Drilling Agreement

The duration of a drilling contract can be defined by the time or by drilling a number of drilling wells. Both approaches are common for long-term drilling contracts. A combination of project and market factors moves this decision forward. Safety in risk distribution and responsibility are essential for negotiating and documenting the terms of a drilling contract. Each party needs a clear understanding of the risk it has taken in order to assess the feasibility of the contractual relationship from an operational point of view. The termination rights provisions in the event of force majeure and loss of the drilling rig must also be carefully reviewed and documented. The owner and operator of the facility generally envision a proper distribution of the risk of force majeure and sometimes agree on how this risk is distributed among them. The loss of the drilling rig often results in an immediate end and, under normal circumstances, does not constitute an offence. If an early termination is motivated by a right of comfort, clear conditions related to such termination must be well documented. Early termination is essentially a liquidation clause that generally grants the operator a right of termination before the expiry of the term. The termination of a drilling contract can pose particular problems for both the facility owner and the operator, so it is essential that the termination conditions are well understood and clearly defined.

The upstream oil and gas industry is characterized by strong and unique crops developed by operators and wage-based drilling companies. Although this is less the case today than in previous years, ego and individualism are often found in the relationship between operators and drilling operators, especially at higher levels of management. Some operators are very conservative and are willing to pay more for less problems and downtime, more security and more installation capacity. Of course, conservative drilling companies are generally best placed to cooperate with conservative operators. On the other hand, some operators are freer, “closer to cutting bones”, so to speak, and work for example on a front-end cost basis, and they work best with drilling contractors who work in the same way. The operator will solicit offers from a number of drilling companies capable of carrying out the work.