Offshore oil service contracts new incentive schemes to promote drilling efficiency

Shortages of rigs and personnel have encouraged creativity in designing incentive contracts in the drilling sector. In particular for oil service contracts, since those companies have the most direct control of drilling efficiency. A large variety of contract types are in use, including within the individual oil company. This article describes and analyses the compensation formats utilised in offshore oil service contracts. Changes in contract format pose a number of relevant questions relating to resource management, and the article takes an in-depth look at some of these. Do new incentive elements for drilling promote effective utilisation of scarce rig capacity at an aggregate level, or do they primarily represent a zero-sum game? How will a stronger focus on efficiency influence reservoir utilisation? How do the new compensation formats influence the development of costs in the industry?