EPD (Engineering, Procurement & Drilling) … Towards new ways of organizing drilling projects

 Root of EPD is … EPC !

           

Analogously to EPC contracts, the EPD (Engineering , Procurement and Drilling) is a new type of contract to perform drilling project in order to  deliver Wells in a safe and cost effective manner while meeting Owner objectives. This including all activities around the well construction such as drilling engineering studies, well design, geology, planning, drilling technical services, procurement and drilling operations, management of drilling rig contractors and management of all services involved in drilling, completions, well testing, work-overs, abandonment or site restoration.

An EPD contract may include, non-exhaustively :

Engineering part :

  • Project Management / Risk Management
  • Front End Engineering Design (FEED)
  • Drilling engineering services
  • Drilling procurement services / Procurement Management
  • Engineering and procurement of all drilling material and equipment
  • Oil and gas fields completion engineering
  • etc.

Procurement part :

  • Civil Construction
  • Logistics
  • Transportation
  • Warehousing
  • Water well drilling and or water haulage
  • Additional specialty services as required

Drilling part :

  • Carrying out drilling oil and gas development and exploration wells both offshore and onshore
  • Supervision of offshore and onshore drilling rig operations
  • Supervision of all drilling services including : (Casing, Tubular and Completion handling (make-up and running), Cementing design & operations, Coiled tubing planning & operations, Completion preparation and running, Core handling preservation and Analysis, Coring Services, Cuttings handling & treatment, Directional Drilling, MWD/LWD, Performance motors, Drill bit selection, Drilling and Completion fluids design & operations, Drilling and Fishing Tools, DSTs, Environmental Impact Assessments, Extended well tests, Fraacing planning & operations, H2S detection, HSE services, Lo head drilling (LHD), Managed pressure drilling (MPD), Underbalanced drilling (UBD), Mud Logging, Perforation operations, Security services, Solids control services, Stimulation design & operations, Well testing, Wire line Logging, etc.).

EPD vs EPDM

Determining the correct form of drilling contract can have a great effect on the cost and risk associated to the drilling project. The cost of drilling operations varies inversely with the amount of business risk the “owner” are willing to accept.

We can define two types of drilling contacts : EPD “turn-key” and EPDM.

EPD (Engineering, Procurement and Drilling) : The company is contracted to provide engineering, procurement and drilling services by the owner. Think Design & Construct style contracts, where the project is largely Contractor managed and the cost risk and control are weighted towards the Contractor and away from the Owner. The EPD contractor has direct contracts with the drilling contractors.

EPD “turn-key” Contract Type

EPDM (Engineering, Procurement and Drilling Management) : The company is contracted to provide engineering, procurement and drilling management services. Other companies are contracted by the Owner directly to provide drilling services and they are usually managed by the EPDM contractor on the Owner’s behalf. Think Professional Services contracts, where the project is largely Owner managed and the cost risk and control is weighted towards the Owner.

EPDM Contract Type

The differences between EPD and EPDM contracts are shown in this comparative table but it does address many of the major contractual differences. The way each of these issues is handled can be modified during contract negotiations to suit the situation and overall goals of the project :

Drilling contract type impacts on staffing strategies

The type of drilling contract directly affects site staffing. Dependent on the level of risk the Owner of a project is willing to accept, budget constraints, and the Owner’s organization core competencies, will determine which method is best for their project.

EPD contracting tends to be more expensive, to the Owner, due to the shift of project risk away from the Owner and to the EPD Contractor. On average, a project’s cost ~ 20% more using EPD style of contracting than a project using the EPDM style of contracting. This is due in large part to the project’s risk being more evenly distributed between the Owner and contracts / suppliers.

We identifie four key factors that are controlled by either the EPD contractor or the “Owner” depending upon the type of EPD contract adopted. The oversight required by the Owner will vary depending upon the contract type due to different levels of risk exposure.

EPDM Advantages :

  • Lower Overall Cost
  • Staff’s Sense of Ownership
  • More Control over Process
  • Better for less defined projects with anticipated changes to scope of supply
  • Less Legal Litigation
  • Owner’s Financing Flexibility

These are just a few of the advantages of EPDM style of drilling contracting. EPD contracting has it place in the drilling activities as well. Under certain situations, it makes better sense to use this type of drilling contracting than other methods.

EPD Advantages:

  • One point of Contact
  • “Hands off” approach to project
  • Minimal Staffing Requirements
  • Minimal Legal Risk.

Conclusions

As stated before, these drilling contract methods can be tailored to the individual projects / owner’s needs. Some companies can go as far as breaking up each portion of the EPD / EPDM (Engineering, Procurement, Drilling / Drilling Management) to separate companies. One company can do the engineering; another can do the procurement, while still another can do the drilling / project management).

Each company must decide for themselves, with the advice of legal and financial counsels, as to which method of drilling contracting is best for their particular project and situation.