Petroleum Well Costs

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Petroleum well costs
By
Gregory Robert Leamon
A thesis submitted to the University of New South Wales

in partial fulfilment of the requirements for the
Degree of Master of Engineering
School of Petroleum Engineering

The University of New South Wales
Sydney, N.S.W., Australia
2006
PLEASE TYPE
THE UNIVERSITY OF NEW SOUTH WALES
Thesis/Dissertation Sheet
Surname : Leamon
First name: Gregory Other name/s: Robert
Abbreviation for degree as given in the University calendar: ME
School: Petroleum Engineering Faculty: Engineering
Title: Petroleum Well Costs
Abstract 350 words maximum: (PLEASE TYPE)
This is the first academic study of well costs and drilling times for Australia’s petroleum producing basins, both
onshore and offshore. I analyse a substantial database of well times and costs sourced from government
databases, industry and over 400 recent well completion reports.
Three well phases are studied - Pre-Spud, Drilling and Completion. Relationships between well cost factors are
considered, including phase time, phase cost, daily cost, rig day rate, well depth, basin, rig type, water depth,
well direction, well objective (e.g. exploration), and type of completion (P&A or producer). Times and costs are
analysed using scatter plots, frequency distributions, correlation and regression analyses.
Drilling times are analysed for the period 1980 to 2004. Well time and variability in well time tend to increase
exponentially with well depth. Technical Limits are defined for both onshore and offshore drilling times to
indicate best performance.
Well costs are analysed for the period 1996 to 2004. Well costs were relatively stable for this period. Long term
increases in daily costs were offset to some extent by reductions in drilling times. Onshore regions studied include
the Cooper/Eromanga, Surat/Bowen, Otway and Perth Basins. Offshore regions studied include the Carnarvon
Basin shallow and deepwater, the Timor Sea and Victorian Basins. Correlations between regional well cost and
well depth are usually high. Well costs are estimated based on well location, well depth, daily costs and type of
completion.
In 2003, the cost of exploration wells in Australia ranged from A$100,000 for shallow coal seam gas wells in the
Surat/Bowen Basins to over A$50 million for the deepwater well Gnarlyknots-1 in the Great Australian Bight.
Future well costs are expected to be substantially higher for some regions. This study proposes methods to index
historical daily costs to future rig day rates as a means for estimating future well costs.
Regional well cost models are particularly useful for the economic evaluation of CO2 storage sites which will
require substantial numbers of petroleum-type wells.
Declaration relating to disposition of project thesis/dissertation
I hereby grant to the University of New South Wales or its agents the right to archive and to make available my thesis or dissertation in whole or in
part in the University libraries in all forms of media, now or here after known, subject to the provisions of the Copyright Act 1968. I retain all
property rights, such as patent rights. I also retain the right to use in future works (such as articles or books) all or part of this thesis or
dissertation.
I also authorise University Microfilms to use the 350 word abstract of my thesis in Dissertation Abstracts International (this is applicable to doctoral
theses only).
…………………………………………………………… ……………………………………..……………… ……….……………………...…….…

Signature Witness Date
The University recognises that there may be exceptional circumstances requiring restrictions on copying or conditions on use. Requests for
restriction for a period of up to 2 years must be made in writing. Requests for a longer period of restriction may be considered in exceptional
circumstances and require the approval of the Dean of Graduate Research.
FOR OFFICE USE ONLY Date of completion of requirements for Award:
THIS SHEET IS TO BE GLUED TO THE INSIDE FRONT COVER OF THE THESIS

Petroleum well costs Page 1
Declaration of originality
‘I hereby declare that this submission is my own work and to the best of my
knowledge it contains no materials previously published or written by another
person, or substantial portions of material which have been accepted for the award
of any other degree or diploma at UNSW or any other educational institution, except
where due acknowledgement is made in the thesis. Any contribution to the research
is by others, with whom I have worked at UNSW or elsewhere, is explicitly
acknowledged in the thesis. I also declare that the intellectual content of this thesis
is the product of my own work, except to the extent that assistance from others in
the project’s design and conception or in style, presentation and linguistic expression
is acknowledged.’
(Signed)……………………………………………………..
Gregory Robert Leamon
Gregory Leamon - The University of New South Wales - 2006

