The turnkey drilling business offers world class expertise to its customers. For many operators, it fills an important niche - for the turnkey providers, it's definitely not for the faint of heart.

The oil industry is truly unique. Where else can an operator hire an experienced, savvy management team to happily shoulder one of its most risky chores - drilling the wells that will ultimately make or break their company? It's almost like the Boeing Corporation saying to a prospective supplier, "We'll build our planes in our factory, but we want you guys to come in and bolt the wings on." But that's the sort of thing turnkey drillers do for a living. And the experience they have gained drilling hundreds of wells around the world helps mitigate the risk in a big way.

Turnkey contracts exist in many industries and the concept is universally understood. Often they are so commonplace that the market takes them for granted. The drilling industry is no exception. Still, my antenna zeroed-in on the subject recently, and I thought I'd dig a bit to see what's new.

One thing isn't new. Turkey drilling is now, and has always been, fixed price drilling. For a price known well in advance, operators can get someone else to accept all the drilling risk. Deliverables are described in the turnkey agreement, and can range from a bare bones drilled, cased and cemented borehole to a completed operating well, including all downhole and surface completion services and equipment, even a pipeline. The turnkey contractor will provide just about everything the customer wishes with a couple of exceptions: permitting and partners are still the responsibility of the operator.

For many years the turnkey business was regional in nature. A few companies spread their wings, but most depended on relationship selling to established clients, helping to keep them close to home. The downturn, often characterized as the "debacle," of the 80s, while definitely putting the hurt on the oil and gas industry, had a serendipitous effect on the turnkey business. Almost overnight, it provided a sizeable willing cadre of experienced drilling personnel recently laid-off from their companies while at the same time it created a large market of increasingly risk-averse operators. It was a marriage made in heaven for some turnkey companies. They were able to take advantage of a worldwide pool of skilled drillers with experience from Kansas to Kalimantan, and those who did so grew their businesses.

But they had to overcome a "bad rep," probably undeserved, that turnkey was synonymous with cheap. In oilfield watering holes, turnkey was perceived as a "slam it down, any old way" approach to drilling. If this was ever the case, it certainly isn't any more. Savvy turnkey drillers know they can deliver a superior product to their clients by taking advantage of modern well drilling technology and new drilling techniques. At the same time, efficiencies afforded by these new methods bring more profits to the bottom line. It's elementary - if you are delivering at a fixed price, the only way you can profit is by doing things as efficiently (not cheaply) as possible.

By choosing services that contribute to reducing the total cost of operations, the turnkey contractor brings true value to the process. Specifically, these services mostly purport to reduce or remove NPT (non-productive time) from the drilling curve. Bits that can drill well sections shoe-to-shoe, drilling fluids that prevent influxes while, at the same time, boosting the rate of penetration (ROP), and reliable rotary steerable systems that help optimize well trajectory are but a few of the new technologies available to improve efficiency without jeopardizing well quality.

Perusing the 2002 Annual Report of a leading turnkey contractor, one can find a laundry list of risk factors. Besides the obvious ones of demand for oil and gas and market price, are rig availability, geopolitical climate and local instabilities. Overseas operations pose numerous additional risks dealing with foreign exchange, taxation, expropriation of assets, contract nullification, inability to convert currencies, labor unrest, even terrorist acts. And anyone knows that merely drilling a well can be risky. Still, they do it.
Why? Because they are confident in their abilities and the quality, dedication and experience of their people. They have cut through the internal red-tape that delays decision making in many companies, and have the ability to fast-track decisions that are key to providing quality service to their customers. And they know that they are only as good as their last well. It's a risky business, yes, but what worthwhile business isn't?