Page 304 - Drilling Technology in Nontechnical Language

Chapter 12 – MANAGING DRILLING OPERATIONS 295

Estimating the Well Cost

Early on in the well planning process, the drilling engineer has to
make an estimate of how much the well might cost. With a development
well, there will be a wealth of offset well data that will allow a reasonably
accurate estimate, as long as the basic design elements of the well are
known. Exploration wells are a different ball game because there is much
less information available and many more unknowns. These unknowns
are handled in the cost estimates as contingencies.
The reason for completing a cost estimate so early on in the process
rather than after the drilling program is complete (when a proper accurate
estimate can be made) is that the well has to be budgeted for in advance. A
document known as an approval for expenditure or AFE must be signed
off by senior management.
A computer spreadsheet is an excellent tool for creating cost estimates.
Once drilling starts, estimated costs can be replaced with actual costs to

give a continually updated forecast of the likely final well cost. In the event
that the likely cost will exceed the AFE amount, an AFE amendment
should be sought to cover the additional cost.
Well costs can be divided into several categories. Each cost element

generally has a code to allow it to be tracked later on (see fig. 12–3).

Fixed costs

Fixed costs are the same however long the well takes to drill or however
deep it is drilled. Typical fixed costs relate to moving the rig on location,

moving it off after the well is complete, and surveying the well location.

Time-dependent costs

A large proportion of the total cost of the well comes from the time it
takes to drill the well. If problems occur, time-dependent costs escalate
rapidly. On a dayrate contract, the largest time-dependent cost will be
the rig itself. Other time-dependent costs will include equipment on daily
rental, personnel, vessels, helicopters, fuel, water, shore base, and dock
fees. On an offshore well in deep water, the rig might cost $500,000 a day,
but the other time-dependent costs might bring the total operational daily
cost to twice that amount.

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