Case Study: XYZ Inc

Our Company (XYZ Inc) is planning to drill a deep exploratory well in an area where a high pressure
formation, located about 500 feet above the objective Oil formation, has been encountered in some
wells. The normal drilling practice is to drill to TD, run open hole logs, and set a production string of
casing if a discovery is indicated. The objective formation is expected to have normal pressures, and
relatively low mud weights are required to maintain control of the well. If the over-pressured zone is
present above the objective formation, substantially higher mud weights are required to control the
well.
This usually results in breaking down the incompetent strata near the top of the long open hole
section and losing circulation. To protect against the lost circulation problem (and resulting loss of
control) we could plan to drill to a point just above where we anticipate the over-pressured zone to be,
run a string of intermediate casing to seal off the incompetent strata, increase mud weight and
continue drilling.
With this strategy wed be protected from any possible blow outs, but at the expense of an extra string
of intermediate casing costing $100,000. This expense added to the estimated cost of $300,000 to drill
the well in the conventional manner would result in total well cost of $400,000.
An alternative drilling program would be to eliminate any plans for running intermediate casing and
gamble that the over-pressured zone is not present. This would reduce the drilling costs to $300,000
unless we encountered an over-pressured zone.
If this happened, we would have to pay an additional amount to regain control of the well and set an
intermediate string of casing. It is estimated that this contingency would cause well costs to climb to
$450,000 ($300,000 base cost, $100,000 for intermediate casing, and $50,000 for extra rig time, mud
costs, etc needed to maintain control until the intermediate casing is set). Our geologists estimate that
the probability of encountering the over-pressured zone is 0.3.
As a third alternative, we could make a series of logging runs above the possible high pressure zone
and compute geostatic pressure gradient trends as measured from the resistivity changes of the shale
sections above the zone. This interpretation technique can sometimes be used effectively to determine
whether the well is approaching an over-pressured zone.
The reliability of this interpretive technique is estimated to be 0.9. (That is, whatever the
interpretation we make from the logs, there is only a 90% chance the interpretations are going to be
correct.) The cost of these logging surveys is $20,000. If we ran the logs wed of course defer our
decision whether to run intermediate casing until we obtained the additional (and imperfect)
information from the logs.
These options lead to the following important concerns:
1. Assuming we are interested in minimizing expected drilling cost, which would be the
preferred strategy to drill the well?
2. How would our strategies be affected if the probability of encountering the over-pressured
zone were 0.4 instead of 0.3? How high does this probability have to be to make the safe
strategy of setting intermediate casing the best choice? Would our strategies be changed if
the reliability of the logging interpretation were only 0.8?

3. The penalty for encountering the high pressure zones without having previously set casing
is only $50,000 in the problem. (That is we will only have to pay an extra $50,000 to regain
control of the well so that the drilling can be stopped to set intermediate casing.)
Conceivably, it is possible that if we lose control of the well it may cost a great deal more to
regain control. How would we formulate the analysis to include the possibilities that if we
encounter high pressure without intermediate casing there is a 20% chance that we can
regain control for $50,000, but there is a 50% chance that $400,000 would be required to
control the well and a 30% chance that $700,000 would be necessary to regain control?

Case Study Objectives

Reinforce concepts of Management Decisions under conditions of uncertainty

Sift through the myriad of information available to determine what information or data is
crucial to the solution of the problem at hand, and what data to ignore.
Work through Decision Tree Model construction, solution and analysis. Perform sensitivity
analysis on model to demonstrate the effect of model variables on ultimate strategy
Reinforce Decision Analysis Concepts