Acknowledgements
I greatly appreciated the opportunity to be involved with various GEODISC and
CO2CRC research projects into Carbon Capture and Storage. CO2CRC provided
financial support for part of my study into petroleum well costs. PESA granted me a
student scholarship to further my research.
My supervisor Guy Allinson suggested the topic for this thesis. Guy supported and
assisted me throughout my research. Staff of the School of Petroleum Engineering
provided great support and facilities.
I obtained well data from many sources. Geoscience Australia and the state
governments of Queensland, the Northern Territory, South Australia, Victoria and
Western Australia provided me with well completion reports. The International
Association of Drilling Contractors gave me a copy of their offshore rig day rate
database. I discussed well costs with many people from the petroleum industry.
I enjoyed the support of my wife Monica (who has been undertaking her own
postgraduate studies), my children Lily and Elke, and little Riki who was born only
two months after I started this degree.
Thank you.

Dedication
To my father Robert Leamon (1933-1983) who died at the age of fifty while studying
for a Masters degree in Business Administration. He was motivated to undertake the
MBA course after attending my graduation in 1980. Robert Leamon’s career as a
pharmacist involved helping others. He always wanted to achieve more with his life
and died thinking he had failed.

Abstract
This is the first academic study of well costs and drilling times for Australia’s
petroleum producing basins, both onshore and offshore. I analyse a substantial
database of well times and costs sourced from government databases, industry and
over 400 recent well completion reports.
Three well phases are studied - Pre-Spud, Drilling and Completion. Relationships
between well cost factors are considered, including phase time, phase cost, daily
cost, rig day rate, well depth, basin, rig type, water depth, well direction, well
objective (e.g. exploration), and type of completion (P&A or producer). Times and
costs are analysed using scatter plots, frequency distributions, correlation and
regression analyses.
Drilling times are analysed for the period 1980 to 2004. Well time and variability in
well time tend to increase exponentially with well depth. Technical Limits are
defined for both onshore and offshore drilling times to indicate best performance.
Well costs are analysed for the period 1996 to 2004. Well costs were relatively
stable for this period. Long term increases in daily costs were offset to some extent
by reductions in drilling times. Onshore regions studied include the
Cooper/Eromanga, Surat/Bowen, Otway and Perth Basins. Offshore regions studied
include the Carnarvon Basin shallow and deepwater, the Timor Sea and Victorian
Basins. Correlations between regional well cost and well depth are usually high.
Well costs are estimated based on well location, well depth, daily costs and type of
completion.
In 2003, the cost of exploration wells in Australia ranged from A$100,000 for shallow
coal seam gas wells in the Surat/Bowen Basins to over A$50 million for the
deepwater well Gnarlyknots-1 in the Great Australian Bight. Future well costs are
expected to be substantially higher for some regions. This study proposes methods
to index historical daily costs to future rig day rates as a means for estimating future
well costs.
Regional well cost models are particularly useful for the economic evaluation of CO2
storage sites which will require substantial numbers of petroleum-type wells.

Contents
Petroleum well costs .................................................................... 1
Declaration of originality............................................................... 1
Acknowledgements ...................................................................... 2
Dedication ................................................................................. 3
Abstract .................................................................................... 4
Contents ................................................................................... 5
Tables .................................................................................... 10
Figures ................................................................................... 11
Chapter 1 Introduction.................................................................... 14
Chapter 2 Study objectives .............................................................. 17
Chapter 3 Background .................................................................... 18

