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Whether independent or major, an operator must acquire the right to drill for and produce
petroleum at a particular site. An operating company does not usually own the land or the minerals
(oil and gas are minerals) lying under the land. It therefore has to buy or lease the rights to drill for
and produce oil and gas from the landowner and the mineral holder. Individuals, partnerships,
corporations, or a federal, state, or local government can own land and mineral rights. The operator
not only pays the landowner a fee for leasing, it also pays the mineral holder a royalty, which is a
share of the money made from the sale of oil or gas.
DRILLING CONTRACTORS
Drilling is a unique undertaking that requires experienced personnel and special equipment.
Most operating companies therefore find it more cost effective to hire expertise and equipment from
drilling companies than to keep the personnel and equipment under their own roof. So, almost
everywhere in the world, drilling contractors do the drilling.
A drilling contractor is an individual or a company that owns from one to dozens of drilling
rigs. The contractor hires out a rig and the personnel needed to run it to any operator who wishes to
pay to have a well drilled. Some contractors are land contractors – they operate only land rigs.
Others are offshore contractors – they operate only offshore rigs. A few contractors operate rigs that
drill both on land and offshore. The contractor may have different sizes of rigs that can drill to
various depths. A drilling contracting company may be small or large; it may own rigs that drill
mainly in a local area or it may have rigs working all over the world.
Regardless of its size, a drilling company's job is to drill holes. It must drill holes to the
depth and specifications set by the operating company, who is also the well owner. An operating
company usually invites several contractors to bid on a job. Often, the operator awards the contract
to the lowest bidder, but not always. Sometimes a good work record may override a low bid.

DRILLINC CONTRACTS
The operator usually sends a proposal to several drilling contractors. The proposal describes
the drilling project and requests a bid. The contractor then fills out the proposal, signs it, and sends
it back to the operator. If the operating company accepts the bid, it becomes a contract between the
operator and the drilling company. This signed agreement clearly states the services and supplies
the contractor and the operator are to provide for a particular project.
The International Association of Drilling Contractors (IADC) supplies popular contract
forms. IADC is an organization whose membership is made up of drilling contractors, oil
companies, and service and supply companies with an interest in drilling. Headquartered in
Houston, Texas, and with offices throughout the world, IADC provides many services to its
members, not only in the U.S., but also in other parts of the globe. Its mission is "to promote a
commitment to safety, to preservation of the environment, and to advances in drilling technology."
Contractors are paid for the work their rig and crews do in several ways. Operators can pay
contractors based on the daily costs of operating the rig, the number of feet or metres drilled, or on a
turnkey basis. If the contractor is paid according to the daily costs of operating the rig, it's a
daywork contract. If the contract calls for the contractor to be paid by the number of feet or metres
drilled, it's a footage or metreagecontract. And, as you can guess, if it's a turnkey job, then the
operator and contractor sign a turnkey contract, in which the drilling contractor is responsible for
the entire drilling operation. Daywork contracts are the most common.

SERVICE AND SUPPLY COMPANIES
The operating company owns the well and usually hires a drilling contractor to drill it. But
to successfully drill a well, the operator and the contractor need equipment, supplies, and services
that neither company normally keeps on hand. So, service and supply companies provide the
required tools and services to expedite the drilling of the well. Supply companies sell expendable
and nonexpendable equipment and material to the operator and the drilling contractor. Expendable
items include drill bits, fuel, lubricants, and drilling mud – items that are used up or worn out as the
well is drilled. Nonexpendable items include drill pipe, fire extinguishers, and equipment that may

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