welcome to the iup I drilling economics

and the AFE module of the reservoir

development phase of the enp life cycle

before beginning this module you should

be familiar with the general

configuration design and construction of

a well after completing this module you

should be able to to identify the major

cost elements in the drilling of a well

to identify the major time-consuming

elements in the drilling of a well

demonstrate familiarity with an

authority for expenditure document it is

quite common for the drilling costs to

make up twenty-five to thirty five

percent of the total development costs

for an offshore oilfield therefore there

is a great deal of incentives to improve

the profitability of the development of

the field by reducing the drilling costs

before a drilling program is approved it

must contain an estimate of the costs

involved these costs are based on the

project proposal and associated

procedures and form the basis for

justifying the project when the cost

estimate has been made an authorization

for expenditure must be presented to the

management of the company and authorized

by them
many factors must be taken into

consideration when estimating the cost

of a well the costs of the well are

categorized as time related costs depth

related costs fixed costs overheads and

contingency costs much of the costs

involved in constructing a well are

dependent on how long the well

construction process takes some examples

of time-dependent costs are the rental

of the drilling rig transportation daily

equipment rental personnel vessels and

fuel the expense of hiring the rig is

often the largest time related cost many

of the costs associated with the

drilling operation are proportional to

the depth of the well for example the

expenses of little bits drilling fluid

casing

cement

and tubing all increase as the total

depth of the well increases some costs

do not some costs do not vary according

to time spent drilling or depth drilled

these costs are called fixed costs two

examples of the fixed costs are the cost

of the wellhead and preparing the red to

begin drilling other costs include costs

that vary with both time and depth

overheads and contingency costs for

example specialized services such as

perforating will be charged for on the

basis of a service contract which will

have been agreed upon before the

services provided the price list

associated with this contract will be a

function of both time and depth the

payment will be made to the service

company when the operation has been

completed overhead includes costs such

as the cost of the office and off

reading staff contingency costs take

into account any problems that could

potentially arise this cost is estimated

by multiplying the cost of fixing the

problem by the estimated probability

that the problem would actually occur

the drilling program is used to make the

cost and time estimates for some wells

such as wells drilled in the same

location as previous wells the cost and

time can be estimated with a high degree

of accuracy for other wells especially

exploration wells it is much more

difficult to make an accurate estimate

when the cost estimate has been

calculated the proposal is submitted to

the company management for approval this

proposal is known as an authorization

for expenditure or an AFE the senior

drilling engineer the drilling and

general managers and partners in the

field development also approve the AFE

included in the AFE are the costs of the

drilling rig mud logging testing

cementing casing tubing and any other

surfaces or equipment needed

the management uses the AFE to evaluate

the profitability of the well upon

approval of the AFE the management

releases funds to finance well

construction if a well exceeds its

allocated funds an estimate of the cost

of the extra work is prepared and a

supplementary AFE must be approved to

cover the extra costs now that you have

completed this module you should be able

to to identify the major cost elements

in the drilling of a well to identify

the major time-consuming elements in the

drilling of a well demonstrate

familiarity with an authority for

expenditure document in this module we

explore the factors that affect the cost

of a well including time related costs

depth related costs fixed costs overhead

and contingency costs we also introduce

the concept of an authorization for

expenditure AFE document and briefly

discussed examples of costs and

information included in an AFE if you

are still on if you are still unclear on

any of the objectives now would be a

good time to go back and review