Key takeaways
- In oil and gas, contracting should be treated as a strategic lever for improving execution, aligning incentives, and creating repeatable performance across the portfolio.
- The next wave of value creation within the industry will come less from record-setting wells and more from reducing variability across everyday operations.
- Performance-based models only work at scale when baselines, key performance indicators (KPIs), validation methods, and dispute mechanisms are clearly defined upfront.
- Digital operations solutions and integrated services have an important role to play in new contracting models by helping define baselines, track progress, validate results, and identify where value is being created or lost.
When it comes to engineering excellence, there are few industries that can match oil and gas. Across the upstream sector, operators and oilfield service (OFS) providers have time and time again proven the ability to deliver incremental improvements in well delivery times, production rates, emissions avoidance, and more.
Too often, however, exceptional performance remains tied to a specific well, project, team, or asset. The industry regularly celebrates record-setting operations, and those achievements deserve recognition. But they’re only the visible successes—the tip of the iceberg, so to speak. And like an iceberg, beneath the surface lies a much larger body of work marked by delayed wells, over-budget projects, and methods that struggled to move beyond the pilot phase.
This gap is rarely caused by technical incompetency. More frequently, it reflects structural constraints, misaligned incentives, and contractual models that reward inputs rather than outcomes. Knowledge remains embedded in individuals rather than systems.
This is an issue the industry (collectively) needs to prioritize and address. Commercial models must evolve alongside technology and digitalization. Contracts need to encourage collaboration, shared accountability, continuous improvement, and measurable outcomes rather than simply defining scope, inputs, and rates.
The goal is to lift the entire performance distribution by reducing variability, improving predictability, shortening learning cycles, and turning exceptional projects into contractual defaults.
The first steps in evolving contract models across the industry
Traditional oilfield contracts historically were built around time, equipment, and materials. These structures were effective for controlling scope and cost, but they did little to encourage innovation, efficiency, or long-term performance improvement.
In response, the industry began adopting performance-based contracts—linking compensation to measurable outcomes such as drilling speed, equipment uptime, or reductions in nonproductive (NPT) time. The shift represented important progress, but it also introduced a new limitation.
Performance-based models often create strong early incentives, especially when there’s clear room to improve. However, as operations become more efficient and campaigns approach technical limits, each incremental gain becomes harder to achieve.
The benchmark is reset well after well, targets become more difficult to exceed, and the value available through bonus mechanisms begins to erode. In some cases, suppliers may even bid aggressively on the expectation of upside, only to lose motivation or margin as the performance gap narrows.
This is why the next stage of contract evolution cannot be based only on pushing performance higher. It must also reward the ability to sustain and repeat top-tier outcomes over time. Reaching a certain level of performance in one campaign doesn’t guarantee that the same result will be achieved in the next, particularly if work is retendered, suppliers change, or high-performing teams are disbanded and redeployed.
For example, instead of focusing only on whether the next well is faster than the last, contracts can measure how many wells are delivered in less than a defined number of days, with that threshold representing the operator’s baseline for top-level performance.
This changes the incentive structure. It encourages suppliers and operators to make decisions that preserve performance over the long term, such as retaining stable teams, standardizing workflows, improving knowledge transfer, and investing in repeatable execution rather than short-term optimization.
Why peak success has (so far) failed to become the norm
The reason exceptional performance doesn’t always scale is rarely an issue of technical competency. More often, the obstacle is hidden in the operating and commercial model.
Teams may collaborate effectively on a high-priority project because leadership attention is intense, resources are concentrated, and everyone understands the importance of success. But once the model is applied more broadly, the underlying incentives begin to matter more.
If a supplier is rewarded primarily for utilization while the operator is trying to reduce well cycle time, improve uptime, or lower total cost, the system is misaligned from the start. Even when both parties want better performance, the contract may quietly reward behaviors that work against the desired outcome.
Traditional contract structures can also freeze innovation. Agreements built around fixed scopes, rigid deliverables, and change-order mechanisms often make it difficult to adapt as new information becomes available. This rigidity can discourage experimentation, cross-vendor coordination, and continuous improvement, especially in dynamic operating environments. The result is a system where innovation exists during a pilot but is difficult to sustain once work moves into standard execution.
Measurement is another limiting factor.
Procurement and commercial teams are right to ask hard questions before embracing performance-based or outcome-based models: How is the baseline defined? How do both parties avoid paying twice for the same improvement? What is auditable, transparent, and dispute-proof?
These are often viewed as objections to innovation when, in reality, they’re practical requirements for scale. After all, if the industry wants to make new contract models repeatable, it must also make value measurable.
The backbone of scalable contracting is digitalization
Scalable contracting requires going beyond trust and intent. It depends on consistent data capture, transparent KPI logic, shared visibility, and robust governance.
Critically, it’s enabled by a combination of digital operations solutions and integrated services. These solutions and services isn’t to simply replicate successful practices, but to accelerate performance improvements by standardizing workflows, automating processes, and facilitating real-time collaboration across stakeholders.
Digitalization enables lessons learned from one project to be systematically captured and transferred to the next. Without a digital backbone, each contract risks becoming a bespoke negotiation. With it, operators can standardize operational workflows and commercial structures, driving both replication and acceleration of improvements.
