SESSION 3

WHY WE NEED TO DRILL A WELL?

Exploration Wells

• Simply
because only Drilling can confirm whether the Geological and
Geophysical interpretation of a hydrocarbon presence is correct

• After drilling, only the evaluation of the well could determine the
characteristics of the reservoir including the type, flow, reserve, potential
etc.

The geological and geophysical interpretation is not definitive unless the

well is drilled and evaluated

Development Wells

• Simplybecause only Drilling can allow the well to be completed and

enable the hydrocarbon to flow to the surface
 DRILLING A WELL

What does it include?

• Drilling the well to TD

• Evaluate by wireline logging

• Test the well if required (some times if the well is development,

testing may not be required)

If the well is development, then

• Complete the well (only if a development well)

• Activate the well

 DRILLING THE WELL TO TD

Now we are ready to prepare for drilling the well

Let us begin with:

Well Design and Drilling Programme

 WELL DESIGN AND DRILLING PROGRAMME

What is the difference between Well Design and Drilling Programme?

Well Design

Explains WHY the well is designed in such a way providing all the assumptions and
risk factors

It is more of a engineering management and approval tool

Very critical for exploration wells – may not be so for development

Drilling Programme

Explains HOW the well will be drilled with step by step procedure

It is more of an operations and guidance tool

Very critical for all the wells – sometimes if hundreds of development wells of
similar types drilled, there may be a generic programme followed by a brief
specific programme for each well
 WELL DESIGN AND DRILLING PROGRAMME

Let us ALL put a Drilling Engineer’s Cap

Which one you will do first – Well Design or Drilling Programme?

For the well design, what will you be looking for?

What data will you be needing?

 WELL DESIGN – DATA REQUIRED
Sub-Surface Information – Some critical data requirement

• Type of well – vertical or deviated or horizontal

• Reservoir target data – Primary, Secondary and Tertiary targets with depths, uncertainty, type etc
• Surface co-ordinates and location map
• Geological objectives – what is to be achieved?
• Pore pressure data
• Fracture pressure data
• Temperature data
• Offset wells data
• Regional correlation if any
• Litho-column
• Stratigraphy
• Geological hazards
• H2S and CO2 presence
• Faulting information
• Uncertainties and other information as appropriate
 WELL DESIGN – DATA REQUIRED

We got the data!!!

What shall we do?

1. Feasibility of drilling the well to meet all the geological objectives

2. Preliminary well design with estimated time and costs

3. Peer review discussions on the preliminary well design

4. Final well design (subject to the data remains same)

5. If the data changes after additional work by sub-surface or

information, then design is subject to change
 WELL DESIGN

Feasibility of Drilling the Well

What we need to check?

1. In order to meet the geological objectives and based on the data

provided, whether the well can be drilled safely.

2. What are the risks and uncertainties involved in drilling the well?

3. Can the well be drilled with reasonable cost? What level of variance
could be expected in the cost if the anticipated risks are encountered?

4. Can we meet all the geological, drilling engineering, testing and

completion objectives or we may have to compromise some or few of
them?
 WELL DESIGN

Preliminary Well Design

• Basic Well Data

• Drilling Engineering Objectives
• Geological Objectives, Targets and Uncertainties
• Well Test and Completion (if appropriate) Objectives
• Well Design Concepts
• Potential Drilling Problems and Hazards
• Risks and uncertainties
• Time and Cost estimates
• Casing Design and Specifications
• Conclusions
 WELL DESIGN

Peer Review Meeting

• To review, analyse, discuss and evaluate the preliminary well design

• To ensure risks are identified, mitigated or accepted with mitigation
methods
• Collective utilisation of all experienced minds in to developing a
proper design
• Understand the cost requirements
• Conclusions