3.1 Well construction. .....................................................................18
3.2 Drilling rigs..............................................................................19
3.3 Drilling Activity.........................................................................22
3.4 Well phases .............................................................................24
3.5 Pre-spud phase .........................................................................25
3.6 Drilling phase ...........................................................................25
3.7 Completion phase......................................................................28
3.8 Well type ................................................................................29
3.9 CO2 storage .............................................................................30
Chapter 4 Previous studies............................................................... 32

4.1 Introduction.............................................................................32
4.2 Time, depth and cost .................................................................32
4.3 Learning curve analysis ...............................................................34
4.4 Statistical analysis of North Sea drilling time .....................................38
4.5 Technical limit analysis ...............................................................40
4.6 Time independent costs ..............................................................43
4.7 Drilling The Limit ......................................................................44
4.8 “Trouble Time” ........................................................................45
4.9 Well planning and AFEs ...............................................................49
4.10 Historical data and databases ......................................................52

4.11 Knowledge Management.............................................................54

4.12 Benchmarking .........................................................................56
4.13 Statistics ...............................................................................59
4.13.1 Predictive modelling using regression analysis ............................59
4.13.2 Monte Carlo Simulation .......................................................60
4.13.3 Offset data ......................................................................60
4.13.4 Input data .......................................................................61
4.13.5 Modelling Trouble Time .......................................................62
4.13.6 Percentiles, standard deviation and the mean............................63
4.13.7 Rules for addition ..............................................................64
4.13.8 Distributions ....................................................................64
4.13.9 Central limit theorem .........................................................65
4.13.10 Correlation and independence .............................................66
4.13.11 Event model ...................................................................67
4.13.12 Statistics conclusions.........................................................68
4.14 Case Studies ...........................................................................69
4.14.1 Deep drilling in the USA.......................................................69
4.14.2 Goodwyn Field, Woodside, NW Shelf .......................................70
4.14.3 North Rankin A big bores, Woodside, NW Shelf ...........................70
4.14.4 The Kenmore Field.............................................................71
Chapter 5 Method .......................................................................... 72

5.1 Sequence of analysis ..................................................................72
5.2 Well database ..........................................................................73
5.2.1 Data collection...................................................................73
5.2.2 Data sources......................................................................73
5.2.3 Well completion reports........................................................74
5.2.4 Sample size .......................................................................76
5.2.5 Well types ........................................................................77
5.2.6 Regions studied ..................................................................79
5.2.7 Variables ..........................................................................80
5.2.8 Data................................................................................82
5.3 Terminology ............................................................................83
5.3.1 Well phase ........................................................................83
5.3.2 Drilled Interval ...................................................................83
5.3.3 Daily Cost .........................................................................83

5.3.4 Total Well Cost...................................................................84

5.3.5 Pre-Spud Cost ....................................................................84
5.3.6 Drilling Cost ......................................................................84
5.3.7 Completion Cost .................................................................84
5.4 Analysis ..................................................................................85
5.4.1 Methods of analysis..............................................................85
5.4.2 Regression analysis ..............................................................87
5.5 Cost modelling .........................................................................89
5.5.1 Cost factors.......................................................................89
5.5.2 Phase costs .......................................................................90
5.5.3 Phase models.....................................................................91
5.5.4 Pre-Spud Cost ....................................................................92
5.5.5 Drilling Cost ......................................................................93
5.5.6 Completion Cost .................................................................94
5.5.7 Basic Regional Cost Model......................................................95
5.5.8 Well cost from Rig Rate ........................................................96
5.6 Indexing costs ..........................................................................98
5.6.1 CPI indexing of historical costs ................................................98
5.6.2 Indexing cost models............................................................98
5.6.3 Cost Category Index ........................................................... 101
5.6.4 Rig Ratio ........................................................................ 103
Chapter 6 Onshore wells ................................................................104

