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You are on page 1of 47

JAMES A. CRAIG

TABLE OF CONTENTS

Cost Specification

Drilling Optimization

Drilling

Cost Equation

Breakeven Calculations

Decision Making

DRILLING COST PREDICTION

sound economic decision can be made.

Predictions depend primarily on:

Location governs the cost of preparing wellsite,

moving rig to location, and daily operating cost.

Depth governs the lithologies to be penetrated,

thus the time required to complete the well.

Drilling costs tend to

increase exponentially

with depth.

C = a exp ( bD )

C = cost, $

a, b = constants depending on well location

D = depth, ft

ln C ln a

=

D

b b

COST SPECIFICATION

groups:

Fixed

Daily

Unit

Fixed Costs

well, such as:

Wellheads

Sitepreparation

Casing, cement, tubing and packers

Daily Costs

Daily costs are related to the time spent on the operation.

Offshore rigs have high expenses which listed below.

Daily costs include:

Payments to drilling contractors (rig time)

Tool rental

Payment to specialist services

Salaries, wages etc

Fuel

Lubricating oil, grease

Drilling consumables (rope, soap and dope)

Transport of materials

Unit Costs

as the price per tonne of barite or bentonite.

This can be optimized in the tendering process,

which is Drilling Manager responsibility.

Good site supervision can ensure that

consumption is not excessive.

AUTHORIZATION FOR EXPENDITURE (AFE)

going to cost if it is dry, tested or completed.

Consequently, AFEs should be broken down

into sections.

AFE makes it easier to carry out post-well

assessment and cost-comparisons between

wells.

AFE Components

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.

For onshore wells this would include site

building and well engineering as the main cost.

For offshore wells, the main costs are site

surveying and well engineering.

Drilling and Abandonment

This is the dry hole drilling component of the

well.

It assumes drilling reached the TD, logging

carried out and no economic finding.

The well is, therefore, proposed for

abandonment and appropriate cost is allocated

to it.

Testing

It is only the testing cost charged by the testing

company

It 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

It is not only the cost of completion equipment and

services but also the costs of:

rig day rate

fuel oil

perforation

site personnel

office personnel

office overheads

Costs can be estimated fairly for development

wells

Costing for exploratory wells is a much harder

task.

The service companies will give the operating

companies the main costs:

drilling contractors mud loggers

electric logging companies mud companies

cementing companies bit companies

casing companies wellhead companies

tool rental companies coring companies

The Time Depth Graph created for the Drilling

Programme provides an estimate of the days to

be spent on the well.

By costing in the charges for these days, the

AFE begins to take form.

Some assumptions must be made, e.g.:

Itis difficult to fix charges such as coring on an

exploration well with the limited knowledge

available regarding formations to be drilled. The

AFE could either include one 20-m core or several

runs.

A contingency factor should be applied to the

AFE.

This can be in the form of:

A lump sum, or

A percentage of well costs.

DRILLING OPTIMIZATION

reaching the wells objective while maintaining

safety standards.

This minimum drilling cost is also the optimum

drilling cost.

The optimization process is a cycle that starts

with using the existing data base of drilling

information.

More data are collected during the practical

drilling process.

The new data are then analyzed to update the

data base for future use.

The process of optimizing drillling process is

not always straight-forward.

Because of uncertainties involved, there is

always need for some trade-offs.

For example, optimization might mean paying

more to obtain a better tool, such as choosing a

rig with a higher day rate to obtain better

equipment.

DRILLING OPTIMIZATION TECHNIQUES

popular in drilling:

Drillingcost equation

Breakeven calculations

Drilling Cost Equation

Also known as the cost per foot equation.

Cbit + Ctools + Cmud + ( Crig + Csupport + Ctool rental )(Ttrip + Tbit + Tlost )

Cdrill =

Tbit ROPavg

Cbit = cost of delivered bit at the drill site, $

Ctools = cost of tools or repair to tools, $

Cmud = cost of mud to drill the interval, $

Crig = rental rig rate, $/hour

Csupport = support cost, i.e. third-party contractor rates,

$/hour

Ctool rental

= rental of tools, $/hour

Ttrip = round trip time, i.e. time to pull and run a bit, hours

Tbit = bit life, i.e. time required to drill the interval, hours

drilling task, hours

ROPavg = average rate of penetration during bit run,

ft/hour

Eleven variables are listed in the drilling cost

equation.

Most of these interact with one or more other

variables.

Because the degree of interaction is often

impossible to determine intuitively, the drilling

cost equation can aid decision making

Breakeven Calculations

evaluations that determine the change in a

dependent variable that is required to create a

beneficial change in an independent variable.

The typical variables are as follows:

Independent Variable Dependent Variable

Bit type Bit life, ROP

Drilling tools Bit life, ROP, Trip time

Mud type Bit life, ROP, Trip time

The procedure is as follows:

Solve the drilling cost equation for present conditions to

determine the cost/ft.

