drilling & well intervention economics

8/18/2019 Drilling & Well Intervention Economics

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Module 11 – EWE 2306 Drilling & Well Intervention Economics

Contents

1 Introduction.....................................................................................................................3

2 Costs...............................................................................................................................4

2.1 Time-dependent costs...............................................................................................5

2.1.1 Contract payments.............................................................................................5

2.1.2 Personnel...........................................................................................................5

2.1.3 Consumables.....................................................................................................6

2.1.4 Service ees......................................................................................................6

2.1.5 Company !ver"ead...........................................................................................#

2.2 $ept"-$ependent Costs............................................................................................#

2.3 i%ed Costs or !nce-!&& Costs.................................................................................'

2.3.1 i%ed Costs........................................................................................................'

2.3.2 !nce-o&& costs...................................................................................................'

3 (ut"orisation or )%penditure........................................................................................*

3.1 ( ) Components.....................................................................................................*

3.2 $rillin+ Cost )stimation.........................................................................................11

4 Contract.........................................................................................................................13

4.1 Importance o& contractin+......................................................................................13

4.2 $ivision o& liabilities..............................................................................................14

4.2.1 $rillin+ unit, e uipment and materials............................................................14

4.2.2 Contractor s e uipment and materials.............................................................14

4.2.3 /oss o& 0ole and Cost o& Control....................................................................15

4.2.4 Claims by T"ird Parties...................................................................................15

4.2.5 Types o& $rillin+ Contracts.............................................................................15

4.3 Types o& $rillin+ Contracts...................................................................................15

4.3.1 $ay-rate Contract............................................................................................15

4.3.2 oota+e Contract.............................................................................................16

4.3.3 Turn ey Contract.............................................................................................16

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5 Conclusion....................................................................................................................1'

6 e&erences.....................................................................................................................1*

1 (ppendi%.....................................................................................................................2

(ppendi% ( 0ay Pulley Correction actor.................................................................2(ppendi% C (ccumulator set up illustration............... Error! Bookmark not defined.



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1 Introduction

T"e oil industry is an industry it" "i+" capital intensity and apart &rom t"at it is also

"i+" ris . $espite t"e advancement in tec"nolo+y t"at "as increased t"e mar+in o& success o& drillin+ a ell it" si+ni&icantly pro&itable uantity o& oil, t"e &act still remainst"at t"is economic viability could not be deduced until actual drillin+ o& ell is done.

0ence, in t"e 7ourney on ell drillin+ and ell intervention, t"e analysis o& cost, potentiale%penditure and placement o& liabilities are "i+"ly crucial prior to carryin+ out t"eactivities. (ll &inances are to be accounted &or to ensure lon+evity o& t"e business andminimal lost. It is useless to start a venture t"at may end up non-pro&itable.

)8) 23 6 $rillin+ and 8ell Intervention )conomics +ives an introduction on t"e &iscalcomponents in a drillin+ and intervention operation as ell as t"eir importance to ellen+ineers.



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Types of Costs

Time-dependent

ContractPayment

Personnel

Small Unit

Big Unit

Consumables

Services Fees

CompanyOverhead

Depth-dependent

!uipment

Consumables

Fi"ed Cost

Once O# Cost


2 CostsT"e cost to drill and e uip a ell varies by suc" &actors as t"e dept" o& t"e ell, its+eneral location, and industry economics t"at drive demand &or drillin+ ri+s in t"eimmediate area o& t"e ell site. In t"is module, types o& costs includes costs to drill a

ell, to complete t"e ell and to service t"e ell.