Can be only Internal or in some cases External

 WELL DESIGN
Final Well Design
• Introduction
• Basic Well Data
• Drilling Engineering Objectives
• Geological Objectives, Targets and Uncertainties
• Well Test Objectives
• Well Schematic
• Well Design Concepts and Detailed Discussions
• Well Test Concepts and Detailed Discussions
• Well Completion Concepts and Detailed Discussions
• Offset Well Data
• Anticipated Stratigraphy
• Potential Drilling Problems and Hazards Section Wise
• Predicted Pore Pressures and Temperatures
• Bit, Mud and Cement Programme
• Formation Evaluation Programme
• Rig and other Services Requirements
• Drilling Time Estimate
• Drilling Cost Estimate
• Casing Design Details
• Conclusions
 DRILLING PROGRAMME

After the Final Well Design, the Drilling Programme will be Prepared

The drilling programme will be discussed in a technical workshop consisting

of All Parties involved in drilling – including but not limited to:

• Operator’s team

• Drilling rig contractor

• All service companies

• Joint Venture Parties

• Any external consultant

The technical workshop is to bring everybody in to an understanding of

Company’s objectives and is an attempt to bring all as a team
 DRILLING PROGRAMME
The Drilling Programme will be finalised after the technical workshop and will
consist of the following as contents:
PART 1 : WELL DETAILS
1. Introduction
2. Basic Well Data
3. Well Objectives
4. Location Map
5. Equipment
6. List of Contractors
7. List of Operator’s Personnel
8. Well Schematic
9. Drilling Time Estimate
10. Drilling Cost Estimate
11. Estimated Pore Pressure, Fracture Gradient and Mud Weight
12. Casing Programme (Brief in a Table)
13. Mud Programme (Brief in a Table)
14. Cement Programme (Brief in a Table)
15. Bit Programme
16. Testing Programme
17. Completion Programme
18. Well Target Tolerance
19. Geological Summary
20. Geological Prognosis, Stratigraphy and Uncertainties
 DRILLING PROGRAMME

PART 2 : OPERATIONS

1.Health, Safety and Environment

2.Information Security
3.General Security
4.Pre-Mobilisation
5.Mobilisation
6.Rig-Up
7.Run Conductor Casing (either pile driven or drilled and cased)
8.Drill Surface Hole and Run Casing
9.Drill Inter-mediate Hole and Run Casing
10.Drill Inter-mediate Hole and Run Casing (depends on the well)
11.Drill Production Section and Run Casing
12.Plug and Abandon / Suspension (Exploration Wells)
13.Completion (Development Wells)
14.Prepare and Rig Down
15.Drilling Montage (GTO)
 DRILLING PROGRAMME

PART 3 : SUPPORT DATA

1.Contingency Procedures
(including but not limited to loss control, stuck pipe prevention
and control, well control etc)
2. Mud Programme
3. Cementing Programme
4. Directional Programme
5. Mud Logging Programme
6. Wireline Logging Programme
7. Coring Programme
8. Plug and Abandonment Programme or Suspension Programme
9. Wellhead and BOP Stack-up Drawings
10. Equipment Lists
11. Risk Register Details
12. Flow of information
 Fixed cost Variable cost
• Preparatory cost • Direct
• Material cost • Manpower
• Drill pipe depreciation • Services
• rig depreciation
• Indirect
• Project overheads
• Head quarter and
regional overheads
 BUDGET

Why drilling budget is critical in any E and P operations, especially in exploration

and appraisal wells although it is equally important for development wells also?

Depending on the number of wells and magnitude of seismic data acquisition, the
drilling cost for exploration and development amounts to more than 60 to 70% of
the total capex cost in the exploration/appraisal campaign

Every company requires that the oil finding costs have to be as low as possible as
the cost is not recoverable unless a commercial discovery is achieved and
commercial production commenced

This is possible only by reducing the drilling cost...

