Drilling Engineering 1 Course

3rd Ed. , 3rd Experience

1. time estimates
A. Example of time-depth curve
2. Elements Of Well Costing
3. Risk Assessment In Drilling Cost Calculations
4. Drilling Contracting Strategies
Authorization For Expenditure
elements which comprise the well cost:
rig, casing, people, drilling equipment etc.
The final sheet summarizing the well cost is usually
described as the AFE: “Authorization For Expenditure”.
The AFE is the budget for the well.
Once the AFE is prepared, it should then be approved and
signed by a senior manager from the operator.
The AFE sheet would also contain:
project description, summary and phasing of expenditure,
partners shares and well cost breakdown.
Details of the well will be attached to the AFE sheet as a form
of technical justification.

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FACTORS AFFECTING WELL COST
Well costs for a single Profile
well depend on: vertical/ horizontal/
multilateral
Geographical location:
Subsurface problems
land or offshore, country
Rig costs:
Type of well:
land rig, jack-up,
exploration or semi-submersible or
development, drillship and rating of rig
HPHT or
sour gas well Completion type
Drillability Knowledge of the area:
Hole depth wildcat, exploration or
development
Well target(s)

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time spent on a well
The time spent on a well consists of:
Drilling times spent on making hole, including
circulation, wiper trips and tripping, directional work,
geological sidetrack and hole opening.
Flat times spent on running and cementing casing,
making up BOPS and wellheads.
Testing and completion time.
Formation evaluation time including coring, logging etc.
Rig up and rig down of rig.
Non-productive time.

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time required to drill the well
Before an AFE can be prepared,
an accurate “estimate” of the time required
to drill the well must be prepared.
The time estimate should consider:
ROP in offset wells.
From this the total drilling time for each section
may be determined.
Flat times for running and cementing casing
Flat times for nippling up/down BOPs and nippling up
wellheads
Circulation times.
BHA make up times.

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DETAILED TIME ESTIMATE
Detailed time estimates can be prepared for each
hole section by considering the individual
operations involved.
This exercise requires experience on part of the engineer
and also detailed knowledge of previous drilling
experience in the area.

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Detailed time estimate for
30” conductor

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 Calculation of
time -depth curve
Assume the following well design for Well Pak-1:
36” Hole / 30" Conductor 50 m BRT (below rotary table)
26” Hole / 20" Casing 595 m BRT
17.5”Hole / 13.375" Casing 1421 m BRT
12.25” / 9.625" Casing 2334 m BRT
8.5” Hole / 7" Casing 3620 m BRT
Total Depth 3620 m BRT
From three offset wells, the following data was
established for average ROP for each hole section:
36” Hole 5.5 m/hr
26” Hole 5.5 m/hr
17.5”Hole 7.9 m/hr
12.25” 4.6 m/hr
8.5” Hole 2.5 m/hr

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 Calculation of
time -depth curve (Cont.)
The expected flat times for this well are :

Calculate the total drilling time and

plot the depth-time curve.
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 Calculations of
planned drilling times
Solution:
Example 17.1: Calculation of time -depth curve,
WEC PGO: 752

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 Time-depth calculations

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 Time-depth curve

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ELEMENTS OF WELL COSTING
There are three main For offshore wells
elements of the well there are other costs
cost. which must be included:
No matter what service Supply boats
or product is used, it will Stand-by boats
fall under one of the Helicopters
following three cost
elements, namely:
Rig costs
Tangibles
Services

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RIG COSTS
As the name implies, $/day.
rig costs refer to the cost Rig rate depends on:
of hiring the drilling rig Type of rig
and its associated Market conditions
equipment. Length of contract
This cost can be up to Days on well
70% of well cost,
especially for Mobilization/
semi-submersible rigs Demobilization of rig and
or drilling ships. equipment
Rig cost depends entirely Supervision
on the rig rate per day, Additional rig charges
usually expressed as

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TANGIBLES
Tangibles refer to Wellhead/accessories
the products Bits
used on the well. Coreheads
These include: Cement products
Casing Mud products
For an example: Solids control
length of casing and consumables
selecting the appropriate
casing grades/weights for Fuel and lubes
each hole section Other materials and
Tubing/ supplies
completion equipment

