1. Southern WV Drilling Program – Project 9173
Green Belt Candidate: E. Michael Hines Jr.
Project Team Members: Nathan Rakestraw, Kurtis Hoffman, Heather Gifford, Lori Wright
Project Champion: Mark Wanstreet
Business Unit/Group: Dominion Resources Services/E&P Supply Chain
1. What was the defect? Drilling costs escalated significantly in 2008, which increased finding costs and
decreased profitability. Dominion Exploration & Production (“DEPI”) targeted a minimum 5% decrease in
drilling costs in 2009 to help offset increases caused in large part by fuel prices and rig demand. How can
Supply Chain reduce DEPI’s overall cost of drilling a well in 2009?
2. What was the objective of this project? Identify opportunities to reduce drilling costs in Southern WV by 5%
or more in 2009 by making process changes to the Request For Quotations (“RFQ”) process. Evaluate proposed
process changes for savings potential. Implement key process changes that can contribute to achieving stated
cost reduction goals.
3. What process was changed and/or improved and what was the result of the improvement? DEPI Supply
Chain partnered with DEPI Operations to revise the standard drilling RFQ bid process by implementing three
key process changes to the drilling RFQ model:
1. We revised the fuel cost recovery mechanism to operate both ways, i.e. using a $3.00/gal baseline, DEPI
gets a credit when fuel is below the baseline and pays a surcharge when it is above the baseline.
2. We negotiated the first 26 hours of daywork to be provided at no cost to DEPI.
3. We negotiated “1%/15 Net 30” early payment discount terms with the contractor.
With these process changes, we felt we could achieve more than 5% reduction in the total invoice cost of drilling a
well in Southern WV, measured on the basis of a standardized model (we targeted 10%). This model, the “SWV
Prototype Well,” is a model well based on 2008 SWV drilling program metrics. The 2008 SWV Prototype Well has
a total footage depth (“TD”) of 5,842’ and used 38.0 hours of daywork. Total invoice for the 2008 SWV Prototype
Well is $145,951, composed of $110,850 in footage cost, $15,960 in daywork cost and $19,141 in fuel surcharges.
To project the initial savings generated by the process change, we used the SWV Prototype Model to input 2008 and
2009 bid data and compared them. At that point, we had well metrics through 8/28/2008, and we simply plugged in
the 2009 bid data to see how the prototypes compared. The initial savings projection per well at that point was
$18,394. This confirmed that our proposed process changes had value. Then, using the first ten wells drilled in 2009
(out of a proposed 60-well program), we were able to generate metrics that confirmed that the process changes we
made in the bid process were generating savings.
Using Six Sigma tools, we confirmed our hypothesis that the savings generated by our process changes were greater
than 10% (19.63%). Utilizing Six Sigma methodologies, we were able to identify the key inputs, processes and
outputs that our client values and create actionable steps to help them achieve their objective, which was to reduce
costs by 5% or more in 2009 for the Southern WV drilling program. Through 3/10/2009, savings are nearly 20%.
4. What were the hard savings achieved by this project? Through the first ten wells, the average savings per
well is $28,651 and the total savings over ten wells (3/10/2009) is $286,509. Carried across a 60-well program,
total savings in 2009 are projected to be approximately $1,720,000.
5. Additional Comments? Project will be closed at yearend 2009, after the last well is drilled in Southern WV.
6. UPDATE – Project was closed on October 20, 2009 with final validated savings of $3,052,051.