presentation about the drilling economics. in this presentation we talked about drilling cost prediction , cost specification , authorization for expenditure , drilling optimization and drilling cost equation.

1. PREPARED BY
Safeen Dlshad Taha
Aza M.Ali
Darya Mahdi
SUPERVISED BY
Mr. Ali illyas
Drilling engineering
drilling economics

2. Safeen Dlshad Taha
Aza Mohammad Ali
Darya Mahdi Rasheed

3. Safeen
• Drilling Cost Prediction
• Cost Specification
Aza
• Authorization For Expenditure
(AFE)
Darya
• Drilling Optimization
• Drilling cost equation

4. Safeen
► Drilling Cost Prediction
 Cost Specification
Aza
 Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
Drilling cost predictions are made so that sound
economic decision can be made.
Predictions depend primarily on:
 Location – governs the cost of preparing wellsite,
moving rig to location, and daily operating cost.
 Depth – governs the lithologies to be penetrated, thus
the time required to complete the well.
1

5. Safeen
► Drilling Cost Prediction
 Cost Specification
Aza
 Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
Drilling costs tend to
increase exponentially
with depth.
exp( )C a bD
C = cost, $
a, b = constants depending on well location
D = depth, ft.2

6. Safeen
► Drilling Cost Prediction
 Cost Specification
Aza
 Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
ln lnC a
D
b b
 
3

7. Safeen
 Drilling Cost Prediction
► Cost Specification
Aza
 Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
Drilling costs can be broken down into 3 groups:
I. Fixed
II. Daily
III. Unit
4

8. Safeen
 Drilling Cost Prediction
► Cost Specification
Aza
 Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
Fixed Costs
Fixed costs are determined by the nature of the well, such
as:
• Wellheads
• Site preparation
• Casing, cement, tubing and packers
5

9. Safeen
 Drilling Cost Prediction
► Cost Specification
Aza
 Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
Daily Costs
× Daily costs are related to the time spent on the operation.
× Off shore rigs have high expenses which listed below.
× Daily costs include:
• Payments to drilling contractors (rig time)
• Tool rental
• Payment to specialist services
• Salaries, wages etc.
• Fuel
• Lubricating oil, grease
• Drilling consumables (rope, soap and dope)
• Transport of materials6

10. Safeen
 Drilling Cost Prediction
► Cost Specification
Aza
 Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
Unit Costs
× This is the price of a unit of a commodity such as the
price per tonne of barite or bentonite.
× This can be optimized in the tendering process, which is
Drilling Manager responsibility.
× Good site supervision can ensure that
consumption is not excessive.
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11. Safeen
 Drilling Cost Prediction
 Cost Specification
Aza
► Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
• An AFE is a budgeting and approval form used during the
planning process for a well about to be drilled (and for
other projects).
• It includes an estimate of costs to be incurred during the
IDC (intangible drilling cost) category and in the tangible
equipment category. Costs are shown in total with
accompanying breakdowns.
8

12. Safeen
 Drilling Cost Prediction
 Cost Specification
Aza
► Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
• The term AFE stands for Authorization for Expenditure.
This particular term is used in order to drilling and
completion costs. ... Sometimes even for approval of
Operating Expenditure related to exploration,
development and production as well AFE is used.
9

13. Safeen
 Drilling Cost Prediction
 Cost Specification
Darya
 Dril. Optimization
 Dril. cost equation
• The AFE form represents:
(1)A budget for the project against which actual expenditures
are compared.
(2)A joint venture form for evidencing agreement by joint
interest owners to participate in the budgeted project.
Aza
► Authorization For
Expenditure (AFE)
1
0

14. Safeen
 Drilling Cost Prediction
 Cost Specification
Aza
► Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
 AFE components:-
Both the onshore and offshore AFEs are broken down into
the following sections: preparation, drilling and
abandonment, testing, and completion.
1. Preparation
This part of the AFE covers the costs incurred to the point
at which the rig is brought on to location.
For onshore wells this would include site building and well
engineering as the main cost centers.
For offshore wells, the main cost centers are site surveying
and well engineering.
1
1

