Bottom Hole Contribution Letter Agreement
(Upstream Oil & Gas)

Summary

This template is a bottom hole contribution letter agreement for upstream oil and gas transactions that allows parties to agree on making individual financial contributions for drilling a test well. In return, the contributing party receives geologic information regarding this well, which can be valuable when drilling other wells nearby. This template contains practical guidance and drafting notes. Companies leasing mineral interest property from a landowner do so because they have reason to suspect that oil or natural gas lies beneath the surface of the property. This suspicion may arise from observing oil or natural gas production in nearby areas, evaluating promising geologic formations on the property, or may be formed after evaluating seismic studies of the area surrounding the property in question, or the property itself. Whatever supporting evidence the lessee may rely on in making a leasing decision, its suspicions can only be confirmed through drilling a well or series of wells. Drilling an oil or natural gas well is a very expensive and time-consuming process. Some modern natural gas wells cost upwards of ten million dollars to drill and take months to complete. A lessee wanting to prove its newly leased land has oil or natural gas beneath the surface may not have the funding or technical expertise to drill enough wells to fully prove-up its leased property. This is where a bottom hole contribution arrangement comes into play. Through this arrangement, a lessee (or any other company or individual) can contribute funds toward the drilling of a test well or wells on another's property in exchange for having access to all of the information gained from drilling the well or wells. Bottom-hole contribution agreements are often referred to as support or contribution agreements and can take the form of either money or acreage granted to the drilling party in exchange for information concerning the well. A contributing party may consider this arrangement to be a purchase of geological information from the drilling party and will be required to contribute its share of funds or acreage only upon the receipt of specified information. The central hallmarks of a bottom-hole agreement are as follows: • It specifies the well to be drilled • It specifies the total depth to be drilled • It specifies the testing and logging procedures (if any) to be conducted • It specifies the information to be provided to the contributing party • It specifies the time for delivery of all information to the contributing party • The amount of payment, along with how the same will be calculated—either on a per-foot drilled basis or in a lump sum owed after drilling to a certain minimum depth For more information on these types of funding transactions, see Drilling Contracts and Financing the Upstream Oil and Gas Transaction. For more information on the drilling, exploration, and production process generally, see Casing, Cementing, Drilling, Well Control, and Completion Requirements, Casing, Cementing, Drilling, Well Control, and Completion Requirements, Wellbores with Abandoned Logging Tools (Control and Identification), and Inclination and Directional Survey Requirements. To review a similar letter agreement related to oil and natural gas exploration and production, see Dry Hole Contribution Letter Agreement (Upstream Oil & Gas) . To understand how to contract for drilling services as part of a contribution agreement, see IADC Model Drilling Bid Proposal and Footage Drilling Contract Checklist and IADC Model Turnkey Drilling Contract Checklist.