Page 167 - Geothermal Energy Systems Exploration, Development, and Utilization

3.6 Drilling a Well 143
3.6.1.2 Meter-contract
With a meter-contract normally, a fee for each meter drilled is to be paid to the
contractor by the operator. Because the drilling progress is not constant for the
total length of a well it is common to fix the meter-fee either for the different hole
sections or to fix it for different formations to be drilled.
This contract type can be negotiated either with or without organization and
delivery of material and services by the contractor; however, it should be clear
that all services and materials which can affect the drilling progress (ROP) will be
decided (and supplied) by the contractor.
It is common that all nondrilling related work will be done on an hourly
based fee.

3.6.1.3 Time-based Contract
In this contract type all contractor work is paid for by the operator on a daily or
hourly based fee which normally does not include any material, services, or energy.
Typically, all responsibility – except drilling the contractor’s responsibility for his
equipment – is on the operator. The contractor works on operator’s direct order.
Therefore with this contract type the operator must have detailed knowledge of
all necessary work related to drill and completion of a well; he also has to supply
all materials, services, and energy and has to take care of proper organization of all
work.
This contract type is standard in the oil and gas industry and may end with the
lowest cost for a drilling project; however, it requires experienced personnel with
the operator to plan and manage the project.
Because all risks are to be with the operator a certain ‘‘contingency’’ budget is
mandatory.

3.6.1.4 Incentive Contract
An incentive contract is not a contract form on its own. Incentive elements can
be part of any type of contract typically in time-based contracts. With an incentive
contract, a kind of ‘‘bonus/malus’’ will be agreed on. Normally, this type of contract
is used in a ‘‘team’’ approach to a drilling project, where the ‘‘team’’ consists of
operator, drilling contractor and some service companies with high influence on
progress (e.g., directional drilling service, drill bit manufacturer/trader, and drill
mud service). Together, a ‘‘base case’’ for the project is decided in terms of time
and cost, and a ‘‘key’’ in terms of how payment will change if performance is better
(bonus) or worse (malus) compared to the base case.
The main problem may be the calculation and agreement of the base case,
because the operator on one side is interested in lowest cost/highest performance
while all contractors will try to be on the ‘‘safe side’’ and calculate more time/lower
performance. So, a compromise has to be found.
This contract type offers a kind of risk sharing, but needs drilling experienced
personnel with the operator.