T"e costs &or drillin+, completin+ and servicin+ a ell could be &urt"er bro en do n intot"ree basic elements it" subsets 9 i+ure 1 - !vervie :;• Time-dependent costs• $ept"-dependent costs• i%ed costs or !nce-o&& costs

Figure 1. Types of Costs OverviewPrepared b ! "urol #$%i$a Md 'os$aime Page (


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2.1 Time-dependent costs

8ell construction costs are cate+orieolo+ical surveillance• $rillin+ ? completion &luid en+ineerin+• Telecommunications• Transport on?o&& o&&s"ore• Insurance• Tool rental

(ll t"ese types o& contracts mostly use a daily rate &or t"e rental e uipment. (dditionalrate may include t"e e%ecution o& a speci&ic activity it" t"at e uipment "ic" ouldalso be converted to daily rate &or estimation purposes.

2.1.2 PersonnelCosts o& personnel are calculated accordin+ to t"e time t"ey "ave spent on t"eir allocated

unit. T"e unit could eit"er be simply a small operatin+ unit "ic" consist o& a sin+le elland "ence, t"e total time spent on t"at ell ould be considered as t"e cost o& personnelor it could a lar+e operatin+ unit t"at consists o& several ells "ere t"e cost o& sta&& ill

be allocated to t"e ells accordin+ to t"e time spent on eac".

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‘Time-dependent cost are costs related to the time spent on the operation.


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)%amples o& t"e personnel are;

• !perations mana+er • 0ead o& ell operations• 8ell en+ineers• Site representatives• (dministrative assistants in t"e 8ell )n+ineerin+ $epartment• Civil )n+ineer • >eolo+ists• @aterials ? Transport sta&&

2.1. Consuma"lesT"e operatin+ costs can be classi&ied eit"er by t"eir nature 9personnel, services, supplier:or by t"eir purpose 9production, maintenance, security, etc:.

8"ere items are classi&ied by t"eir nature, t"ey s"ould +enerally con&orm to t"eaccountin+ conventions, "ic" may "ave statutory c"aracter in t"e particular countryconcerned. T"ey ill also include consumables "ic" is basically are anyt"in+ t"at can

be consumed or destroyed a&ter use.

)%amples o& consumables are &uels, ener+y, lubricants, c"emicals, o&&ice supplies,tec"nical e uipment suc" as pipin+, drill strin+s, 7oints, catalysts, molecular sieves,claddin+, laboratory supplies, individual items o& security e uipment, spare parts,"ouse"old supplies and &ood.

T"e sum o& t"ese costs is commonly no n as A$aily !peratin+ CostB &or t"e ri+.

2.1.# $er%ice &eesT"is re&ers to t"e cost c"ar+ed i& an operatin+ unit re uire t"e support &rom S"ellInternational )%ploration and Production 9SI)P:. SI)P is a subsidiary o& oyal $utc"S"ell "ic" is responsible &or t"eir e%ploration orld ide.

(n operatin+ unit ill "ave its o n +eolo+ists, reservoir en+ineers and petrop"ysics butmay see assistance and e%pertise &rom SI)P to "elp it" +eolo+ical interpretation and

ell evaluation or any advice on speci&ic bore"ole di&&iculties.

T"e cost c"ar+ed depends on t"e amount o& time spent on t"e ell "ere assistance isre uired. In lar+e operatin+ units, t"is cost is not usually included in t"e overall ell costand vice versa.



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2.1.# Company '%erhead)%penses related support &acilities and activities s"ould be allocated to t"ose activitiesreceivin+ bene&its. 0ence, all t"e on+oin+ e%penses o& t"e company durin+ t"e durationo& t"e pro7ect is considered as company over"ead o& t"e drillin+ pro7ect.

T"e &our ma7or sub"eadin+s o& t"e over"ead section are as &ollo s;

1. !ver"ead $rillin+ and Producin+ !perations,2. !ver"ead @a7or Construction,3. Catastrop"e !ver"ead, and4. (mendment o& ates.

)%amples o& t"ese e%penses;

• T"e salaries o& administrative sta&& • T"e cost o& "ousin+• !&&ice rental• T"e rental o& yard space, "arves and are"ouses• T"e cost o& company ve"icles• T"e cost o& air &ares &or company personnel

2.2 (epth-(ependent Costs

•

It re&ers to t"ose payments &or e uipment and consumables "ic" are used and?or remain do n "ole.