6.1 Introduction........................................................................... 104
6.1.1 Previous studies................................................................ 104
6.1.2 Analysis.......................................................................... 105
6.1.3 Presentation.................................................................... 105
6.1.4 Additional analyses............................................................ 105
6.2 History of onshore drilling .......................................................... 106
6.3 Technical performance ............................................................. 107
6.3.1 Time performance............................................................. 107
6.3.2 Cost performance ............................................................. 109
6.3.3 Time or cost? ................................................................... 113
6.4 Construction costs ................................................................... 119
6.4.1 Cost breakdowns............................................................... 119
6.4.2 Pre-Spud Costs ................................................................. 122

6.4.3 Drilling Costs ................................................................... 124

6.4.4 Completion Costs .............................................................. 131
6.5.5 Daily Costs ...................................................................... 137
6.5 Cost models ........................................................................... 138
6.5.1 Onshore Australia.............................................................. 138
6.5.2 Cooper/Eromanga Basins ..................................................... 140
6.5.3 Perth Basin ..................................................................... 143
6.5.4 CSG wells ....................................................................... 145
6.6 Indexing ............................................................................... 148
6.6.1 Rig Rate ......................................................................... 148
6.6.2 Rig Ratio ........................................................................ 149
6.6.3 Indexing Daily Costs ........................................................... 150
6.7 Discussion – Onshore wells.......................................................... 154
Chapter 7 Offshore wells ................................................................159

7.1 Introduction........................................................................... 159
7.2 History of offshore drilling ......................................................... 160
7.3 Technical Performance ............................................................. 162
7.3.1 Time performance............................................................. 162
7.3.2 Cost performance ............................................................. 167
7.4 Offshore construction costs ........................................................ 173
7.4.1 Cost breakdowns............................................................... 173
7.4.2 Pre-Spud Costs ................................................................. 176
7.4.3 Drilling Costs ................................................................... 180
7.4.4 Completion Costs .............................................................. 184
7.4.5 Daily Costs ...................................................................... 187
7.6 Indexing offshore costs ............................................................. 189
7.6.1 Offshore Rig Ratios ............................................................ 189
7.6.2 Rig Rates ........................................................................ 191
7.7 Summary and conclusions - Offshore wells ...................................... 195
Chapter 8 Discussion .....................................................................200

8.1 Rationale for study .............................................................. 200
8.2 CO2 storage ....................................................................... 200
8.3 Petroleum exploration .......................................................... 201
8.4 Well Database .................................................................... 202

8.5 Regression analysis .............................................................. 203

8.6 Daily Costs and Rig Rate ........................................................ 205
8.7 Well Cost .......................................................................... 205
8.8 CSM wells.......................................................................... 206
8.9 Industry overview ................................................................ 207
8.10 Future costs ..................................................................... 209
8.12 Further work .................................................................... 210
8.13 And Finally....................................................................... 210
References ............................................................................. 211
Appendix A – Correlation of onshore well data ................................. 216
Appendix B – Coal Seam Gas wells................................................. 219
Appendix C – Cooper and Eromanga Basins...................................... 226
Appendix D – Offshore regression correlation trees ........................... 232
Appendix E – Abbreviations and Definitions..................................... 238
Appendix F – Publications produced from my research ...................... 240
Enclosure A – CD of Petroleum Well Costs ....................................... 242

Tables
Table 3.1 – Operational water depths for Australian offshore rigs, 1997-2003 20
Table 5.1 – Government data sources. 75
Table 5.2 – Well reports with cost data as a percentage of all wells drilled. 76
Table 5.3 – Numbers of wells with cost data by well type. 77
Table 5.4 - Example - indexing cost categories 102
Table 6.1 – Onshore Drilling Cost (A$), max, min & regression 1996-2004. 127
Table 6.2 – Total Well Cost by completion type 132
Table 6.3 – Completion Costs 135
Table 6.7 – CSG truck well costs 2000-2004 147
Table 6.8 – Rig Rates (A$) and Daily Costs (A$) for Santos and Tri-Star operations. 148
Table 7.2 – Deepwater Drilling Days, 1999-2003 166
Table 7.4 – Statistics for analysis in Figure 7.6 175
Table 7.5 – Analysis of Pre-Spud Days, 1998-2003. 177
Table 7.6 – Pre-Spud Costs (A$) by basin and rig type, 1998-2003. 178
Table 7.8 – Deepwater Drilling Costs, 1999-2003. 183
Table 7.9 – P&A completion days & cost for vertical exploration wells 184
Table 7.10 – Carnarvon Basin Completion Costs, 1998-2003. 186
Table 7.11 – Estimates of Daily Costs from the Rig Rate, 1998–2004. 190
Table A.1 –Interpretation of correlation co-efficient ‘r’. 218
Table B.1 – Statistical analysis of CSG wells 2000-2004. 223