Ultimately, digital standardization is a prerequisite for commercial standardization. When workflows, data models, and performance metrics are unified, outcome-based agreements become easier to compare, audit, and replicate, thereby enabling scalable value creation.
Smart contract mechanisms may also be beneficial in certain cases, particularly in capital-intensive projects (e.g., those offshore) and high-volume, repeatable ones. These are automated digital agreements that execute predefined actions when specific conditions are met.
While smart contracts can be implemented through a multitude of digital platforms, the term often refers to contracts built on blockchain technology where rules, milestones, and documentation are coded into a decentralized ledger. Blockchain provides a secure, transparent, and immutable record, making it a top candidate for automating milestone-based payments, audit trails, quality assurance, and dispute resolution in complex supply chains.
In other words, smart contracts effectively streamline contract execution by ensuring that all parties have access to the same version of operational truth, reducing administrative friction and increasing transparency. When positioned correctly, they can be powerful tool for contract management, performance monitoring, and operational scaling.
Enhanced oil recovery (EOR) is a relatively straightforward example of a service that can be structured as a smart contract. In such cases, compensation can be automatically tied to verified production outcomes, such as incremental barrels recovered, reservoir performance targets, or reductions in water and chemical usage.
By integrating real-time field data from sensors, production systems, and digitalized oilfield operations, the smart contract could automatically validate performance milestones and trigger payments, creating greater transparency, faster settlement, and stronger alignment around measurable value creation between the operator and the OFS provider.
Offshore as a proving ground for scalable models
Offshore developments provide a useful lens for understanding why contracting models matter. These projects are technically complex, capital intensive, and highly dependent on coordination across many disciplines, suppliers, and execution phases. The cost of misalignment is also high, and the value of repeatability is significant.
Integrated service models in offshore basins show how the industry can move toward more scalable execution. When large programs are structured around standardized delivery systems, fewer interfaces, and clearer accountability, the opportunity shifts from improving one well or one campaign to creating a repeatable operating model that can be applied across a broader portfolio.
Recent deepwater developments also point in this direction. Operators are increasingly selecting integrated drilling and well service models to streamline execution, improve coordination, and strengthen operational performance. Why? Because they create a delivery system where workflows, digital tools, performance metrics, and commercial incentives are more closely aligned and, therefore, more easily replicated.
Collaborative and alliance-style contracting also has its roots in offshore oil and gas (e.g., the North Sea). These approaches can be highly effective, particularly in mature assets or stable portfolios, but their bespoke nature often limits how easily they can be replicated across a complex, multi-country footprint.
A practical blueprint for scaling value
For alternative contract models to create lasting value, they need to be designed with scalability in mind from the beginning. The objective shouldn’t be to craft one perfect agreement for one exceptional project. It should be to create reusable structures that can be adapted, repeated, and improved over time.
There are several practical steps organizations can take to achieve this goal:
- Challenge the status quo and embrace new, digital ways of working—Tracking KPIs is just one aspect of transitioning to repeatable, high-performance operations. Organizations must embrace digitalization not only for contract management but also for scaling operational solutions. This means deploying digital solutions and integrated services that enable standardization, automation, and knowledge transfer across assets. By challenging legacy practices and leveraging digital capabilities, operators can transform isolated contracting experiments into a scalable system for continuous value creation.
- Go beyond defining KPIs to standardizing how outcomes are measured—Defining KPIs like well delivery time, nonproductive time (NPT), equipment uptime, mean time between failures (MTBF), cost per section, production uplift against baseline, and other metrics tied directly to business value is common practice across the industry. What's less common, however, is standardizing how these outcomes are measured. This requires both a defined governance framework (i.e., digital backbone) and the deployment of digital operations tools to collect relevant data. The more automated the data collection process is, the more data is received, and the better operators can develop the kind of well-governed assessments and systems that not only help to analyze performance and make payments, but also replicate the most successful combinations.
- Choose the right contract archetype for the operating context—Where uncertainty is low and deliverables are clear, a conventional contract with performance add-ons may be sufficient. Where integration complexity is high, an integrated services model or alliance-style structure may be more effective. Where procurement friction spans multiple tiers of suppliers, smart contract automation can help improve transparency and execution discipline.
- Align incentives while adding appropriate guardrails— Aligning incentives across standardized outcome measures and digital operations should be a priority to avoid disconnects in contract incentives versus actual performance. Shared upside can encourage innovation, while shared downside can create accountability. But these mechanisms must be carefully designed to avoid unintended behaviors. Gainshare and painshare models need caps, antigaming provisions, clear baselines, and continuous improvement mechanisms so that innovation is encouraged rather than penalized.
From exceptional projects to contractual defaults
Alternative contract models supported by digital platforms and clear governance provide a pathway for the oil and gas industry to consistently replicate isolated success stories by aligning incentives, reducing interface loss, capturing learning, and turning operational improvement into a scalable system.
The way I see it, the future of value creation won’t be defined only by the best well, the best project, or the best-performing team. It will be defined by the ability to make outcomes repeatable across the portfolio.
The companies that succeed will be those that treat the contracting model for what it truly is: a strategic lever for performance rather than an administrative step.