Hence, the drilling budget is very important

 PRELIMINARY BUDGET
• For an exploration well (for an appraisal well also), the 1st or preliminary
budget is prepared based on preliminary analyses of well design and
market conditions, sometimes almost 12 to 18 months prior to the actual
drilling
• At that time, there would be no tendered costs for tangibles, rig and
services.
• The number of days in the well would have been based on preliminary
data and objectives.
• Drilling, testing and completion plans would be at preliminary levels.
• The risk factors would not have been analysed thoroughly as the data is
preliminary.
• Due to all of the above, the preliminary budget is always at Level 4 at +/-
30% to 40%
The preliminary budget is hence prepared based on best estimates,
market conditions, budgetary quotes and assumptions
 PRELIMINARY BUDGET
However, most of the times, the preliminary budget is used for obtaining
approvals from Joint Venture, Government, Corporate and the Financial
Year Budget
• Invariably the budget will be revised after the rig, services and tangibles costs are
known based on a tender process, the number of days finalised based on final well
design, the risk factors are analysed based on more data and costs factors are
evaluated properly.

• However, the most common error made while approving budgets is, the possible
variance of +/- 30 to 40% is not approved too. So most of the cases, a budget
amendment is required before the actual drilling operations.

• In few cases, the budgets are estimated at very high levels in the preliminary
stage to prevent the issue of budget amendments or additional approvals. However,
this will create a negative impact on project economics.

What is then needed?

A balanced approach to make a budget.
The best is Drilling, G and G Commercial and Finance departments co-
ordinate together closely to arrive at a suitable budget rather than drilling
provides the budget in isolation.
 BUDGET
An Approach and Requirements

As a 1st step, the team has to identify each cost element so that none of the elements
are missed out

• The policy on tangibles have to be finalised – back-up levels, inventory budget,

inventory holding costs (mostly missed out)
• Contingency levels as a Company policy have to be determined
• Market conditions have to be analysed with the aid of information, budgetary quotes,
discussions and presentations
• Company philosophy on some cost elements have to be determined – like waste
disposal (one of the primary reasons for cost escalation at later stage), abandonment
or suspension plans etc

Drilling Guys say A Budget is a Budget – It is an estimate.

This is difficult for a commercial or finance person to digest.

It is important that it is made as an useful management tool and prepared

properly but most of the times very little time is spent on budgets and a
common practice is based on experience and not on facts…
 BUDGET

Fundamental philosophy to develop a cost model should be based on:

The wells drilled at,

- At reduced risk

- At minimum possible time

-At minimum learning curve times

-At optimum cost

-At maximum value

Looks very ideal – but can it be achieved? Yes – it has been done
before…
 BUDGET

As we discussed in Session 1, the budget should also be made with a

proper logical sequence as follows:

1. Drilling Preparation

2. Tangibles

3. Mobilisation and Demobilisation

4. Well Costs

5. Drilling Closeout
 DRILLING PREPARATION
General cost elements in a drilling preparation are as follows:

As drilling preparation may be even for 12 months prior to the commencement of the well, this
is a significant costs and many times this is missed out and not properly budgeted.

1.Manpower costs (Direct project or department manpower - excluding G and A manpower)

2. 3rd party consultant costs

3. Engineering and feasibility studies

4. Inspection of rig, services and tangibles

5. IT and communications set up (direct project related – not G and A covered IT costs)

6. Warehouse and logistics base set-up and operating costs

7. Software purchase if any

8. Travel and related costs (direct project related and not of G and A)

9. HSE and statutory approvals like EIA, EC and others

 MOBILISATION AND DEMOBILISATION
MOBILISATION - BREAK UP of COST
Project :

No Event Mobilised From Lumpsum Mobilisation Additional Mobilisation Total Mobilisation Cost Total Mobilisation Cost Remarks
Cost Costs