Figures
Figure 3.1 - Well phases 24
Figure 4.1 – Economic impact of learning. 36
Figure 4.2 – Woodside historical drilling performance, 1968 to 1992. 41
Figure 4.3 – The Technical Limit concept. 42
Figure 4.4 – The benchmarking process. 57
Figure 5.1 – Locations of wells with WCRs studied. 79
Figure 5.2 – Factors influencing well time and cost. 81
Figure 5.3 – Flowchart for an analysis of well phase times. 86
Figure 5.4 – Factors influencing phase costs. 89
Figure 5.5 - Well cost phases 91
Figure 6.1 – Drilling Days versus Drilled Interval, 831 onshore wells, 1980-2004. 108
Figure 6.2 – Well Cost versus Drilled Interval, 82 onshore wells, 1996-2004. 110
Figure 6.3 – Well Cost versus Drilled Interval, 1996-2004. 112
Figure 6.4 – Well costs distinguished by drilling year and outcome. 114
Figure 6.5 – Well Days (spud to release) versus Drilled Interval, 82 onshore wells. 116
Figure 6.6 – Cost categories for Tri-Star operated CSG wells, Bowen Basin. 120
Figure 6.7 – Cost categories for Santos operated wells, Cooper/Eromanga & Otway
Basins. 121
Figure 6.8 – Pre-Spud Cost versus Drilled Interval by basin. 123
Figure 6.9 – Drilling Cost versus Drilled Interval, 66 wells 1996-2004. 125
Figure 6.10 – Maximum and Minimum Drilling Cost, 1996-2004. 126
Figure 6.11 – Drilling Cost versus Drilled Interval by drilling period. 128
Figure 6.12 – Drilling Days versus Drilled Interval by basin. 128
Figure 6.13 – Drilling Days by drilling period. 130
Figure 6.14 – Total Well Cost by completion type, 1996-2004. 132
Figure 6.15 – Completion times, 2000-2004. 133

Figure 6.16 – Completion Costs, 2000-2004. 134
Figure 6.17 – P&A Completion Cost by year drilled, 1996-2004. 136
Figure 6.18 – Daily Costs for onshore basins, 1996-2004. 137
Figure 6.19 – Cooper/Eromanga Basin Pre-Spud Costs, 1996-2002 141
Figure 6.20 – Cooper/Eromanga Basin completion time, 1995-2004 141
Figure 6.21 – Perth Basin well costs 2001-2004 144
Figure 6.22 – Surat Basin CSG well costs, 2000-2004. 146
Figure 6.23 - Rig Ratio for onshore wells. 150
Figure 6.24 - Basin models for onshore well costs 157
Figure 7.1 - Drilling Time for 392 exploration wells, offshore W.A, 1980 to 2005. 163
Figure 7.2 - Drilling Days for 94 exploration wells by region, 1998-2003. 165
Figure 7.3 - Deepwater Drilling Days, 1999-2003 165
Figure 7.4 - Total Well Cost for 192 offshore wells, 1998-2004. 167
Figure 7.5 – Well cost regression correlation tree for the Carnarvon Basin. 170
Figure 7.6 – Total Well Cost for 86 exploration wells by region, 1998-2003 172
Figure 7.7 – Cost categories for semi-submersible drilled wells. 175
Figure 7.8 - Histogram of offshore Pre-Spud Days by basin, 1998-2003. 177
Figure 7.9 - Histogram of offshore Pre-Spud Costs by basin. 179
Figure 7.10 - Pre-Spud Costs by year and rig type. 179
Figure 7.11 – Drilling Costs for 77 exploration wells, 1998-2003. 182
Figure 7.12 – Deepwater Drilling Costs, 1999-2003. 183
Figure 7.13 – P&A completion time for vertical exploration wells. 185
Figure 7.14 – P&A Completion Costs for vertical exploration wells. 185
Figure 7.15 – Carnarvon Basin Completion Costs, 1998-2003. 186
Figure 7.16 – Daily Costs for 173 offshore wells by basin, 1998-2004. 188
Figure 7.17 – Daily Costs for 174 offshore wells by rig type, 1998-2004. 188
Figure 7.18 – Daily Cost as a function of Rig Rate, 1998-2004. 189

