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Drilling contracts and incentives

  • Osmundsen, Petter
  • Sørenes, Terje
  • Toft, Anders

Shortages of rigs and personnel have encouraged discussion of designing incentive contracts in the drilling sector. However, for the drilling contracts, there are not a large variety of contract types in use. This article describes and analyses incentives for drilling contractors. These are directly represented by the compensation formats utilised in the present and in the consecutive drilling contracts. Indirectly, incentives are also provided by the evaluation criteria that oil companies use for awarding drilling assignments. Changes in contract format pose a number of relevant questions relating to resource management, and the article takes an in-depth look at some of these. Do evaluation criteria for awarding drilling assignments encourage the development of new technology and solutions? How will a stronger focus on drilling efficiency influence reservoir utilisation?

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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 36 (2008)
Issue (Month): 8 (August)
Pages: 3128-3134

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Handle: RePEc:eee:enepol:v:36:y:2008:i:8:p:3128-3134
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  1. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
  2. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  3. Osmundsen, Petter & Toft, Anders & Agnar Dragvik, Kjell, 2006. "Design of drilling contracts--Economic incentives and safety issues," Energy Policy, Elsevier, vol. 34(15), pages 2324-2329, October.
  4. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
  5. Mohn, Klaus & Osmundsen, Petter, 2008. "Exploration economics in a regulated petroleum province: The case of the Norwegian Continental Shelf," Energy Economics, Elsevier, vol. 30(2), pages 303-320, March.
  6. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, June.
  7. Kenneth S. Corts, 2004. "The Effect of Repeated Interaction on Contract Choice: Evidence from Offshore Drilling," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 230-260, April.
  8. Osmundsen, Petter & Sørenes, Terje & Toft , Anders, 2009. "Oil Service Contracts - New Incentive Schemes to Promote Drilling Efficiency," UiS Working Papers in Economics and Finance 2009/7, University of Stavanger.
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