AFE: 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, particularly offshore. Properly estimating these costs for inclusion in an authority for expenditure (AFE) is important.
Consider drilling and completing the well in Fig. 1 in 75 days and use the rig costs shown in Table 1 for purposes of this example.
The first three cases used the same well design criteria and equipment (i.e., casing, mud, and logging—with the exception of the rig cost). Case 4 uses the same well in an offshore environment, resulting in the need for a jackup rig. As a result, it is easily seen that careful attention must be given to defining cost for the drilling rig and tools.
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. Jack-up rigs require a fleet of tugboats, while drillships may be able to move themselves onto the location. Many states have published tariffs that specify the allowable trucking charges for various types of moves. Large land rigs are normally transported by truck to the location. Generally, IADC Type 3 and 4 rigs are sufficiently large that they must be transported piecewise by truck. Types 1 and 2 are usually truck-mounted rigs, which reduces the moving time and associated trucking requirements.
Procedures for estimating rig cost can be developed with the rig cost and average moving times. A survey of numerous drilling contractors showed that Type 1 and 2 rigs usually require approximately 4 days for move-in, rig-up, rig-down, and move-out. Type-3 and -4 rigs required 8 days for land and offshore rates, although the elements of this time value are different (i.e., land rigs are transported by truck while jackups are towed by boat).
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 drillsites, requiring helicopter transportation.
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. For example, ABC Oil Co. may contract XYZ Drilling Co. to drill a well to 10,000 ft for a flat fee of U.S. $27.50/ft. The drilling company is responsible for all well operations until the contracted depth is reached.
The footage contract defines cost responsibilities for both parties. The operator may pay for all pipe, cement, logging, and mud cost. The contractor is responsible for all rig-associated costs such as move-in and move-out, drilling time, and bits. At the target depth or operation, all costs and operational responsibilities revert to the operator.
This contract arrangement can offer significant advantages to both parties. Operators are not required to staff a drilling department for drilling a single well or a few wells. The drilling contractor, with proper bid preparation and efficient drilling practices, can gain a greater profit than while on straight day-work rates. Possible problem areas for the drilling contractor include:
- Mechanical breakdowns creating unexpected costs.
- Poor well planning.
- Geological anomalies.
- “Force majeure” situations.
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.
Rig selection and cost depend on the well. Although rigs are often rated by their capability to drill to a certain depth, the controlling criterion is usually the casing-running capability (i.e., derrick and substucture capacity). A rig rated for 18,000 ft of drilling may not be capable of running 15,000 ft of heavy 9⅝-in. casing. Therefore, the well plan must be developed and analyzed before rig selection.
Rig costs vary considerably and are dependent on items such as supply and demand, rig characteristics, and standard items found on the rig. Results of a study to compare U.S.-operated rig costs are shown in Fig. 2. The guidelines were the rig’s derrick and structure capacity and disregarded items such as optional equipment that might otherwise be rented for lesser rigs. An interesting point on the illustration is that the over-supply rig costs were reasonably equal regardless of the rig size (i.e., U.S. $6,000 vs. $9,500/day for small to very large rigs).
Standby rates for drilling rigs usually range from U.S. $200 to $500/day less than the amounts shown in Fig. 2. The rates include crews and drillpipe. The costs are used to estimate move-in and move-out charges.
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. The results are shown in Fig. 3. The average consumption rate is evaluated as a function of the rig size measured by its ability to run casing.
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.
Many engineers use a value of U.S. $5,000 to $10,000 for water costs. This amount is approximately the cost to drill a shallow water well. It is also a fair estimate of the cost to lay a water line from a nearby water source. In any case, water costs are seldom considered as a major impact on the total cost estimate.
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.
Diamond-bit costs depend on the bit size as well as the diamond size, spacing, and quality. In most cases, these bits are made upon demand and are not off-the-shelf items. A rule-of-thumb cost guide for diamond bits is $2,500/in. of bit diameter. For example, a 10-in. bit would cost approximately U.S. $25,000. Salvage values of up to 40%; of the bit cost are often granted on used bits. From a conservative view, many engineers prefer to disregard bit salvage value when estimating bit costs, in case the bit is completely destroyed.
Polycrystalline bits are a staple in the drilling industry. Their physical structure, drilling performance, and cost are significantly different from roller-cone or diamond bits. Sample costs for these bits are shown in Table 2.
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.
Costs for completion rigs can be determined from Fig. 2. Tubing or small drillstring load requirements are used instead of casing capacity. Economic decisions to use a completion rig must also consider the cost of the rig moving onto the location, as well as the daily-rate differences between the drilling and completion rigs.