TYPES OF DRILLING CONTRACTS

The type of Drilling Contract

1.  TURNKEY DRILLING CONTRACT:

A type of financing arrangement (contract) for the drilling of a wellbore that places considerable

risk and potential reward on the drilling contractor. Under such an arrangement, the drilling

contractor assumes full responsibility for the well to some predetermined milestone such as the successful running of logs at the end of the well, the successful cementing of casing in the well

or even the completion of the well. Until this milestone is reached, the operator owes nothing to

the contractor. The contractor bears all risk of trouble in the well, and in extreme cases, may

have to abandon the well entirely and start over. In return for assuming such risk, the price of the

well is usually a little higher than the well would cost if relatively trouble free. Therefore, if the

contractor succeeds in drilling a trouble-free well, the fee added as contingency becomes profit.

Some operators, however, have been required by regulatory agencies to remedy problem wells,

such as blowouts, if the turnkey contractor does not.

 2. FOOTAGE DRILLING CONTRACT:

In the context of Oil & Gas law, a footage drilling contract refers to a contract in which the drilling contractor is paid to drill to a specified formation or depth. The drilling contractor is paid a set amount per foot drilled, and is given broad control over how to do the work. Under this kind of contract, the risk of unexpected delays along with other liabilities is on the contractor and not on the lease operator.

3. DAYWORK DRILLING CONTRACT: 

In relation to Oil & Gas law, a daywork drilling contract is one in which the lease operator hires a drilling rig and oilfield workers and retains the right to direct drilling operations. The lease operator pays an amount based on the time spent in drilling operations. This type of contract gives the lease operator broad control over the drilling contractor. As a result, courts impose broad liability on the lease operator for any damages caused due to the drilling.

4. COMBINATION DRILLING CONTRACT: 

The basis for payment is often combined in the final agreement. An Operator may agree to pay Footage rate to a certain depth, then pay daywork for any drilling done below that depth.