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SERVICES
This group of costs refers Surveying
to any service required on determination of
the well. Services include: hole angle and azimuth.
includes the cost of single
Communications shots, magnetic multi-shots
Rig positioning (MMS) and gyros
usually required in offshore Cementing
operations Mud Logging
Logging (wireline) Fishing
both open & cased hole only included if experience
logs in the area dictates that
MWD/ LWD fishing may be required in
Downhole Motors some parts of the hole
Solids Control Equipment Downhole tools
including jars, shock subs
Mud Engineering
Casing services
Directional Engineering

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NON PRODUCTIVE TIME (NPT)
The time required for any routine or abnormal
operation which is carried out as a result of a failure
is defined as Non Productive Time (NPT)
Non-Productive Time (NPT) in drilling operations
currently account for 20% of total drilling time.
the NPT is calculated as the time
from when the problem occurred to the time when
operations are back to prior to the problem occurring.
The NPT time includes normal operations
such as POH, RIH, circulating etc.
standby time
Waiting on weather or waiting on orders, people or
equipment is not NPT. This is standby time.

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CLASSIFICATION OF NPT
Rig equipment Logging equipment
(Down time due to: Mud Stuckpipe and Fishing of
pumps, generators, shakers, BHA equipment
rotary table, top drive/Kelly,
hoist, drilling line, gauges, Casing Hardware and
compressors and anchors. Cementing Equipment
Note that within the rig
contract a fixed time is Fluids
allowed for rig repairs/
maintenance. The NPT rig Hole problems
time should be the time Well Control
recorded above the agreed
fixed repair time). Testing and Completion
Surface Equipment NPT
Downhole Equipment
Drillstring Equipment
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two major elements of
well cost estimates
it is essential that cost Rig costs and services are
greatly impacted by the
estimates are made time estimate.
realistic, as low as Tangible costs
possible and produced in Tangible costs can be
a consistent manner. estimated at the
budgetary stage (before a
These criteria are detailed well plan is
achieved through the made) or at the AFE stage
application of risk after the detailed well
assessment. plan is made.
The risk involved in
Well cost estimates are estimating tangibles is
made up of two major usually small.
elements:
Time dependent costs
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levels of risks
Risk assessment is defined in terms of the
probability of meeting a given target. There are
three levels of risks:
P10 (only a 10% chance of being achieved)
This is a highly optimistic estimate which can only be
achieved under exceptional circumstances.
As there is no exact method for estimating P10, it is now
customary to base P10 value on the best possible
performance on any operation on any well in the area.
the total P10 value for a given section will be the best
individual values from several wells for all operations
required to drill, case and cement the given hole section.

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levels of risks (Cont.)
P50
This is the key figure in most well cost estimates.
This estimate will be based on known information
derived from offset data.
P90
This is an estimate of well cost which is likely to be met
90% of the time and that well costs can not be exceeded
except under exceptional cases.
This estimate was widely used in the oil industry before
accurate cost estimating was introduced in the early 1990’s.

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COST REDUCTION
There are two elements of costs which must be
controlled:
Capital Expenditure (Capex):
This includes the cost of finding and developing an
oil/gas field.
The cost of drilling operations is the major cost element
and must be kept to an acceptable value.
Operating Cost (OPEX):
This includes the actual cost of production: cost of
maintaining the platform, wells, pipelines etc.
We will not be concerned with these costs as they are
part of production operations.

