Costs and 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  

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 

This type of contract requires the operator to pay a fixed amount to the contractor upon completion of the well, while 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. 

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. 

As the name implies the company basically rents the rig and crew on a per day basis. Usually the oil company also manages the drilling operation and has full control over the drilling process. This type of contract actually encourages the contractor to spend as much time as acceptable on location . With increased cost consciousness, day rate contracts have become less favoured by most oil companies. 

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R D efforts as a separate corporation to cut down on research costs and protect profit margins. But overall, as they now have pools of money to invest, lower labor costs, and contract research, with collaborative, regulatory, and manufacturing experience to boot, it s likely that there will be some movement in this direction by Indian generics companies. 

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