Vilhjalmur Gudmundsson, Business Development, Iceland Drilling Company. Iceland Geothermal Conference 2018 - Breaking the Barriers 24 - 27 April, 2018, Harpa, Reykjavík

1. Geothermal Drilling Contracts
Vilhjalmur Gudmundsson
Business Development
Iceland Drilling Company

2. Overview
▪ Preparing a successful drilling operation
▪ Different phases of a geothermal drilling service
▪ Different types of Contracts
▪ Risk factors
▪ Operational risk
– Responsibility, control and risk
– Employer (Owner) downhole risk
▪ Resource risk

3. Preparing a drilling operation
Phase 1: PREPARATION
Geological consulting
Surface exploration
Reservoir engineering
Well targeting
Well Design and specification
Environmental permitting process
Water supply engineering and design
Rig site pre-engineering
Phase 2: CIVIL WORK AND MATERIAL PROCUREMENT
Drilling material specification and procurement
Civil work construction
Rig site preparation and access roads
Water supply system
Phase 3: WELL DRILLING, ENGINEERING AND SUPERVISION
Hiring a drilling specialist (company man)
Preparing and submitting a tender for drilling operation
Provision of Drilling Rig, crew and equipment and other services
Rig equipment and drill pipe inspection

4. Drilling operation – Services and material
Services
1. Mobilization and rig up service
2.Drilling rig equipment and crew
3.Cementation equipment and services
4.Casing Running Services
5.Mud engineering Service
6.Directional Drilling Services
7.Aerated drilling services
8.Well Logging Services*
9.Stimulation Services – Acidizing
10.Production Tests (Pump, Cooling Units,
Data Recording)*
Material, consumables
Fuel – Diesel – Drill bits
Cement and additives materials
Tubulars, Casing & Tubing incl. Centralizer
and float equipment
Liner Hanger Equipment
Mud material, Bentonite and additives
Wellhead equipment
Acid
* Not directly involved in drilling operation
Yellow marked= fixed cost

5. Different type of Drilling Contracts
• Standard day rate contracts
• Meterage contracts
• Integrated drilling contracts, based on either Day rate or Meterage
• Turnkey contracts (only used in smaller projects and water well drilling)
• Employer decides the type of contract he prefer
• Employer decides the scope of work
• Does the employer prefer to procure the service under many
contract or one “Integrated Contract”?

6. IDC – example of services provision
Service Alterra -
HS Orka
Reykjavik
Energy
National
power LV
Sogeo
Azor
Dominica MRP
NZ
Montserrat Djibouti
Supervisionfor drilling X X X
Rig with crew X X X X X X X X
HSE X X X X X X X X
Drill bits X X X X X X
DirectionalDrilling X X X X X X
Air drillingservices X
Casing runningservice X X X X X X X X
Cementing service X X X X X X X X
Cementing materials X X X X X X
Mud engineering X X X X X X
Mud materials X X X X X X
Casing material X X X
Wellhead X X X
Fishing gear X X X X X X X
Move and rigup X X X X X X X X
Rigsite preparation
Well testing X X X
Water supply operation X X X X

7. Standard day rate drilling contracts
The responsibility of the Drilling Contractor is limited to the safe and efficient
operations of his drilling rig and crew.
Drilling rig with crew
Very often following equipment are priced separately;
✓ BOP‘s
✓ Drill string
✓ Top drive
✓ Solids Control Equipment
✓ Mud cooler (specially for geothermal projects)
Why choosing standard day rate contracts?
The employer has strong risk profile
The employer has strong management team
Green field area, little or no knowledge about the prospect to be explored

8. Meterage Drilling Contracts
• Fixed meter prices for different sections of the work
• Day rates applies when the contractor encounter difficulties down hole.
• Plug cementing
• Stuck pipe and unstable formation
• Fishing
• Well logging
• Stimulations
• Other unexpected delays is charged on Employer
• Deviations from original well design charged on Employer
• One tends to believe this type of contract will result in a cheaper drilling
cost
Why choosing meterage contracts?
• Lower risk profile for employer
• The employer has difficulties in managing the operation
• The prospect/area is well known

9. What is Integrated Drilling Solution
▪ One contractor provides multiple services under a
single contract
▪ Can be based on day rate or meterage
▪ Close to a turn key solution
▪ Flexible setup according to customer’s needs
▪ Service and fee structure can be negotiated

10. Integrated Drilling Solution - BENEFITS
Why choosing integrated contracts?
• Simple process suitable for small and/or new developers
• Instead of making 7-9 contract you can do with 2-3 contracts
• Reduced risk of onsite difficulties
• Project management become simpler and more efficient
• Centralized project team with little overhead (reduced cost)
• Increased quality of communication
• Better operational coordination
• Drilling Companies are more responsible for problem solving.
• Improved security (less people on site)

11. Responsibility and control in operation
• Responsibility matrix (scope of work)
• Operational control and risk
• If employer want to control the operation = Day rate
• If employer want less control = Meterage contracts

12. Employer‘s downhole risk
Operational risk factor
• Compare this with – civil or building construction based on a ‘blue-print’
– involves visible and tangible situations
• Downhole risk are in majority cases on employer in full (other then
Contractor negligence)
Resource risk factor
• Drilling operation involves ‘unknowns’ – based on ‘best estimates’ –
invisible and interpreted situation
RISK equals potential cost to employer if actual outcome of operation does not match planned and expected outcome
In few cases then employers have asked the contractor to share this risk.

13. Resource Risk
• The main risk:
• Is the well successful producer (or injector)
• This risk is always on employer
• Drilling contract may have clauses on certain success factors

14. Iceland Drilling rig, Sleipnir G-102
Rig operation in Dominica 2012
Drillmec G-105

15. Rig operations in Iceland
Drillmec HH-220

16. Rig operations in Germany
Bentec 350 Euro rig

17. Rig Operations in Iceland
(Bentec Euro rig)

18. Rig Operations in Iceland
Drillmec HH-300

19. Mud tank system
Drillpipe Bins
Engines
Mast
Mud pumpsMud Mixing
Drillers
cabin
Offices
Automatic
Pipehandler
Main rig components

20. Rig operations in Azores 2009
Gardner Denver

21. Rig operation in Iceland
Drillmec HH-200.S

22. Mauerstetten, Germany 2009

23. Rig operation in Noville, Switzerland
Bentec 350 Euro Rig

24. Select the right team of experts for optimum
integrated drilling solution
Your single source for
Geothermal Projects