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Petroleum Engineering

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5.0. DRILLING ECONOMICS
To optimise drilling operations, we have to specify the yardstick by which performance is
measured. The most relevant yardstick is cost per metre or foot drilled. Overall cost must
be looked at since individual costs can be misleading. The rig operating rate represents
only a fraction of the overall cost, therefore a cheap rig day rate does not always coincide
with a cheap well.
Holes are drilled in the ground to provide information (in the form of cores or logs or test
information), to provide production of oil and gas or to provide an injection point into a
reservoir. These objectives of the well should never be forgotten during the drilling
operation.To optimise drilling economics, we must achieve the objectives of the well as
economically as possible. To do this, we must understand the cost allocations and
proportions in drilling operations and use our technology to fine-tune these to reduce
expenditure without affecting safely or efficiency.
This chapter looks at these cost allocations, discusses exactly who is controlling which
costs and how they can be minimised.
COST SPECIFICATIONS
Drilling costs can be broken down into three groups:
Fixed
Daily
Unit
Fixed costs
Fixed costs are those which are determined mainly by the nature of the well and include
the following:
Wellheads
Site preparation
Casing, cement, tubing and packers
Effecting economies in fixed costs, therefore, is the direct responsibility of the Drilling
Manager and the Drilling Engineers, who planned the well. The Drilling Supervisor has
little impact on these.
Daily costs
Daily costs are related to the time spent on the operation. On offshore rigs, they are
usually the largest items of expenses and are listed below:
Payments to drilling contractors (rig time)
Tool rental
Payment to specialist services
Salaries, wages etc
Fuel

The table below illustrates the average cost comparisons between rig types at time or writing: Rig type Total daily drilling costs drilling costs ($/day) Land rig (shallow) Land rig (deep) Platform rig Jack-up rig Semisubmersible 15 000 25 000 50 000 95 000 75 000 These figures are general and should only be used a guide. as the oil industry is coming out of recession. good site supervision can ensure that consumption is not excessive. Cost group Location survey Rig mob/demob Rig positioning Casing Wellheads Rig costs Drilling equipment Cost in US $ (thousands) 160 270 8 570 180 1400 50 % of well cost 3.8 3. Specific cost breakdown – offshore exploration wells To quantify the costs. Even though jack-up costs have been traditionally cheaper than those of semis. which is usually the responsibility of the Drilling Manager. grease Drilling consumables (rope. This is based on TDAH of 3500 m with 7 inch casing to TD and includes four days of coring and four days of testing.9 . demand for deep water jack-ups has pushed their day rates above most semis. Furthermore. COST BREAKDOWN OF DRILLING OPERATIONS At present. The total time spent on the well is 60 days. Unit costs This is the price of a unit or a commodity such as the price per tonne of barryte or benetonite.4 26.0 5. soap and dope) Transport of materials The Drilling Supervisor on site. the Drilling Manager and Drilling Engineers can all have an effect on daily costs.Petroleum Engineering [Type text] Lubricating oil.1 0. This can usually be optimised in the tendering process. the costs for individual types of rig is varying considerably.2 10.6 0. we must look at real well expenditure Below is quoted a typical cost breakdown for a 1990 UK North Sea exploration well.

daily or unit. we achieve a spread as follows: Fixed item Location survey Rig mob/demob Casing Wellheads Drill bits Cementing Electric logging Coring Testing equipment Cost in US $ (thousands) 160 270 570 180 140 170 320 60 100 1970 % of well cost 4.0 4. Rig Positioning. so fine-tuning these services will provide us with minimal savings.0 1. Four of these.5 0.2 6.7 3.9 0. all cost less than $10 000 for the well.9 38 .4 2.2 3.1 1. Our attention must turn to the remaining 22 large items where a 10 per cent saving on individual costs can substantially reduce overall well costs. there are 26 groups.3 3.1 1. Fishing Tools. Listing the remaining groups in order of either fixed.9 3.2 2.5 250 41 4.8 0.8 5267 100 Discussion In this cost breakdown.7 4.Petroleum Engineering [Type text] rental Fishing tools Drill bits Mud Cementing Electric logging MWD Mud logging Coring Directional control Supply boats Standby boats Helicopters Diving/ROV Weather forecasting Medical services Testing equipment Storage/onshore transport Contract staff Base office 9 140 220 170 320 14 160 60 240 370 160 212 130 4 3 100 26 0.5 7.2 6.1 1.1 4.1 10.1 0.0 2.1 0.0 3. Weather Forecasting and Medical Services.0 5.

