Engr.

Rembrandt Rosales
Petroleum Engineering Instructor
Chemical Engineering Department Elective 1
Adamson University

Well Cost Estimation: AFE Preparation

 Projected Drilling Time.
● The time required to drill the well has a significant impact on many items in the cost estimate.
● These items include drilling rig, mud, offshore transportation, rental tools and support services.
● The effect of these items on the overall well cost is dependent on the actual unit cost
(i.e., U.S. $15,000/day for a land rig vs. U.S. $250,000/day for a drillship, and the amount of drilling time).

Drilling-Time Information.
Numerous sources are available to estimate drilling times for a well.
These include bit and mud records, log header information, and operator’s well histories.
Time Categories
Drilling times are usually categorized for dry holes and completed wells. These categories are important as
the management decision guide to evaluate potential risk vs. production economics.

● The dry hole assumes that all casing strings had been run except for production casing and tubing. Dry
holes must include time allotments for setting several cased and openhole plugs and the possible
retrieval of some casing.
● Completed wells normally include all well-completion operations up to the point of building production
facilities. Well testing is usually included in the time for completion.
Time Consideration

Time Considerations. Several factors affect the amount of time spent in drilling a well.
• Drill rate.
• Trip time.
• Hole problems.
• Casing running.
• Directional drilling.
• Completion type.
• Move-in and move-out with the rig.
• Weather.

Each factor may vary with geology, geographical location, operator philosophy and efficiency.
Drill Rate.

● The cumulative drilling time spent on a well depends primarily on rock type and bit selection. Hard-rock drilling
usually needs significantly more drilling time than soft-rock drilling.
● In addition, the wide variety of bits available to the industry makes bit selection an important factor in drilling
hard and soft formations. Other items that usually affect the drill rate are proper selection of weight and rotary
speeds for optimum drilling, mud type, and differential pressure.

Trip Time.

● Pulling and running the drillstring is an important item in estimating total rotating time. In many cases, it is
equal to or exceeds the on-bottom drilling time. Trip time is dependent on well depth, amount of mud trip
margin, hole problems, rig capacity, and crew efficiency.
● Long bit runs from 50 to 200 hours often require a short trip of several thousand feet out of and back into the
hole. The purpose of the short trip is to remove or reduce any buildup of filter cake that significantly increases
the swabbing tendencies of the drillstring. Short trips are dependent on company philosophy, mud type, and
bit life.
Hole Problems.
● Various hole problems are routinely addressed in the drilling-time projections, while others are considered
improbable. For example, severe kicks and blowouts are usually unlikely if the operator devotes sufficient
attention to drilling activities. The geological conditions and drilling histories and the area of the prospect well
will often define other pertinent hole problems.
○ The type of problems often regarded as standard are hole sloughing, lost circulation, and slow drilling
rates. Many operators have encountered formations that slough or heave into the wellbore regardless
of the amount of attention given to the mud systems or well plan.
○ Lost circulation will occur in some formations even if the mud density is approximately equal to that of
freshwater.
○ Slow drilling rates will usually occur in environments with high differential pressures, such as the case
of formation-pressure regressions while maintaining consistent mud weights.
However, these hole problems can be eliminated or mitigated in most areas by exercising good engineering
judgment in preparing the well plan.

Casing Running.
The time required to run casing into the well is dependent on casing size and depth, hole conditions, crew
efficiency, and use special equipment such as pickup machines or electric stabbing boards. A heavy casing string
may require that the drillstring be laid down rather than setback in the derrick. In addition, nippling-up the blowout
preventers and testing the casing and formation must be considered.
Directional Drilling.
● Directional control of a well requires increases in the drilling time.
● These increases apply to (1) attempting to drill a well directionally, or (2) maintain vertical control of a well
that has deviation tendencies. The increases in drilling time usually result from obtaining surveys and
from the inability to apply desired weights or rotary speeds. Many operators increase the expected drilling
time in a directional well by a factor two.

