Legal Definitions - footage drilling contract

A footage drilling contract is a specific type of agreement used in the drilling industry where a contractor is compensated based on the linear depth they drill, typically measured in feet or meters. Under this contract, the drilling company receives a predetermined rate for each unit of depth successfully drilled, rather than being paid for the time spent on the job (a "day rate") or a fixed price for the entire project regardless of depth (a "turnkey contract"). This payment structure incentivizes the drilling contractor to operate efficiently and reach the required depth promptly, as their earnings are directly tied to the physical progress made in drilling.

Here are some examples illustrating how a footage drilling contract might be applied:

• Oil and Gas Exploration: An independent oil company, "Desert Sands Exploration," wants to drill several exploratory wells in a promising new field. They enter into a footage drilling contract with "Deep Rock Drilling Services." The contract specifies that Deep Rock Drilling Services will be paid $85 per foot drilled for each well, up to a maximum depth of 12,000 feet. If Deep Rock successfully drills a well to 10,000 feet, they will receive $850,000, regardless of whether it took them 40 days or 50 days to complete that specific well. This arrangement motivates Deep Rock to drill efficiently to maximize their earnings per well.

  This illustrates a footage drilling contract because the payment to Deep Rock Drilling Services is directly calculated based on the total depth (footage) achieved in drilling the wells, not on the duration of the drilling operation.

• Geothermal Energy Development: "GeoPower Solutions," a company developing a new geothermal power plant, needs to drill multiple production wells to access underground heat. They hire "Thermal Drillers Inc." under a footage drilling contract. The agreement states that Thermal Drillers Inc. will receive $150 per foot for drilling each well to an average depth of 7,500 feet. This payment model encourages Thermal Drillers to employ the most effective techniques to reach the required depths where the geothermal resources are located, as their compensation is tied directly to the linear progress of each well.

  Here, the contract is a footage drilling contract because Thermal Drillers Inc.'s compensation is determined by the depth (footage) of the wells they successfully drill for the geothermal project, providing a clear incentive for depth-based performance.

• Municipal Water Supply: A growing city, "Clearwater Municipality," needs to drill several new municipal water wells to meet increasing demand. They contract with "AquaDrill Services" using a footage drilling contract. The terms specify that AquaDrill Services will be paid $40 per foot for each water well drilled, up to a maximum depth of 1,000 feet per well. This ensures that AquaDrill is compensated for the actual depth of the water wells they successfully complete, providing a predictable cost structure for the municipality based on the amount of drilling performed.

  This example demonstrates a footage drilling contract because AquaDrill Services' payment is directly linked to the linear depth (footage) of the water wells they drill, aligning their compensation with the physical output of their drilling efforts.