Legal Definitions - turnkey drilling contract

A turnkey drilling contract is a specific type of agreement in which a client hires a drilling contractor to complete an entire drilling project from start to finish for a predetermined, fixed price. In this arrangement, the contractor assumes full responsibility for all aspects of the operation, including planning, equipment, personnel, execution, and delivering a fully operational well or completed drilling objective.

The term "turnkey" signifies that the client receives a ready-to-use product or service—they simply "turn the key" to begin operations, without needing to manage the day-to-day drilling activities or bear the financial risk of cost overruns due to unforeseen operational challenges, provided these challenges fall within the agreed-upon scope of work.

Here are some examples illustrating a turnkey drilling contract:

• Example 1: Offshore Oil Exploration

  An independent oil exploration company wants to drill a new exploratory well in a promising offshore block. Instead of managing the complex logistics, equipment procurement, and personnel for an offshore operation themselves, they enter into a turnkey drilling contract with a specialized drilling firm. Under this contract, the drilling firm is responsible for mobilizing the drilling rig, obtaining necessary permits, drilling the well to the specified depth, conducting logging and testing, and casing and cementing the well, all for a single, agreed-upon price. The exploration company's role is primarily to monitor progress and receive the completed well, ready for potential production testing.

  How this illustrates the term: The drilling contractor takes on all the operational risks and responsibilities, delivering a complete, ready-to-evaluate well for a fixed cost, allowing the exploration company to focus on the geological results rather than the drilling process itself.

• Example 2: Geothermal Energy Project

  A renewable energy developer plans to build a new geothermal power plant and needs several production and injection wells drilled to access underground heat. They engage a drilling company under a turnkey drilling contract. The drilling company agrees to handle everything: site preparation, sourcing specialized geothermal drilling equipment, drilling the wells to specific depths and temperatures, installing downhole heat exchangers, and ensuring the wells meet the required flow rates for the power plant. The developer pays a fixed sum upon successful completion of all wells, ready for connection to the power generation system.

  How this illustrates the term: The drilling company assumes full responsibility for the entire well development process, from initial setup to delivering fully functional geothermal wells, thereby minimizing the developer's direct involvement in the drilling operations and providing cost certainty.

• Example 3: Municipal Water Supply Well

  A growing suburban municipality needs to augment its potable water supply. They decide to drill a new municipal water well. Rather than hiring separate contractors for drilling, pump installation, and connection to the water grid, they opt for a turnkey drilling contract with a water well specialist. This contractor is responsible for conducting hydrogeological surveys, obtaining drilling permits, drilling the well, installing the pump, constructing the well house, and connecting the new well to the existing municipal water distribution system. The municipality pays a single, fixed price once the well is fully operational and delivering water to the town's system.

  How this illustrates the term: The contractor provides a complete, ready-to-use water supply solution, managing all phases of the project and delivering a fully functional well system for a fixed price, simplifying the process for the municipality.