Well Completions.
● Completion systems vary in complexity and, as a result, have a significant variation in time to implement
the system. A standard single, perforated completion can be finished in 6 to 8 days. Dual-completed wells
usually require an additional 2 to 3 days.
● Gravel packs, acidizing, fracturing, and other forms of well treatments must be evaluated on a case-by-
case basis. Needless to say, the efficiency of all associated personnel and their experiences with a
particular type of completion has a major impact on the required time.
Rig Move-in and Move-out.
● Rig moving affects several areas of the cost estimate and must be considered in the time projections.
● Move-in and rig-up occur before spudding the well. Rig down and move-out occur after well completion. If a
completion rig is used rather than the drilling rig for the completion work, an additional rig move must be
considered from both a cost and time standpoint.

Weather.
● The affect of weather on the projected time is not considered in most well plans. As an example, hurricanes
and tornadoes cannot be routinely expected. However, weather problems such as those that routinely occur
in the North Sea must be considered in the plan.
Cost Categories
The well cost estimate should be divided into several categories for engineering and accounting
purposes.
● Engineering considerations include dry-hole and completed costs, logical grouping such as
completion equipment or tubular goods, and convenience groupings such as rental equipment.
● Accounting considerations include tangible, intangible, and contingency items.
 Tangible and Intangible Cost
Accounting and tax principles treat tangible and intangible costs in different ways. As a result, they must be
segregated in the cost estimate.
Intangible costs are difficult to define precisely, they include expenditures incurred by the operator for labor,
fuel, repairs, hauling, and supplies used in (1) drilling, perforating, and cleaning wells, (2) preparing the surface
site prior to drilling, and (3) construction derricks, tanks, pipelines, and other structures erected in connection
with drilling, but not including the cost of the materials themselves.

Intangible drilling and development costs do not include the following:

• Tangible property ordinarily considered as having salvage value.
• Wages, fuel, repairs, hauling, supplies, etc., in connection with equipment facilities or structures not incident to
or necessary for the drilling of wells, such as structures for storing oil.
• Casing, even though required by state law.
• Installation of production facilities.
• Oilwell pumps, separators, or pipelines.
Location Preparation.
Preparing the location to accept the rig is an important cost factor and perhaps the most difficult to quantify. It
includes a legal cost, surveying the location site, physical location preparation, and post-drilling cleanup. These
costs are affected by the rig type, rig size, and well location.

● Permits, or “permitting” the well, are required in virtually every drilling area in the world. Some permit procedures
are as simple as preparing a few fill-in-the-blank documents, while others may require extensive, time-
consuming efforts such as environmental and economic impact statements. Some well permits must be granted
from federal or national authorities, while others may be obtained quickly from local agencies. Permitting a well is
primarily a legal matter that often requires significant consultation with legal groups.
● “Spotting” the well involves surveying the wellsite and determining its exact location. Land sites can be spotted
by professional surveyors with the use of local, known markers. Offshore sites are spotted from offset platforms
in the area. Satellite surveys can be used when spotting a well in an area, particularly in offshore environments
where marker sites such as existing platforms are not available.
● Marsh areas usually require that a canal or channel be dredged to the site. The depth and width of the canal
must be coordinated with the size of the rig. The rig site at the end of the canal is a larger area that must be
dredged. Shell pads for a rig foundation may be required in marshy areas if the water depth is sufficiently deep to
prevent the direct use of a barge rig or if the seabed is very soft or erodes because of subsea currents.
● Offshore sites often require the least amount of location preparation. If surveys of the seafloor show that no
obstructions are present, the rig can be moved to the site with no additional efforts. Floating rigs are seldom
troubled with soft subsurface formations that may hamper settling of the legs for jackup rigs.
● Location cleanup after drilling has been completed is currently undergoing close scrutiny by regulatory bodies.
Most sites must be restored to a pre-drilling condition that may involve site leveling, trucking, and in some cases
replanting wildlife vegetation. Offshore sites usually are required to ensure that no remaining obstructions will
hamper commercial fishing operations.
Drilling Rig and Tools.
The cost for drilling and completion rigs plus the associated drilling tools can be a substantial fraction of the total
drilling costs.

Move-in and Move-out.

