Page 93 - Hydrocarbon Exploration and Production Second Edition

80 Costs and Contracts

The actual costs of a well show considerable variations and are dependent on
a number of factors, for example

type of well (exploration, appraisal, development)
well trajectory (vertical, deviated, horizontal, multilateral)
total depth
subsurface environment (temperatures, pressures, corrosiveness of fluids)
type and rating of rig
type of operation (land, marine)
infrastructure available, transport and logistics
climate and geography (tropical, arctic, remoteness of location).

4.8.1. Contracts

Most companies hire a drilling contractor to supply equipment and manpower
rather than having their own rigs and crews. The reasons for this are threefold:

a considerable investment is required to build/buy a rig
rig and crew need to be maintained and paid regardless of the operational
requirements and activities of the company
drilling contractors can usually operate more cheaply and efficiently than a
company which carries out drilling operations as a non-core activity.
Before a contract is awarded a tender procedure is usually carried out (very
different from the tender described earlier!). Thus, a number of suitable companies
are invited to bid for a specified amount of work. Bids will be evaluated based on
price, rig specifications and the past performance of the contractor, with particular
attention to their safety record. Several types of contract are used.

4.8.1.1. Turnkey contract
This type of contract requires the operator to pay a fixed amount to the contractor
upon completion of the well, whilst the contractor furnishes all the material and
labour and handles the drilling operations independently. The difficulty with this
approach is to ensure that a ‘quality well’ is delivered to the company since the
drilling contractor will want to drill as quickly and cheaply as possible. The
contractor therefore should guarantee an agreed measurable quality standard for
each well. The guarantee should specify remedial actions which will be
implemented should a substandard well be delivered.

4.8.1.2. Footage contract
The contractor is paid per foot drilled. Whilst this will provide an incentive to
‘make hole’ quickly, the same risks are involved as in the turnkey contract. Footage
contracts are often used for the section above the prospective reservoir where hole
conditions are less crucial from an evaluation or production point of view.