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Bidding process for rigs - HES and economy

During the period 30 April - 15 September 2003, the Norwegian Petroleum Directorate conducted an audit activity of Total E&P Norge a.s. This activity is a continuation of an assessment project focusing on the balance between HES and economy in rig contracts.

The audit was conducted in the form of a review of specified documentation and presentations relating to Total E&P Norge's (TOTAL) hiring of rigs to drill two wells on Skirne Byggve.

The NPD's audit has focused on issues including:

  • The information provided to potential bidders in connection with the invitation to tender; what guidelines are laid down in the invitation to tender?
  • Which procedure/process forms the basis for rig acquisition?
  • What criteria are used to evaluate alternative rigs?
  • What methodology is used as a basis for the evaluation, how are trade-offs between different criteria operationalized?
  • How is the rig contract formulated, with primary focus on economic incentives and potential trade-offs between economy and HES?

In the beginning, TOTAL evaluated eight interesting rigs.

The company has given an account of the assessments made during the selection process in both documentation and presentation form, as well as in relation to how the final rig contract was formulated.

The methodology used by TOTAL largely concurs with what the NPD is familiar with from other rig acquisition processes.

The ranking was conducted in several phases, with ranking based on both technical and safety requirements, in addition to a ranking based on economic criteria.

These two rankings were then used to prepare an overall ranking. The formulation of the contract itself also largely corresponds with what the NPD is familiar with from other rig acquisition processes.

Key issues have been the specification of day rates, the wording of repair and maintenance clauses, the framing of potential incentive schemes and allocation of financial risk.

Based on the available documentation, as well as feedback from TOTAL at the meeting of 12 June 2003 and in the letter dated 5 September 2003, the audit has not uncovered any questionable aspects related to the rig acquisition process for Skirne Byggve.

However, it appears that the initial technical assessment ("Technical short listing process") could be improved to prevent interesting rigs from being excluded early on, when a more thorough assessment would document that these rigs comply with strict safety requirements.

">The NPD's follow-up

Contact person in the NPD: Eldbjørg Vaage Melberg