Figure 7.19 – Average quarterly offshore Australia Rig Rates, 1997-2008 192
Figure 7.20 – World Wide (WW) Jackup Rig Rates (US$) and Fleet Numbers. 192
Figure A.1 – Spearman’s Rho correlations for onshore wells, 1996-2004. 217
Figure B.1 – Drilling Days for CSG wells by rig, 2000-2004. 219
Figure B.2 – Drilling Costs, Surat/Bowen CSG, 2000-2004. 221
Figure B.3 – Well Cost versus Well Days, Surat/Bowen CSG wells 2000-2004. 223
Figure C.1 – Drilling performance for the Cooper/Eromanga Basins, 1988-2003. 226
Figure C.2 – Well Cost versus Drilled Interval for 32 Cooper/Eromanga Basin wells. 228
Figure C.3 – Daily Costs for Cooper/Eromanga Basin wells. 229
Figure C.4 – 6.28 Average Daily Costs for Cooper, Otway and Perth Basins. 230
Figure D.1 – Carnarvon Basin Drilling Days regression correlation tree. 232
Figure D.2 – Carnarvon Basin Drilling Costs regression correlation tree. 233
Figure D.3 – Timor Sea Total Well Costs regression correlation tree. 234
Figure D.4 – Timor Sea Drilling Days regression correlation tree. 235
Figure D.5 – Timor Sea Drilling Costs regression correlation tree. 236
Figure D.6 – Regression correlation trees for offshore Victoria. 237

Chapter 1 Introduction
This thesis analyses well performance and regional well costs for some of Australia’s
petroleum producing basins, both onshore and offshore. Well costs are modelled as
functions of well depths. Methods are discussed for indexing well costs to rig day
rates.
1.1 Petroleum Industry
Drilling wells is a major expense for the upstream petroleum industry. The economic
viability of marginal projects relies on a sound understanding of well costs and
containment of the risks involved. Well costs are an important consideration in
assessing the prospectivity of an exploration licence. The choice of one exploration
area over another may be influenced by differences in well costs. Despite the
importance of well costs to the petroleum industry, forecasting well costs has been
an imprecise process.
1.2 CCS
Carbon Capture and Storage (‘CCS’), also called geosequestration of CO2, involves
injecting CO2 into geological reservoirs deep below the earth’s surface. Wells are
drilled using techniques and technologies commonly employed by the petroleum
industry. Australia has many potential CO2 storage sites, but costs vary from one site
to another. Primary economic factors are the volume of CO2 to be injected, the
transport distance and the injection cost. Well cost influences the selection of a CO2
storage location. My research has been funded by the CO2CRC to assist in its
modelling of costs for CCS across Australia.
1.3 Data
State and Federal governments require submission by well operators of a

comprehensive Well Completion Report (WCR) for every well drilled. Report formats
and content, vary from company to company. However, it is standard practice for
WCRs to list significant times and dates, in addition to location details, elevations,
well depth, casing depths, hole sizes, and much more. An analysis of non-productive
time, Total Well Cost and daily costs are included in many offshore well reports and
increasingly in onshore well reports.

