picture ‘value’ perspective, the increase in costs due to drilling inefficiency is likely to be insignificant, in comparison to the real effects on project value due to delayed or lost production. The point here is that when we spend our time and money understanding, managing and mitigating risks, what we are actually doing is safe-guarding the project’s value.
In these terms, the investments we make in planning and people are hugely leveraged towards improved project NPV. By their nature, ERD or complex wells tend to fall into the expensive and high impact category. An ERD well targeting stranded reserves, for example, may exhibit marginal project economics, necessitating tight control over operations. In this case, the Operator must invest wisely in those services which are likely to preserve or improve value.
Merlin ERD focuses on NPV and has been involved in a number of projects where the additional engineering and operational assurance provided by a specialist has had beneficial effects on the value ‘needle’ for the Operator.