Specify the independent variable and the dependent

variable to be changed.

Determine the change in any other parameters that will

result from the change in the independent variable.

Substitute the cost/ft determined in Step 1, the

independent variable specified in Step 2, and all other

variables into the drilling cost equation.

Rearrange the equation and solve to find the value of

the dependent variable required for breakeven.

The breakeven calculations can also be used to

evaluate whether additional rig equipment

should be obtained for purposes other than to

increase the rate of penetration.

Decision Making

consequences of each decision to be made

Some degree of uncertainty concerning the

consequences are made.

Decision of this type must be made on a

statistical basis:

a decision is made to implement the course of

action that on average results in the lowest cost.

Expected Values Method

An explicit step-by-step approach to the

decision process traditionally used.

The method is used to make decisions by

evaluating choices that have both different

finanacial returns and different probabilities of

occurence.

The best decision is that which has the lowest

(or least negative) probability cost product.

The fundamental form of the expected value

equations is given as follows:

= C1 P1 + C2 P2

EV

P1 + P2 =

1

EV = expected value, $

C1 = cost of first event, $

Example 1 Cost per foot calculation

A 17-1/2 bit drills 1,050 of hole at an average

penetration rate of 35 ft/hr. given the following data,

what is the cost per foot?

Round trip = 6hrs Bit purchase cost = $3,000

Bit life = 30 hrs Tool purchase cost = $100

Rig cost = $800/hr Interval mud cost = $5,000

Tool rental = $100/hr Support cost = $200/hr

Tbit = 30 hrs Cmud = $5,000 Crig = $800/hr

Ctools = $100 Ctool rental = $100/hr Csupport = $200/hr

Cbit + Ctools + Cmud + ( Crig + Csupport + Ctool rental )(Ttrip + Tbit + Tlost )

Cdrill =

Tbit ROPavg

Cdrill =

30 35

Cdrill =

1, 050

Cdrill = $45.43/ft

Example 2 Breakeven calculation

When planning a well. It has been determined that the

next section requires a polymer mud that costs

$15/bbl. The rig has inefficient shale shakers, which

the drilling contractor will not replace without sharing

the expense. How much should the operator be

prepared to pay for the installation of the new, high-

efficiency shale shakers if the rig is to be used for only

a single well?

Old shale shaker solid control efficiency = 65%

New shale shaker solid control efficiency = 75%

Anticipated average hole diameter = 13

Maximum allowable drill solids concentration = 6%

We use mud interval cost equation:

D h2 (1 Eff )(1 Sactive )

= Lint Cmud/bbl

Cmud

1, 029 S active

Lint = length of interval, ft

Cmud/bbl = mud cost, $/bbl

Dh = average hole diameter, in.

Eff = efficiency of solids control system, %

Sactive = drilled solids in active mud, volume %

For the existing shale shakers:

=

Cmud 6, 000 15

1, 029 0.06

= 6, 000 15 0.9006

Cmud

If new shale shakers were purchased:

D 2h (1 Eff )(1 Sactive )

Cmud =

Lint Cmud/bbl + E cost

1, 029 Sactive

Ecost = equipment cost, $

Cmud =

6, 000 15 + E cost

1, 029 0.06

=

Cmud 57,894 + E cost

Breakeven occurs when the cost of existing shakers

equals the cost of new shakers.

= 57,894 + E cost

81,051

E cost = $23,157

operator should pay for the installation of new

shakers.

Any amount less that this can be negotiated with

the drilling contractor represents a net savings.

Example 3 EV calculation

When drilling 12-1/4 hole in an area, experience

shows that a reverse circulating junk basket (RCJB) is

required on 25% of all wells. The average rental period

for wells where a RCJB is required is 3 days, and 12

hours rig time is wasted waiting for the equipment.

A rig is contracted for a single well in which the 12-

1/4 section is planned to take 25 days to drill.

Given: Rig rate = $8,000/day

RCJB rental = $150 first day plus $25/day thereafter

Would it be advantageous to have RCJB on standby at

the rigsite:

We use the EV method and decision tree.

Not

required

RCJB not

rented

Required

RCJB

rented

RCJB not rented

Not required

Rig rate Interval time

= 8, 000 25 = $200, 000

Required

Rig rate ( Interval time + Waiting time ) + [ RCJB rental + Rental time ]

RCJB on standby

( Rig rate Interval time ) + ( RCJB rental + Interval time )

= $200, 750

C = $200,000

P = 75%

EV = 200,000 x 0.75

Not

EV = $150,000

required

RCJB not

rented C = $204,200

P = 25%

EV = 204,200 x 0.25

Required EV = $51,050

RCJB

rented C = $200,750

P = 100%

EV = 200,750 x 1.00

EV = $200,750

RCJB not rented

Total EV = $150,000 + $51,050 = $201,050

RCJB on standby

Total EV = $200,750

RCJB on standby < RCJB not rented

Therefore, the better economic solution is to

have the RCJB on standby at the rigsite.

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