Geothermal Drilling Contracts - Scope of the Work, Risk and Cost Factors

Abstract

The complexity of planning and starting a drilling operation is very often underestimated. This also applies for the cost budgeting, mainly for green field projects in remote areas. Drilling a deep geothermal well requires not only experienced drilling contractor but also a number of specialized service companies, and material supply companies. While the drilling contractor supply the main equipment, the rig itself, crew and associated equipment, then a number of other service companies are involved, such as mud, cementing, logging and directional drilling specialists. All of this needs procurement and logistic coordination and management in order to prevent expensive waiting time. By using one “lead contract” or an “integrated contract” then the owner will simplify the whole project management, gathering most of the responsibility and coordination on the shoulder of one drilling contractor. This will further ensure efficient execution of technical and operational objectives, leading to reduced cost. Variations in an integrated drilling service contracts, which goes away from the traditional scope and risk factors does occur, which are mainly due to bargaining power over drilling contractors. Such deviations may involve increased risk and responsibility usually taken by the developer but now transferred to the drilling contractor. Example of this, is the transfer of geological risk to the drilling contractor, which may cause financial loss. In recent drilling tenders, now owners are asking for additional scope of work and risk, which has very little to do with drilling technology or operation. This is various civil works which is needed prior to the start of a drilling project, such as water supply, installation of camps, fencing and security service, and even permitting and licenses for the operation. It can be debated if the various deviations requested by the owners in recent tenders will lead to less expensive operations.