Change in Contracting Strategy Saves $3.75 million in 6 months
Change also drives cooperative approach to failure analysis, identifies quality issues and drives ESP equipment specification improvements.
Problem
An operator was using ESPs to de-liquify a gas shale play, the wells required ESPs to produce the liquid volume for 300-600 days. However the ESP failure rate was colossal, 46% of all the ESPs installed, failed in less than 90 days, the average runlife of failed ESPs was 126 days. Every failed ESP cost the operator $250,000 to replace, just for a replacement ESP (rig cost and loss production is additional).
What we did
We performed a historical review of the ESP failures. Most of the failures had been attributed to ‘well conditions’. Changing fluid rates, increasing gas volumes, temperature and occasional issues with scale are factors that make the operating environment difficult; we did not view these ‘well conditions’ as the cause of failures.
We performed expert witness inspection of 73 failed systems and audits of the equipment providers operations identified that the majority of failures were due to equipment quality issues, poor handling during transportation, installation snafus or improper setup of the protection system for the ESP.
We challenged the equipment provider to work with us to improve runlife, as part of this we worked with them to switch from a direct purchase contract to a ‘skin in the game’ contract model. The equipment provider now receives no payment for the equipment of the equipment fails prior to 90 days, thereafter, if the equipment reaches target runlife, 110% of the cost of the equipment is paid and the supplier receives an on-going payment per month of additional runlife.
Results
Attention was brought to specific quality and reliability issues, errors were reduced and or eliminated and downtime was reduced. A standardized ‘fit for purpose’ equipment specification was identified and held in stock. A basis for pursuing warranty claims on previous failed equipment was established. ESP failures in less than 90 days under the new contracting model provided an immediate benefit to the operator of $3.5 million.
Cost Benefit Analysis
- Spend = $525,529
- Value = $3.75 million saving in less than 6 months
“Things are still not perfect, but after this work, we’re a whole lot better than we were six months ago, the new contract model saved us a lot of money and I believe we will see further benefit with time due to the quality improvements.” – Operations Team Leader, California, USA