New Type of Drilling Contract Minimizes Well Costs by Guaranteeing Performance (includes associated paper 18724 )

Abstract

Most current drilling contracts are either (1) daywork, where the operator assumes all risks; (2) turnkey, where the contractor assumes all risks; or (3) footage, where the operator assumes most risks and the contractor is paid on the basis of the length of hole drilled. In a new type of contract, ''shared risk,'' each party assumes the risk it is best qualified to accept. The operator assumes the risk of geology, location-dependent factors, and weather, while the contractor assumes the risk of drilling performance. The shared-risk drilling contract provides a tangible incentive for the contractor to provide better-than-average performance, while the operator is allowed to retain full control over the parameters that result in a well drilled to desired specifications at the lowest possible cost.