• T"ese items include;o Ditso Casin+ and casin+ attac"mentso Cement and additiveso @ud c"emicals and lost circulation materialso Completion tubin+ and attac"mentso Completion &luids and c"emicals

• $ept"-dependent costs can vary &rom appro%imately 35 to 6 ES$?meter 95 to' DF$?meter: o& ell dept" dependin+ on "et"er t"e ell is on- or o&&-s"ore andin a remote are or not.

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2. &i)ed Costs or 'nce-'ff Costs

• In addition to time-dependent and dept"-dependent costs, a lar+e part o& total ellcosts can be ta en up by costs "ic" do not &all into eit"er cate+ory.

• T"ese costs are no n as &i%ed costs or once-o&& costs .• i%ed costs usually re&er to a sin+le lump sum payment speci&ied in a contract.• !nce-o&& costs are t"e costs o& somet"in+ t"at "appens or is used only once per ell.

2. .1 &i)ed Costs)%amples o& &i%ed costs

• Cost to mobili


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*uthorisation &or E)penditureT"e purpose o& plannin+ t"e drillin+ pro+ram is to provide a basis &or t"e sa&e andsuccess&ul drillin+ and completion o& a ell at t"e lo est overall ell cost.

T"e details o& ell plannin+ ill include;• $rillin+ pro+rams 9mud, drill bit, drill strin+, "ydraulic, casin+?cementin+, ell

control:• 8ell"ead e uipment• i+ speci&ication 9type o& ri+ used, ons"ore?o&&s"ore:• )valuation p"ase 9samplin+, corin+, lo++in+ and testin+:• )mer+ency 9contin+ency plans &or all encountered problems:• @iscellaneous 9contracts, rentals, etc:

8ell en+ineers s"ould be &amiliar it" t"ese and t"ey s"ould be able to assess eac" o& t"ecosts and ultimately, estimate t"e ell cost as accurately as possible. (part &rom t"at,

it" ( ) t"ey could e%trapolate t"e cumulative cost to date o& t"e operation to ensure bud+et is not e%ceed on a daily basis and "ence, are capable o& in&ormin+ t"emana+ement s"ould t"e bud+et are e%ceeded.

.1 *&E Components

Preparin+ cost estimates &or a ell and +ettin+ mana+ement approval in t"e &orm o& an( ) is t"e &inal step in ell plannin+. T"e ( ) is o&ten accompanied by a pro7ected

payout sc"edule or revenue &orecast. (lt"ou+" an essential part o& ell plannin+, t"e costestimate is o&ten t"e most di&&icult to obtain it" any de+ree o& reliability. De&ore +ettin+approval t"e mana+ement to drill a ell, t"e ell en+ineer must prepare an ( ) or

(ut"orisation &or )%penditure .

( ) is a detailed cost estimate &or t"e ell. T"e costs included in ( ) are drillin+ csotsand completion costs eac" can be subdivided into tan+ible costs and intan+ible costs.9 e&er to &i+ure 2:

Simple representation o& ( ) is as belo ;

E)penditure (rillin+ CompletionIntan+ible Costs G %%% G %%%Tan+ible Costs G %%% G %%%

Total Cost G %%% G %%%

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$F

Drilling Cost

Tangible Drilling!uipment

%ntangible &on-salvageablecost

CompletionCost

Tangible Completion!uipment

%ntagible

&on-

salvageablecost


Figure 2. Authorisation for Expenditure Component breakdown

• Tan+i"le (rillin+ Costs, (ctual costs o& drillin+ e uipment. ).+. purc"asin+ell"ead e uipment, tubular e uipment 9includin+ casin+:

• Intan+i"le (rillin+ Costs I(C , (ll costs incurred in drillin+ a ell ot"er t"ane uipment "ic" are non-salva+eable.

o (ny ot"er cost necessary &or drillin+ and preparation o& ells.o @a es up 6 to ' H o& ell cost.o ).+. location preparation &or drillin+ ri+ 9clearin+ o& +round, buildin+ roads:,

transportation 9&uel:, etc.• Tan+i"le Completion Costs, 8ell e uipment costs incurred &rom completin+ a ell.

o ).+. completion e uipment• Intan+i"le Completion Costs ICC , Costs incurred it" completin+ a ell t"at are

non-salva+eable.o ).+. labor, completion materials, completion &luids.

For Examp e of AFE! "efer to Appendix A



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.2 (rillin+ Cost Estimation

• !verall ell cost may be e%pressed as &ollo s;

• Cd is t"e drillin+ cost or "ole-ma in+ cost 9includin+ t"e cost o& eac" bit used:• Co is all ot"er costs o& drillin+ 9e.+. casin+s, mud, cementin+ services, lo++in+

services, corin+ services, site preparation, &uel, transportation and completion:.• Co can be easily calculated simply total o& eac" individual costs.• Cd, drillin+ cost, can be e%pressed as;

• Cd drillin+ cost G?m• C b cost o& bit, G?bit• Cr &i%ed operatin+ cost o& ri+, G?"r• t b total rotatin+ time, "rs• tc total non-rotatin+ time 9e.+. connectin+ time:, "rs• tt total trip time 9round trip:, "rs• J$ dept" drilled it" bit, m?bit


C do Cd K Co

)%ample;Esin+ t"e &ollo in+ data, as ell as t"e data listed in table &or di&&erent bits it" t"eir respective drillin+ per&ormance, determine t"e cost analysis and select t"e bit t"at ill

result in lo est drillin+ cost.

!peratin+ cost o& t"e ri+ is G12, ?day

Trip time is 1 "ours


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or Dit (,

ind t"e drillin+ cost &or bits D, C and $

• Dits Dand $ produce t"e lo est drillin+ cost 9t"ou+" t"e relatively "i+" cost o& t"e bitand moderate !P:.

• T"ere&ore, not simply loo in+ at t"e !P alone "en decidin+ t"e bit selection.• @ust assess in terms o& t"e drillin+ cost.• (&ter t"e !verall 8ell Cost LC do Cd K CoM is estimated, a bud+et proposal 9( ):

must be presented to t"e appropriate level o& mana+ement &or approval ellen+ineers "ave to 7usti&y t"e &inal &i+ures

• Epon approval, t"e drillin+ activity ill commence.• T"e approved bud+et is t"e ma%imum amount t"at may be spent on t"e correspondin+

activity.• T"e 8ell )n+ineer is responsible to compare t"e estimated cost it" t"e actual cost

9c"ec daily:.• (lso able to e%trapolate 9predict: t"e cumulative cost to date to t"e end o& t"e

activity and c"ec t"at t"e bud+et ill not be e%ceeded.• I& spendin+ e%ceed t"e bud+et, need to report to mana+ement "ic" ill decide

"et"er to reduce t"e scope o& or o& t"e activity or to ma e &unds available &or it.



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# Contract$rillin+ and some o& t"e subse uent activities in t"e oil and +as industry is +enerallycarried out by independent drillin+ companies "ic" are coined as contractors suc" asDa er 0u+"es, 0alliburton and NC( $euta+. In doin+ so, an a+reement is &ormed

bet een t"e o ner o& t"e drillin+ unit 9or contractor or service company: it" t"eoperator suc" as Drunei S"ell Petroleum and Total. T"is is termed as a Contract .

T"e reason &or dele+atin+ out t"e 7obs to t"e contractor is t"at t"e contractors arespeciali


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• T"ere&ore, t"e drillin+ contract ill allocate certain ris s 9includin+ personal in7ury,dama+e to property, certain pollution ris s and conse uential dama+es: re+ardless o& &ault.