Moving the rig into the location before drilling the well and out of the location after it is completed can be a
substantial cost item. The cost for move-in and move-out is estimated as the standby rig rate over the moving time
(4 or 8 days). The standby rate is slightly less than the day rate for drilling and may include support services such
as crewboats that would be required for normal drilling operations. This method for estimating the rig moving costs
is effective and reasonably accurate. It is not useful, however, in unusual circumstances such as overseas rig
moves and drill sites requiring helicopter transportation.

Footage Bid.
Many operators prefer to drill on a footage or turnkey basis. The drilling contractor provides a bid to drill the well to
a certain depth, or until a certain event, such as encountering a particular formation, kickoff point, or geopressure.
Footage contracts may call for drilling and casing a certain size hole through or to the expected pay zone. Contract
clauses may allow reversion to day work (flat rate per day) if a marked increase in drilling hazards (loss of
circulation, kick, etc.) occurs.

Day-Work Bid.
Perhaps the most common drilling contract is the day-work rate. The contractor furnishes the rig at a contracted
cost per day. The operator directs all drilling activities and is responsible for the well-being of the hole. The rig may
be with or without crews or drillpipe. In addition, options such as high-pressure blowout preventers (BOPs) or
sophisticated solids-control equipment required by the operator must be furnished at his own expense.
Fuel.
Drilling contracts are either inclusive or exclusive of fuel on the rig. This major contract policy change occurred in the
late 1970s when fuel charges increased from $0.20 to $1.20/ gal. Fuel usage is dependent on equipment type and
rig. Fuel consumption rates were evaluated in the study previously described for rig cost rates.

Water.
A supply of water is an important consideration. The water is used to wash the rig, mix mud and cement, and cool the
engines and equipment. Water can be supplied in three ways. A shallow water well can be drilled. This method is
common in most land operations, but it is not feasible offshore or with deepwater tables on land. Water can be
transported to the rig by means of truck, pipelines, barges, or boats. In addition, offshore rigs can use seawater.

Bits.
Establishing a bit cost depends on the number, size, and type of bits and their respective cost. The bit type, size, and
number should have been previously defined in the well plan by the time the AFE is prepared. If the bit is a standard
IADC-code bit, published prices are available. Prices are not readily available for specialty bits or for diamond and
polycrystalline bits.

Completion Rigs.
A completion rig is a small workover rig that costs considerably less than a large drilling rig. Operators often use
these rigs when the completion procedures are expected to require significant amounts of time. The drilling rig is
used until the production casing is run and cemented.
Drilling Fluids.
Drilling fluids are an important part of the well plan and drilling program. The prices are based on build cost for a
certain mud weight and a daily maintenance expense. These costs vary from different mud types and are
dependent on the chemicals and weighting material required and on the base fluid phase, such as water or oil.
Miscellaneous cost factors include specialty products such as hydrogen sulfide scavengers, lost-circulation
materials, and hole-stability chemicals.

Rental Equipment.
Drilling equipment that is beyond the scope of the contractor-furnished items is almost always required to drill a
well. These items must be rented at the expense of the contractor or operator, depending on the provisions of the
contract. They can include well-control equipment, rotary tools and accessories, mud-related equipment and
casing tools. These items can represent a substantial sum in deep, high-pressure wells.

Cementing.
Cost development for cementing charges requires an evaluation of the cement type and volume, spacer-fluid
requirements, special additives, and pumping charges. These various charges usually apply for each primary
cement job, stage slurries, squeeze slurries, plugs, and surface-casing top-outs. Cost will vary for land and offshore
jobs.
Support Services.
Drilling operations require the services of many support groups. In some cases, these groups are used because they
can do a particular job more efficiently than the rig crew. An example of this efficiency is casing crews who are
experienced in running large-diameter tubulars. Other support groups may provide services that cannot be performed
by the rig crew or operator (i.e., well logging, pipe inspection, or specialized completions). Regardless of the reasons
for using support services, their costs affect the total well cost and, as such, must be considered.

