A “bottom hole contribution agreement” is a contract between oil and gas operators that addresses the sharing of revenues and expenses associated with a jointly drilled well. This agreement is critical because it outlines how the drilling, completion, and operations of the well will be managed and how costs and revenues will be split.
The term “bottom hole” refers to the deepest point of the wellbore, where the hydrocarbons are extracted. The agreement typically establishes the percentage of ownership of each operator in the well, and the percentage of costs and revenues that each operator will be responsible for. This includes expenses for drilling, completion, and ongoing operations.
In a bottom hole contribution agreement, the parties involved can negotiate the terms and conditions of the agreement, including the duration of the agreement, the drilling program, and the sharing of costs and revenues. The agreement may also contain provisions for disputes that may arise during the drilling, completion, or operation of the well.
It is crucial that the agreement is detailed and well-written, as it reflects the expectations of the parties involved in the project. It should specify the rights and obligations of each party, including the operator, to help avoid any disputes or misunderstandings down the road.
Additionally, the agreement should also address the allocation of costs and expenses, including any unexpected expenses that may arise during drilling or production. It is essential to include a clause that outlines the procedure for handling such expenses and how they will be shared among the parties involved.
In summary, a bottom hole contribution agreement is a legally binding contract between oil and gas operators that outlines the sharing of costs and revenues for a jointly drilled well. This agreement is critical because it establishes the framework for the drilling, completion, and operation of the well, and helps to prevent disputes and misunderstandings. For oil and gas companies, it is important to draft a well-written agreement with clear and detailed clauses that address all of the relevant issues.