15. Safeen
 Drilling Cost Prediction
 Cost Specification
Aza
► Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
2. Drilling and abandonment
This is the 'dry hole' drilling component of the well. It
assumes drilling to Total Depth, logging and finding nothing
of interest. The well is, therefore, proposed for
abandonment and costed accordingly.
3. Testing
This is the additional cost incurred by a testing
programmed. It is not merely the testing cost charged by the
testing company but must also include all the ongoing daily
costs associated with the rig such as:
rig day rate fuel oil site personnel office personnel office
overheads
1
2

16. Safeen
 Drilling Cost Prediction
 Cost Specification
Aza
► Authorization For
Expenditure (AFE)
Darya
 Dril. Optimization
 Dril. cost equation
4. Completion
This is the further additional cost incurred following testing
once the decision to complete the well has been made.
As with testing, the cost centers are not only the cost
of completion equipment and services but also the costs of:
rig day rate fuel oil extra casing string if run perforation site
personnel office personnel office overheads
1
3

17. Safeen
 Drilling Cost Prediction
 Cost Specification
Darya
► Dril. Optimization
 Dril. cost equation
Aza
 Authorization For
Expenditure (AFE)
 Drilling optimization is minimizing the cost of wells objective while
maintaining safety standard
 The minimum drilling cost is also the optimum drilling cost
 The optimization process is a cycle that starts with using the
existing data base of drilling information
 More data are collected during the practical drilling
process
 The new data are then analyzed to update the
data base for future use1
4

18. Safeen
 Drilling Cost Prediction
 Cost Specification
Darya
► Dril. Optimization
 Dril. cost equation
Aza
 Authorization For
Expenditure (AFE)
1
5

19. Safeen
 Drilling Cost Prediction
 Cost Specification
Darya
► Dril. Optimization
 Dril. cost equation
Aza
 Authorization For
Expenditure (AFE)
 The process of optimizing drilling process is not
always straight-forward.
 Because of uncertainties involved there is always need
for some trade-offs.
 For example ,optimization might mean
paying more obtain a better tool,
such as choosing a rig with a higher day
rate to obtain better equipment.
1
6

20. Safeen
 Drilling Cost Prediction
 Cost Specification
Darya
 Drilling Optimization
► Drilling cost equation
Aza
 Authorization For
Expenditure (AFE)
Drilling cost equation
Also known as the cost per foot equation
1
7

21. Safeen
 Drilling Cost Prediction
 Cost Specification
Darya
 Drilling Optimization
► Drilling cost equation
Aza
 Authorization For
Expenditure (AFE)
Example-cost per foot calculation
*a 17-1/2 bit drills 1,050 of hole at an average penetration rate of 35
ft/hr . Given the following data ,what is the cost per foot?
+round trip=6hrs bit purchase cost =3,000$
+bit life =30hrs tool purchase =100$
+rig cost=800$/hrs interval mud cost =5,000$
+Tool rental=100$/hrs support cost=200$/hrs
+T trib=6hrs C bit=3,000$ ROP avg =35ft/hr
+T bit =30 hrs C mud= 5,000$ C rig =800$/hr
+C tools =100$ C tool rental=100$ C support =200$/hr1
8

22. Safeen
 Drilling Cost Prediction
 Cost Specification
Darya
 Drilling Optimization
► Drilling cost equation
Aza
 Authorization For
Expenditure (AFE)
Solution:
8,100 39,600
1,050
45.43$ /
drill
drill
C
C ft



1
9

23. Safeen
 Drilling Cost Prediction
 Cost Specification
Aza
 Authorization For
Expenditure (AFE)
1. Hossain, M.E., 2015. Drilling Costs Estimation for Hydrocarbon
Wells. Journal of Sustainable Energy Engineering, 3(1), pp.3-32.
2. Leamon, G.R., 2006. Petroleum well costs. University of New South
Wales.
3. In slide share line: https://www.slideshare.net/akincraig/drilling-
engineering-drilling-economics
4. Lukawski, M.Z., Anderson, B.J., Augustine, C., Capuano Jr, L.E.,
Beckers, K.F., Livesay, B. and Tester, J.W., 2014. Cost analysis of oil,
gas, and geothermal well drilling. Journal of Petroleum Science and
Engineering, 118, pp.1-14.
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0
Darya
 Dril. Optimization
 Dril. cost equation