● Casing Crews. During the early years of the drilling industry, the rig crews ran all casing and tubing strings into
the well
● Mud Logging. Monitoring services such as mud logging, cuttings interpretation, and gas monitoring are often
used on deep or high-pressure wells. A variety of services at different costs are available.
● Well Logging. Formation-evaluation services, or well logging, are done on every well. The service may include
formation evaluation, casing and cement logging, and hole-inclination surveys
● Perforating. Perforating charges may not apply if the well is gravel packed or abandoned. The charges include
setup, depth charge for minimum shots (usually 20), and a charge per shot over the minimum
● Formation Testing. Wireline formation testing is an economical method of obtaining reliable formation
information. The repeating formation tester is a device that takes samples of pressure and fluids from a zone of
interest. It should be included in the cost estimate for every exploratory well.
● Completion Logging. Various types of production logs can be run on the well if it is completed. These logs are
generally run before perforation so that pre- and post-production formation evaluations can be made. Because
production logging is a complex subject, the appropriate log suite must be developed jointly by the drilling and
production engineers.
● Tubular Inspection. Pipe inspection is an important aspect of the casing and tubing program. These support
services may include magnetic particle inspection, thread and end-area visual inspection, hydrostatic pressure
testing, and pipe drifting.
● Galley Services. Catering services for the galley of offshore or marsh rigs may not be included in the day-rate
charges for the rig. The catering company will supply the cooks, support crews, and food for a per-man-day
fee.
● Special Labor. Many items used on the rig and during drilling operations require specialized labor. These
services are usually on a per-hour basis and at a minimum charge (4 to 8 hours)
 Transportation.

Transportation can include charges for land-based trucks, barges, boats, and helicopters. Long distance crew
charges via commercial or chartered airplanes may be a significant cost. Accurate estimates of transportation costs
require a detailed well plan, knowledge of the distance to the rig from local stock points, and rig characteristics such
as standard equipment and crew size.

Supervision and Administration.

● Project management costs must be considered. These charges include well supervision and administration.
Large costs can be incurred for deep wells or problem wells, such as those with H2S incident.
● Supervision includes direct management of the well, including the on-site supervisor and any members of the
office staff who are dedicated to the project.
● Mud or completion consultants may be considered as supervision.
● Specialized personnel such as mud loggers are not considered in the supervisory charges.
Administration charges can be handled in several manners. Some companies prefer to apply only direct supervision
charges to a given well and charge support office staff members to general company overhead. Other companies
divide all overhead charges among the wells to be drilled in a fiscal year.
Regardless of the accounting method, some of the charges that must be considered are
• Staff engineering support. • Clerical support.
• Office overhead. • Special insurance, including blowout insurance, and
bonds.
• Legal work. • Special document preparation.
Tubulars.
Casing and tubing costs are significant factors in the well cost. In some cases, they may account for 50 to 60% of the
total expenditures. The costs are dependent on well depth, size, grade requirements, and couplings.

Wellhead Equipment.
The wellhead equipment is attached to the casing string for pressure and stability support. Its cost is dependent on
the number and size of the casing and tubing strings, pressure requirements, equipment components, and special
features such as H2S stainless duty. The wellhead equipment consists of the casing head, intermediate and tubing
spools, and the production tree. The casing head is attached to the surface casing and will ultimately support all
casing loads. Intermediate or production casing is hung inside the casing head. The intermediate spool supports the
production casing if an intermediate string is run. The tubing spool is run only if the well is completed. It is set on the
casing head or intermediate spool. The tree contains the production valves and chokes used for producing the oil or
gas.

Completion Equipment.
The completion equipment consists of downhole tools related to the tubing string. These items include: packers, seal
assemblies, flow couplings, blast joints, and landing nipples. They are dependent primarily on tubing size and fluid
content.
Packers. The packer is designed to divert formation fluids into the production tubing. It is selected according to
production-casing size, bore size requirements, tensile loading, and seal assembly type.
Blast Joints. Blast joints are thick-walled tubulars placed in the tubing string opposite the perforations to minimize the
damage from erosion by the produced fluids. Their cost is dependent on tubing size and number of joints.
Seal Assembly. The seal assembly is an important part of the completion equipment. The cost is affected by the
required number of seal units, the connection type, and the pipe size.