• !t"er ris s, suc" as ell control, do n"ole pollution, loss or dama+e to t"e "ole or

do n"ole tools and reservoir dama+e, are o&ten assumed by t"e operator.• T"e drillin+ contract is one o& t"e most important contracts on operator ill enter into

ta e si+ni&icant time and resources to create one

#.2 (i%ision of lia"ilities

• T"e division o& responsibilities may be set out in a drillin+ contract in varyin+ ays, but a common one is as &ollo s;i. $rillin+ unit, e uipment and materialsii. Contractor s e uipment and materials "en in-"ole and operatin+ belo t"e

rotary table, and its under ater drillin+ e uipmentiii. /oss o& "ole and cost o& controliv. Claims by t"ird parties i.e. any persons ot"er t"an t"e ot"er party to t"e drillin+

contract.

#.2.1 (rillin+ unit/ e0uipment and materials• T"is includes any property belon+in+ to bot" t"e contractor and t"e operator.• T"e contractor o ns t"e drillin+ unit and its o n e uipment "ereas t"e operator ill

"ave its o n property on t"e drillin+ unit suc" as casin+ and drill pipe and ot"er e uipment.

• (ny property lost ill be compensated by t"e one "o o ns it.• ).+. t"e drillin+ unit itsel& may be lost. T"e contractor is to be responsible &or t"is loss

re+ardless i& it is resulted &rom t"e ne+li+ence o& t"e operator.

#.2.2 Contractor s e0uipment and materials• T"is includes t"e contractor s e uipment and materials, "en in-"ole and operatin+

belo t"e rotary table, and its under ater drillin+ e uipment. 9e.+. D0(:• T"e operator is usually to bear t"e ris o& loss or dama+e to t"ese items e%cept in

cases resulted &rom contractor s ne+li+ence.• ).+. ear to t"e contractor s e uipment "ile it is in t"e "ole caused by corrosive

elements operator ill compensate t"e contractor

#.2. oss of ole and Cost of Control• T"e contract may provide t"at t"e contractor s"ould not be responsible &or loss o& or

dama+e to t"e "ole or casin+, or &or any cost o& re+ainin+ control o& t"e ell.

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• T"e e%ception is i& t"e "ole is lost as t"e result o& ne+li+ence o& contractor, t"econtractor ill redrill to t"e point o& loss at a reduced rate.

• !perators o&ten assume liability &or t"e cost o& re+ainin+ control o& any ild ell, asell as t"e cost o& t"e removal o& debris.

#.2.# Claims "y Third Parties• T"e drillin+ contract may provide t"at neit"er party s"all be liable &or in7ury to or

deat" o& t"e ot"er party s personnel, "o soever caused.• In t"e case o& pollution "ere t"e t"ird party is a&&ected 9e.+. p"ysical or &inancial

dama+e to t"e public:, bot" operator and contractor ill bear t"e &inancial c"ar+es andcompensate t"e dama+es.

#.2.3 Types of (rillin+ ContractsT"e drillin+ contracts provide compensation to t"e drillin+ contractor in one o& t"ree

ays; i: $ay-rate 9calculated by t"e amount o& time:,ii: oota+e 9calculated by t"e amount o& dept" drilled: andiii: Turn ey 9a lump sum payment or meetin+ a set predetermined tar+et:.

T"ere is a si+ni&icance di&&erence bet een t"e day or and turn ey or &oota+e contractsin terms o& ris allocation and insurance. T"e "i+"er t"e ris 9i.e. Turn ey:, t"e"i+"er

t"e compensation.