US $ US $ US $ US $

1 Drilling Rig

2 AHTS Vessel - 1

3 AHTS Vessel - 2

4 Helicopters

5 Cementing Services

6 Mud Logging Services

7 Casing/Tubing Running Services

8 Performance motors and Back up

9 Wire Line Logging Services

10 Solids Control Services - Centrifuges

11 Solids Control Services - Filtration Unit

12 Liner Hanger Rental

13 Combined Services 1 (Drilling tools)

14 Combined Services 1 (Fishing and Milling Tools)

15 Wellhead Services

16 MLS Services

17 Mud Engineering Services

18 Rig Supervisors Cost

19 Telecommunications

20 Well Testing/Completion Equipment and Services

21 Clearing and Forwading Agency Cost

22 Third Party Services During Mobilisation

23 Travel, Meals and Accommodation

Total Mobilisation Cost, US $

 MOBILISATION AND DEMOBILISATION
DEMOBILISATION - BREAK UP of COST

Project :

No Event From Lumpsum Demobilisation Additional Demobilisation Total Demobilisation Total Demobilisation Remarks
.

US $ US $ US $ US $
1 Drilling Rig

2 AHTS Vessel - 1

3 AHTS Vessel - 2

4 Helicopters

5 Cementing Services

6 Mud Logging Services

7 Casing/Tubing Running Services

8 Performance motors and Back up

9 Wire Line Logging Services

10 Solids Control Services - Centrifuges and Shakers

11 Solids Control Services - Filtration Unit

12 Liner Hanger Rental

13 Combined Services 1 (Drilling tools)

14 Combined Services 1 (Fishing and Milling Tools)

15 Wellhead Services

16 MLS services

17 Mud Engineering Services

18 Rig Supervisors Cost

19 Telecommunications

20 Well Testing/Completion Equipment and Services

21 Clearing and Forwading Agency Cost

22 Third Party Services During Mobilisation

23 Travel, Meals and Accommodation

Total Mobilisation Cost, US $

 TANGIBLES
General cost elements for tangibles re as follows:

As tangibles may be ordered 6 to 12 months prior to the

commencement of the well, this is a significant costs and hence the
specifications, quantities and back-ups have to be properly defined.

1. Casings
2. Tubings
3. Casing accessories
4. Liner hangers
5. Wellheads
6. X-Mas trees
7. Completion equipment
8. Bridge plugs and cement retainers
9. Contingency equipment
 Mobilization and demobilization
 Drilling rig
 Drilling fluid
 De-watering plant
 Mud logging
 Drilling tools
 Fishing/milling tools
 Electric logging
 MWD/LWD
 Casing running Equipment
 Cementing
 Liner hanger services
 Miscellaneous
 Pre –Spud
 Drilling rig  Trucking, ground
 Drilling fluid transportation
 De-watering plant  Inspection
 Mud logging  Labor contract
 Drilling tools  Catering lodging
 Fishing/milling tools  Material supplies
 Electric logging
 Project management
 MWD/LWD
 Insurance and others
 Casing running Equipment
 Miscellaneous
 Cementing
 Liner hanger services
 Miscellaneous
 Contract drilling

 Day work drilling

 Workover / Completion rig

 Catering and lodging

 Additional bed space

 Miscellaneous
Materials and supplies
 Diesel fuel
 Water
 Mud and chemicals
 Shaker screen and other consumables
 Cement and additives
 Drill bits
 Casing running and consumables
 Coreheads and coring consumables
 Miscellaneous
 Contract services
 Trucking / ground transportation
 Cementing
 Drilling fluid
 De-watering plant
 Electric logging
 Mud logging
 MWD/LWD/Directional drilling
 Drilling tools
 Fishing / milling tools
 Casing and liner hanger running services
 Labor contract
 Well testing services
 Stimulation services
 Miscellaneous
Direct supervision
Well planning and insurance
 WELL COSTS
The well costs can be classified to 5 major categories:
1. Time Dependent Costs
The time dependent costs depend upon the number of days required to drill and complete the well. They
increase or decrease as the number of days in a well increase or decrease. The time dependent costs are
an average daily spread cost that consists of all the major services which are on a day rate contract like the
drilling rig, vessels, cementing, mud logging, wireline logging, drilling and fishing tools, warehouse,
helicopter services and personnel.

