Abstract

The current state of the energy industry finds both the operating and service companies squeezed by lower prices and higher costs. Investment in exploration, equipment and technology has been severely restricted. Many operators are responding to these harsh market conditions by re-engineering their work processes and focusing on core business activities.

Re-engineered work processes encourage operators and service companies to work closely together. This motivates both parties to eliminate duplication, simplify processes, increase efficiency and capitalize on combined expertise to enhance production and optimizing total system cost.

Alliances and partnering are based on mutual trust and the commitment to add value to both organizations. Aligning interests is fundamental in establishing a lasting and mutually beneficial relationship.

This paper presents an overview of these new relationships. The benefits and concerns of changing from traditional bidding agreements to new business arrangements between producing companies and service companies is discussed.

Evaluation criteria for potential candidates, how to structure an alliance or partnering agreement and a discussion of the key issues in the application of incentive contracts is presented.