#. Types of (rillin+ Contracts

#. .1 (ay-rate ContractT"e day-rate contract is conceptually simple. T"e drillin+ contractor is paid a speci&iedamount &or eac" day or ed on t"e ell, re+ardless o& t"e number o& &eet drilled. T"edrillin+ contractor &urnis"es t"e ri+ and t"e cre . Enless t"e contract speci&ies ot"er ise,all materials, supplies, and ot"er services are &urnis"ed by t"e operator. T"e met"od andmanner o& payment are stated in t"e contract.

Esually t"e contract speci&ies t o daily rates, one &or time "en t"e contractor is actuallyen+a+ed in drillin+ and a lesser &i+ure &or standby time, durin+ "ic" t"e operator may be

runnin+ tests or "avin+ ot"er services per&ormed. T"e day-rate contract is used &or virtually all o&&s"ore or . It is also used ons"ore in areas "ere +eolo+ical conditionsare not ell no n or t"e drillin+ and environmental conditions are considered"a


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/i e &oota+e rates, day rates vary, dependin+ on t"e location and environment "ere t"eell is to be drilled. $ay rates may also vary +reatly over time it" c"an+e in demand &or

ri+s in t"e area.

#. .2 &oota+e ContractEnder t"e usual &oota+e-rate contract, t"e drillin+ contractor is paid a speci&ied amount

per &oot o& "ole drilled. 9T"ere is no implication t"at it costs t"e same amount &or eac"&oot o& "ole drilled. Costs increase si+ni&icantly as t"e dept" o& t"e ell increases.:Payment is irrespective o& "et"er t"e proposed dept" is reac"ed or not.

T"e contract usually calls &or drillin+ to a speci&ied dept" or to a speci&ied number o& &eet belo a speci&ic +eolo+ical "ori


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re uirements are met. Formally, t"e turn ey contract speci&ies day rates &or completionor .

T"ere are advanta+es and disadvanta+es to t"e turn ey contract &or bot" t"e contractor

and t"e operator. T"is contract allo s t"e contractor +reater latitude in t"e ay drillin+ isdone and in t"e selection o& t"e drillin+ mud and drill bits in order to drill t"e ell in t"emost economical and e&&icient manner possible.

T"e advanta+e to t"e operator is obvious; no matter "at problems are encountered, t"etotal cost o& t"e ell is t"e contract price. T"e disadvanta+e &or t"e drillin+ contractor ist"at t"e contractor must complete t"e ell as speci&ied re+ardless o& t"e cost. @anyt"in+s can "appen in t"e drillin+ process to ma e t"e turn ey contract a costly ris to t"econtractor.

T"e ma7or disadvanta+e to t"e operator is t"at, because o& un no n and une%pecteddrillin+ problems in ildcat areas, drillin+ contractors are usually reluctant to enter into aturn ey drillin+ contract in suc" areas. Decause o& t"e in"erent ris s o& drillin+ and t"eneed &or t"edrillin+ contractor to c"ar+e &or t"ese ris s, total costs ill +enerally be "i+"er under aturn ey arran+ement t"an under ot"er types o& contracts.

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3 Conclusion

T"e economics o& drillin+ and ell intervention is a ma7or component in terms o& ell plannin+ as it determines t"e viability o& t"e pro7ect or t"e types o& components and time

to be allocated to t"e ell. 8it"out proper plannin+, t"e industry may not survive. @a7or capital are invested into suc" activities and as muc" unnecessities are to be &iltered outespecially in t"e &allin+ economy. Identi&ication o& costs "elp trim any unnecessaryspendin+ and placement o& liabilities prior to carryin+ out 7obs protect t"e parties involvea+ainst un&air treatment. !verall, it is an important sub7ect matter &or ell en+ineers to beeducated on.

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6 4eferences

• Qennin+s, $., eiten, Q., R Droc , 0. 92 :. Petroleum (ccountin+ 95t" ed.:. Te%as;Pro&essional $evelopment Institute. etrieved &rom

"ttp;?? .boo s.mec.bi


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15 *ppendi)

*ppendi) ‘* *uthorisation for E)penditure $ample



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drilling & well intervention economics

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