2. Depth Dependent Costs

The depth dependent costs depend upon the depth of the well meaning as we keep drilling, the cost will be
continuously incurred or incurred at the end of particular section like mud costs, cementing of a casing, bits,
consumables, services that are not covered in day rate matrix etc.
3. Fixed Costs
The fixed costs are the ones that are to be paid irrespective of the well progress like rig positioning
services, warranty surveyor costs, site survey costs, insurance costs, site construction costs etc.

4. Tangibles
The tangible costs are the casings, Tubings, wellheads etc which are drawn out for the well from the
inventory and charged accordingly.
5. Mobilisation and Demobilisation Costs Allocation
The mobilisations and demobilisation costs is common for all the wells drilled in the campaign and it has to
be allocated based on number of wells or number of days in each well. In the budget it is normally done
with number of wells and at the end of the campaign it is re-allocated based on actual number of days
 BUDGET – TIME DEPENDENT COSTS
No Event Estimated Day Rate Total Cost Estimated Day Rate Total Cost

Drilling Testing / Completion

TIME DEPENDENT SERVICES US $ US $

1 Rig rate

2 Work boats

3 Helicopters

4 Cementing services

5 Mud logging services

6 Casing/tubing running services

7 Directional drilling services with Rotary Steearable and LWD Assembly)

8 Logging services

9 Solids control services - Centrifuges

10 Coring services

11 Solids control services - Filtration Unit

12 Liner Hanger Rental

13 Drilling tools - rental

14 Fishing tools - rental

15 Wellhead services

16 MLS Services

17 Rig supervisors cost

18 Chennai based drilling team and Ops. geologist

19 Fuel and water for the Rig

20 Fuel for supply boats

21 Telecommunications

22 Ware house and other services

23 Well testing and completion equipment - standby costs

24 Additional equipment from the rig and other services

25 Other services and miscellaneous

TOTAL TIME DEPENDENT COSTS

BUDGET – DEPTH DEPENDENT COSTS

DEPTH DEPENDENT SERVICES

1 Drilling fluids and completion fluids

Waste disposal and other special
2
requirements
3 Cement and additives
4 Coring
5 Bits
Shaker screens and other
6
consumables
7 Redressing equipment/consumables
8 Directional Drilling - operating cost
9 Additional Scope

TOTAL DEPTH DEPENDENT

INTANGIBLES COST
 BUDGET – FIXED COSTS
FIXED COSTS

1 Rig Positioning including site survey for rig move

2 Rig mover - warranty surveyor
3 Site construction including access roads
4 Community development
5 Freight, Clearing and Forwarding Agency
6 Pre-spud Meeting and other workshops#
7 Insurance

TOTAL FIXED COSTS

BUDGET – TESTING COSTS

TESTING/COMPLETION EQUIPMENT and SERVICES

1 Well Test Daily Equipment Operating Rate

2 Equipment Make-Up and Testing Services
3 DST Personnel
4 TCP Perforation and Services
5 DST Down hole Tools Operating Rate
6 Special services if any
7 Surface Testing Operating Charges
8 Equipment mob/demob component
9 Special 3rd party testing consultants

TOTAL TESTING/COMPLETION EQUIPMENT and

SERVICES COST
Phase % of Total Cost
Consumables 32.8
Logistics 12.5
Management & 5.1
Supervision
Hire of Drilling Rig 20.1
Supplies and Services 29.5
Total Cost 100
 BUDGET

ADD:

1.Cost of tangibles

2. Allocation of mobilisation and demobilisation costs

3. Contingency cost as a % or as lump sum

The process of obtaining approval,
budgeting and monitoring costs is often
referred as the "Authorization for
expenditure, AFE"
END OF SESSION 3