Contractual- and relational governance structures : a qualitative study of regional differences in contract type and contract formalization within the drilling and well industry

Abstract

With rig-operation rates of a million dollars a day it is absolutely necessary to ensure that all drilling and well contractors perform satisfactory and deliver according to contract. There are many ways to organize the related transactions and potential associated relations to ensure efficient governance structures. In this thesis, I have analyzed actual contracts and interviewed a range of industry professionals concerning contractual - and relational governance. The findings indicate that the formal governance is mostly neoclassical, but that it is complemented with informal relational contracts, and when a relationship is well established this relational governance sometimes supersedes what is agreed to in the formal contracts. The results further indicate that formal contracts on the Norwegian Continental Shelf appear to have a higher degree of formalization than those of Gulf of Mexico, and that the main factors that impacts the degree of formalization are the market conditions, security of supply, and risk mitigation.