directional correction. treating the mud. tested or completed. The accuracy of the AFE depends on the amount of available information used to construct it. Average daily cost = $3053000 = 50 000/day 60 Unit Item Mud Unit item total Cost in US $ (thousands) 220 220 % of well cost 4. we find the following: Fixed cost items Daily cost items Unit cost items $1 970 000 $ 3 053 000 $ 220 000 What this means in real terms is that saving a day on the well will save 1/60 of $ 3 053 000 and not 1/60 of the overall well cost of 5 267 000.5 0. waiting on weather and making spurious trips will cost the operator a minimum of $ 50 000.5 7.0 4.3 58 From this figure and knowing that the well lasted 60 days.Petroleum Engineering [Type text] Daily item Rig (56 days @ 25 000) Drilling equipment rental Mud logging Directional control Supply boats Standby boats Helicopters Diving/ROV Storage onshore transport Contract staff Base office O/H MWD Daily item total Cost in US $ (thousands) 1400 50 % of well cost 26. AFEs should be broken down into sections to allow us to see at a glance how the various well options compare financially.5 250 41 14 3053 4.8 0. Consequently.8 0.0 2. In this section.0 4. we look at . It also means that an extra day spent on tripping.9 160 240 370 160 212 130 26 3. As operators. AUTHORISATION FOR EXPENDITURE (AFE) The AFE is the tool that is used for predicting the cost of a proposed well.6 0.0 3.2 4 To summarise these groups. we can calculate the average daily cost. we need to know how much a well is going to cost if it is dry.

the cost centres are not only the cost of completion equipment and services but also the costs of: rig day rate fuel oil extra casing string if run perforation . therefore. This is probably overkill as in most wells there are probably only 60 or so cost centres. For offshore wells. the maincost centres are site surveying and wellengineering. As with testing. It is only merely the testing cost charged by the testing company but must also include all the ongoing daily costs associated with the rig such as: rig day rate fuel oil site personnel office personnel office overheads Completion This is the further additional cost incurred following testing once the decision to complete the well has been made. It assumes drilling to TD. we have a standardised 100-point AFE for both onshore and offshore wells. At Norwell.Petroleum Engineering [Type text] the component parts of AFEs for onshore and offshore wells. For onshore wells this would include site building and well engineering as the main cost centres. logging and finding nothing of interest. Included in this section should also be all the costs required to bring the location back to its original condition. AFE components Both the onshore and offshore AFEs are broken down into the following sections: preparation drilling and abandonment testing completion Preparation This part of the AFE covers the costs incurred to the point at which the rig is brought on to location. Testing This is the additional cost incurred by a testing programme. but having the additional codes for special operations built into every well AFE makes it easier to carry out postwell assessment and cost comparisons between wells. proposed for abandonment and costed accordingly. Drilling and abandonment This is the ‘dry hole’ drilling component of the well. The well is.

good practice to list the assumptions which have been made as a postscript to the AFE. It is. By costing in the charges for these days.Petroleum Engineering [Type text] site personnel office personnel office overheads. This can be in the form of a lump sum or as a percentage of well costs. It is difficult to fix charges such as coring on an exploration well with the limited knowledge available regarding formations to be drilled so some assumptions must be made. . By calling up the following service companies and asking for budgetary figures. It also allows the service company to express an interest in the work which will be put out to tender at a later date. most costs can be estimated fairly readily. Estimating costs If there are similar. then the task is much harder. For example. therefore. on the other hand. a contingency factor should be built into the AFE. After estimating costs. Similarly for the testing programme and completion programme some assumptions must be made. If. the AFE begins to take form. The Time Depth Graph created for the Drilling Programme provides an estimate of the days to be spent on the well. or AFE assumes single 3 1/2 inch H 2S tubing completion with single permanent packer. AFE assumes four days open hole testing. you are planning a well in a new area. the main cost centres can be addressed: drilling contractors mud loggers electric logging companies mud companies cementing companies bit companies casing companies wellhead companies tool rental companies coring companies Most service companies will be pleased to provide figures for AFE budgets and talking to them serves a secondary purpose of updating your knowledge of the demand for certain services and any new deals or equipment that is available. The AFE could either include one 20 m core or several runs. recent wells in the area to be drilled.