In general, the cost can be defined as the expenses directly incurred by the driller (such as equipment, labour, materials, consumables, loan repayments, taxes, office overheads, legitimate and other transaction costs). Drilling costs by definition consist of all resources required to put in place to make a hole for hydrocarbon production. These include capital costs, fixed cost, and variable cost in drilling a well. Capital costs include the investment in planning, preparing, construction, purchase of hardware etc. Fixed costs are classifi ed into well-dependent and well independent cost. Well dependent fixed costs include items such as the cost of casing, wellheads, and mobilization/demobilization. Well-independent fixed costs include, but are not limited to, administration, office services, insurance, legal support, interest charges on the money tied up in the equipment, expenses associated with maintaining and storing the equipment, etc. Further, fixed costs are the assembly of drill string, installation of safety valves. Variable costs are decomposed into time-dependent costs, such as the drilling rig day rate, tool charges, rentals, fuel, power and time-independent cost elements, such as running and cementing casings, materials, drill bits, and other consumables and services etc. The costing method must be robust and it will need to provide reliable estimates.
The total drilling cost includes everything it takes to run a drill. It includes labour, power: fuel or electricity, drilling tools and supplies, maintenance labour & parts, supervision, administration, cost of equipment ownership (lease, purchase, or rental payments). However, well drilling costs can be subdivided into the three main elements. No matter what service or product is used, it will fall under one of the following three cost elements, namely: i) rig costs, ii) tangibles, and iii) services.
Rig costs refer to the cost of hiring the drilling rig and its associated equipment. This cost can be up to 70% of well cost specifically for semi-submersible rigs or drilling ships. Rig cost depends entirely on the rig rate per day which is usually expressed as $/ day. Rig rate depends on i) type of rig, ii) days on well, iii) mobilisation/demobilisation of rig and equipment, iv) market conditions, v) length of contract, vi) supervision, and additional rig charges.
Tangible costs refer to the products used on the well. These costs include i) casing, ii) tubing and completion equipment, ii) wellhead accessories, iii) bits, iv) core heads, v) cementing jobs and cement products, vi) mud products, vii) solids control consumables, viii) fuel and lubes, and ix) other materials and supplies. The tangible costs should look at the individual element which is responsible for the cost of that item. For example, the costing of casing should begin by selecting the appropriate casing seats (i.e. length of casing) and selecting the appropriate casing grades/weights for each hole section. Then each casing string for each hole size should be utilized for costing. Finally the total costs of all the casing strings are added to produce the total casing costs for the well. The same method applies to each tangible item which requires design, selection and breaking into individual groups. Further examples can be set for tubing and completion equipment, drill bits, core heads, and wellhead equipment.
The service costs refer to the expenditures associated with any service required on the well. The service costs include i) communications (i.e. refers to telephones, data transfer etc. which is a lump sum cost or cost per day) ii) rig positioning (i.e. the cost required to position the rig which is usually required in off shore operations), iii) wireline logging (i.e. the cost of running and producing wireline logs, both open hole and cased hole logs), iv) measurement while drilling (MWD)/logging while drilling (LWD) (i.e. the cost of renting and running MWD, LWD), v) downhole motors (i.e. the cost of using downhole motors during directional drilling or during drilling long sections of vertical wells), vi) solids control equipment (i.e. the consumables required for solids control equipment and any special equipment the rig contractor does not normally provide, vii) mud engineering (i.e. the cost of the mud engineer and the services required to maintain the mud which is not the cost of mud products as explained earlier under tangible costs), viii) directional engineering (i.e. the cost of the directional engineer, soft ware and support required during directional drilling), ix) surveying (i.e. the cost of running surveys inside the hole to determine hole angle and azimuth which usually includes the cost of single shots, magnetic multi-shots (MMS) and gyros plus the cost of the engineer and rental of the equipment to run the surveys), x) cementing (i.e. the cost of renting the cementing unit and the cement engineer), xi) mud logging (i.e. the cost of renting the mud logging unit and the engineers required to run the unit), xii) fishing (i.e. an ad-hoc cost of renting fishing equipment and cost of engineers which is only included if experience in the area dictates that fi shing may be required in some parts of the hole and that fi shing equipment must be available at the rig site to be used for such eventualities, xiii) downhole tools (i.e. any tool required which is not supplied by the drilling contractor; including jars, shock subs etc.), xiv) casing services (i.e. the equipment require)