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Price of oil production
judging a minimum
price per barrel of oil (2002):
 In the North Sea, it is accepted
that the principle of 1/3/3
results in a profitable
operation.
 $1 for finding,
$3 for developing and
$3 for production.
 combined cost of $7 per barrel
 In the Middle East, this
combined cost can be as low
as $2 for some giant fields.
In general the more remote
the area the more expensive
is the final cost of barrel of
Fall 14 H. AlamiNia Drilling Engineering 1 Course (3rd Ed.)
oil.
 This is particularly true for
deep waters in hostile
environments.
The following is a list of
measures to reduce costs:
 Technical innovation
 Productivity improvement:
e.g. faster drilling operations
 Increased operational
effectiveness
 Incentive contracts
(sharing gains and pains)
 Less people
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types of contracts
There are basically four types of contracts which are
currently used in the oil industry:
Conventional
Integrated Services (IS)
Integrated Project Management (IPM)
Turn Key
The type of drilling contract used can mean the
difference between an efficient and a less efficient
operation.
Indeed, going for one type, say turn key, can mean that the
operator has no control over the operation whatsoever and
has no means of building knowledge for future operations.

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CONVENTIONAL CONTRACT
In this type of contract, the E&P company does every thing using
its own staff or contractors. This is the most involved type of
contract and can mean handling up to 100 contracts per well.
 the operator has total control over the operation and carries full risk.
 The contractor has no risk and it could be argued that
 the contractor has no incentive in speeding up the operation.
This type of contract has the advantage that
 lessons learnt during drilling operations are kept within the company
and used to improve future operations.
Nowadays, only large operators opt for this type of contract.
A variation of the above contract is to include an incentive clause
for completing operations early or if a certain depth is reached
within an agreed time scale.
 The contractor will be paid a certain percentage of the savings made if
operations are completed ahead of the planned agreed drilling time.

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INTEGRATED SERVICES (IS)
In this type of contract, major services are
integrated under two or three main contracts.
These contracts are then given to lead contractors who,
in turn, would subcontract all or parts of the contract to
other subcontractor.
The lead contractor hold total responsibility for his
contract and is free to choose its subcontractors.
The operator still holds major contracts such as rig,
wellheads and casing.
Also the operator appoints one of its staff to act as a
coordinator for the drilling operation.

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INTEGRATED PROJECT MANAGEMENT
(IPM)
In this type of contract, a main contractor is chosen.
This contractor is the Integrated Project Management (IPM)
contractor.
The contractor is responsible for 20-30 service companies.
• Service companies may be responsible for other service companies.
The drilling operation will be controlled by a
representative from the IPM contractor.
The operator may hold one or two major contracts.
It is one of the worst kind of contracts for the operator
because:
There is virtually no learning for the operator.
The incentive contract is built on a time-depth curve
developed and based on the contractor’s experience. Use of
better equipment and personnel may beat the IPM
contractor’s time-curve.

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TURN KEY CONTRACT
This is the easiest of all the above contracts.
The operator chooses a contractor.
The contractors submits a lump sum for drilling a well:
• from spud to finish with operator virtually not involved.
The contractor carries all risks if the well comes behind time
and also gains all benefits if he should drill the well faster.
Contractors only opt for this type of contract
if they know the area extremely well or
during times of reduced activities.
The operator opts for this type of contract
if he has a limited budget or
has no knowledge of drilling in the area.

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CURRENT AND FUTURE TRENDS IN
DRILLING CONTRACTS
There are two new development in drilling and
production contracts:
Production Sharing Agreement
It stipulates that the contractor will be paid
a certain percentage of the produced fluids (oil or gas) in return
for the services of the contractor in drilling and producing the
wells.
• The agreement may be time-dependent running for a fixed
number of years or
may include an initial payment for the contractor
in addition to a percentage of the production.

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CURRENT AND FUTURE TRENDS IN
DRILLING CONTRACTS (Cont.)
Capital Return Agreement Plus Agreed Production
It stipulates that the contractor will develop a field using his
own finance. In return, the operator (or national oil company)
will pay the contractor all his capital expenditure plus an agreed
percentage of the production.
• In Iran where this type of contract is used, the agreed production
is limited to a fixed number of years. The ownership of the field
and its facilities always remain with the operator.

These new types of contracts were initially initiated

in some Middle Eastern countries attempting to
draw western investment.
These contracts are still developing in nature and have
now been used by a number of third world countries.

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1. (WEC) Rabia, Hussain. Well Engineering &
Construction. Entrac Consulting Limited, 2002.
Chapter 17