Legal Definitions - support agreement

A support agreement, within the oil and gas industry, is a contractual arrangement between two or more companies designed to promote exploratory drilling operations. Under this agreement, one company (the contributing party) provides financial assistance, property, or services to another company (the receiving party) that holds leases and plans to drill an exploratory well. In return for this contribution, the contributing party receives valuable geological and technical data gathered from the drilling of the well.

Essentially, a support agreement allows companies to acquire crucial subsurface information about a particular area without directly incurring all the costs and risks associated with drilling an exploratory well themselves. For the company receiving the support, the contribution helps reduce the financial burden or operational risk of their drilling project.

Here are a few examples illustrating how a support agreement might work:

• Example 1: Financial Contribution for Data

  Situation: "GeoProspectors Inc." owns several undeveloped leases in a promising but unproven basin. "DeepRock Energy," a larger company, is interested in the long-term potential of this basin but wants to gather more data before committing to its own drilling program. DeepRock Energy enters into a support agreement with GeoProspectors Inc.

  Application: DeepRock Energy agrees to provide GeoProspectors Inc. with $750,000 to help fund the drilling of an exploratory well on one of GeoProspectors' leases. In exchange, GeoProspectors Inc. commits to sharing all geological logs, seismic data interpretations, and core sample analyses from the drilled well with DeepRock Energy. This allows DeepRock Energy to obtain critical subsurface information to evaluate future drilling prospects in the region without undertaking the full cost and risk of drilling the initial well itself, while GeoProspectors Inc. significantly reduces its drilling expenses.

• Example 2: Equipment and Services Contribution

  Situation: "Frontier Drilling Co." has secured leases in a remote area and plans to drill a challenging deep well. "Specialty Logging Services," a company that develops advanced well logging tools and techniques, wants to test its new proprietary sensor technology in a real-world, complex geological environment. They enter into a support agreement.

  Application: Specialty Logging Services agrees to provide Frontier Drilling Co. with its cutting-edge logging tools and a team of expert technicians to operate them, free of charge, for the duration of the drilling and evaluation phase. In return, Frontier Drilling Co. agrees to provide Specialty Logging Services with all raw and processed data collected by the specialized tools, as well as general well performance data and geological reports. This arrangement benefits Specialty Logging Services by providing invaluable field testing data for their new technology and access to geological information, while Frontier Drilling Co. saves substantial costs on specialized equipment rental and personnel.

• Example 3: Acreage Contribution for Information

  Situation: "Prairie Lands Exploration" holds a large block of undeveloped acreage adjacent to a smaller lease held by "Basin Ventures." Basin Ventures has identified a high-potential prospect on its lease and plans to drill an exploratory well. Prairie Lands Exploration is keen to understand the subsurface potential of the area but doesn't want to drill its own well yet. They form a support agreement.

  Application: Prairie Lands Exploration agrees to assign a portion of its undeveloped acreage, immediately adjacent to Basin Ventures' proposed well site, to Basin Ventures. In exchange for this acreage, Basin Ventures commits to sharing all geological, drilling, and production test data from the well it drills. This allows Prairie Lands Exploration to gain crucial insights into the geological characteristics and hydrocarbon potential of its own nearby acreage, helping it make informed decisions about future exploration and development, without having to bear the direct costs of drilling. Basin Ventures benefits by expanding its leasehold in a potentially productive area, effectively reducing its overall cost per acre for the project.