July 1999 Vol. 220 No. 7  Drilling

Robert E. Snyder,  Editor

Drilling more effectively with fewer rigs

The Gas Research Institute (GRI) has completed a study of the U.S. drilling industry and its capability to meet a "robust" growth in U.S. gas demand over the next two decades. The study, U.S. oil and gas drilling costs: Historical trends and a look into the new millennium (GRI-98/0137), concludes that, with "smart drilling," producers will meet the expected growth in consumption with drilling levels and expenditures that remain well below historic highs. GRI projects a 2% annual increase in U.S. gas consumption over the next two decades, from the current 21.5 Tcf to more than 31 Tcf in 2015.

Increased offshore drilling is expected to make a major contribution. GRI projects that ultra-deepwater drilling will increase from 3% of total offshore activity in 2000, to 24% in 2015. During this period, the average cost per foot of drilling offshore wells is expected to remain relatively flat, although the mix between water depths will change. Average drilling cost at any specific water depth is projected to decrease because of technology improvements.

"Technologies that improve drilling efficiencies reduce the required drilling time, resulting in lower costs," GRI says. Rigs that reduce drilling time are also able to drill more wells, thus alleviating the need for additional rigs. This means that drilling productivity improvements and higher drilling success rates can be expected to partially offset anticipated increases in expenditures normally associated with growth in drilling footage.

Major technology advances cited in the study include: 3-D seismic, which enables drillers to more accurately locate targets; improved bits and fluids, which increase penetration rates; and longer bit life. Other key findings indicate:

• Drilling costs account for one-third of total finding / developing costs for new onshore gas resources and about 40% of the cost of new offshore resources.
• Total onshore / offshore drilling expenditures will increase slowly during the 17-yr projection period, from $16.4 billion in 1997, to $24.4 billion in 2015.
• Combined improvements in drilling success rates and rig efficiency will allow the current onshore fleet to meet drilling requirements through 2007, without substantial new construction. As a result, day rates are expected to remain below rig-replacement costs in the near term.
• GRI forecasts that drilling efficiency (annual footage per active onshore rig) will improve at an average 1.5% per year, consistent with the past three decades.
• Drilling costs per foot for each onshore depth interval are expected to increase slowly. Because depth of the typical well will increase by 500 to 600 ft, the general trend will be toward higher drilling costs per well.

GRI’s drilling activity and cost projections are based on analysis of historical data that identified five "megatrends" that shape the cost of drilling:

1. Drilling activity drives drilling costs. The level of activity accounts for about 70% of drilling cost changes. Hence, costs can be expected to rise as activity levels increase, particularly during short-term, cyclical activity spikes.
2. Increases in oil / gas prices translate directly into higher drilling costs. Rising prices spur drilling of additional marginal wells. These drive up costs because they are more challenging projects. Higher prices also increase drilling costs because energy costs are a major component of total drilling costs.
3. Declining rig population creates tighter rig market. U.S. onshore rigs have been declining since 1981. Until day rates increase sufficiently to justify investment in construction, the market will continue to become tighter. Ultimately, this will lead to higher rates and drilling costs.
4. A tight market is needed over a sustained period to achieve day rates that justify new equipment. At year-end ’98, onshore rig rates were well below the break-even point to justify new construction. In a tight market, day rates are likely to increase until they reach levels that trigger new equipment investments. This happened between late 1996 and early 1998 for certain offshore rigs; much of the rate increase was attributable to new deepwater prospects requiring new or upgraded drillships.
5. Advances in drilling technologies have increased (and will continue to increase) efficiencies, resulting in lower overall costs. These gains mean rates will reflect the benefits / costs of advanced technology in most cases. However, new technologies could produce higher day rates for certain rigs, which provide offsetting benefits by requiring fewer drilling days.

Questions about the report or ordering should be addressed to Kelly Murray, Baseline Center, Arlington, Virginia, Tel: 703 526 7832; Fax: 703 526 7805; E-mail: baseline@GRI.org. It can be ordered directly from GRI Document Fulfillment Center, 1510 Hubbard Drive, Batavia, Illinois 60510, Fax: 630 406 5995.

Thermal drill waste cleanup. Swaco (a division of M-I L.L.C.) and SCC Environmental Group have formed an alliance to develop and commercialize a thermal phase separation (TPS) technology for drilling waste management. The technology is not a method of incineration. It is a two-stage phase separation process based on the principle of indirectly heated thermal desorption. In the first stage, contaminated material is introduced into a sealed chamber. This fixed-chamber design significantly reduces dust carryover compared to rotary kilns. Material is indirectly heated to the boiling point of the base fluid, volatizing hydrocarbons from the cuttings. To ensure safety, oxygen levels in the chamber are maintained below 5%.

In the second stage, volatized vapors are extracted, cooled and condensed. Treated solids are contained and tested prior to use as on-site fill material. Base fluid is recovered, tested and prepared for recycling, a strong advantage in synthetic-mud use. TPS processing removes 99% of hydrocarbons from the feedstock, with less than 2% solids in the recovered fluid.

Modular design enables the system to be configured to meet specific client processing requirements. Highly mobile, heli-transportable equipment allows treatment of drilling wastes in remote locations. The process reclaims valuable base fluids from a variety of mud systems, including oil-base, synthetic-base and low-toxicity mineral oil-base systems. A pilot TPS unit can generate results representative of full-scale units, allowing reliable pre-testing of drill cuttings treatment.

The system has been rigorously tested in Canada and certified under a government environmental program. Applications are in progress.

Copyright © 1999 World Oil
Copyright © 1999 Gulf Publishing Company