1.4 Uncertainty in well costs
Despite this collective wealth of drilling data and statistics, well operators often
have difficulty predicting their well costs. This is due, in no small part, to the
uniqueness of each well drilled. Lithology can vary significantly over short distances.
Equipment and personnel vary from rig to rig. Well ‘Non-Productive Time’ caused by
weather, difficult geology or equipment failure can result in substantial cost
increases. Market rates for equipment and services are constantly changing. Lessons
learned from previous wells are applied to improve the performance of subsequent
wells with varying degrees of success.
1.5 Performance benchmarks
‘Commercial in confidence’ dictates that cost details are not publicly reported
outside of WCRs. There has been no public or academic analysis or discussion of well
performance. I conducted an extensive literature search but failed to find any
industry or academic analysis of regional well performance or costs for Australia.
Knowledge of costs has generally been relayed through industry networks.
Many drilling operators claim they conduct regular internal reviews of their drilling
performance but details are invariably confidential. There are no standard industry
benchmarks with which to measure or compare well performance. There are
comments within the literature, by operators, lamenting the lack of published well
data with which to benchmark their drilling performance (Bond, Scott, Page, &
Windham, 1996; Iyoho, Meize, Millheim, & Crumrine, 2005).
1.6 Innovation
Despite this lack of open analysis, significant advances have been made in well
management and cost control over the past decade. Australian companies such as
Woodside, CSIRO Petroleum, Santos, Origin Energy and others, have, at times, been
international leaders in well construction.

1.7 Well cost
Well cost is fundamentally a function of well duration (time), daily cost ($/day), time
independent variable costs ($) and fixed costs ($). Well costs are influenced by many
factors including management, markets, environment, geology and technology.
These influences may combine in innumerable combinations, to cause highly variable
outcomes. Over a period of five years from 2000 to 2004, the cost to drill petroleum
wells in Australia ranged from less than A$100,000 for a shallow CSG well in the
Surat/Bowen Basins and Sydney Basins; to around A$41 million in 2000 for Inpex to
drill Dinichthys-1 in the Timor Sea in water depths of 263m; to A$46 million in 2003
for Kerr McGee to drill Wigmore-1 in the Carnarvon Basin in 1,247m of water; to over
A$50 million, also in 2003, for Woodside to drill Gnarlyknotts-1 in the Great
Australian Bight in 1,247m of water.
1.8 Thesis outline
The remainder of this thesis is presented in the following sequence –
Chapter 2 – Study objectives

Chapter 3 – Background – describes basic aspects of well construction.
Chapter 4 – Previous studies in well performance and cost estimation.
Chapter 5 – Methods used in this thesis to collect, analyse and model time and cost.
Chapter 6 – Onshore wells – statistical analyses of Australian onshore wells.
Chapter 7 – Offshore wells – statistical analyses of Australian offshore wells.
Chapter 8 – Discussion
Appendix A – Correlation of onshore well data.
Appendix B – Coal Seam Gas wells, analyses of times and costs.
Appendix C – Cooper and Eromanga Basins, analyses of times and costs.
Appendix D – Offshore regression correlation trees.
Appendix E – Publications produced from my research.
Appendix F – Abbreviations and Definitions.
Enclosure A – CD of Petroleum Well Costs in Excel format.

Chapter 2 Study objectives
This thesis is an original analysis of well times and costs from Australia’s main
petroleum producing basins. Data from over 400 recent well completion reports
were processed. Additional data were included from government databases,
commercial databases and industry contacts. Onshore regions studied include the
Surat/Bowen Basins, Cooper/Eromanga Basins, Otway Basin and Perth Basin
Offshore regions covered include the North West Shelf, Timor Sea, and Bass Strait.
There are two themes to this thesis –
1. To study the technical and commercial performance of petroleum wells drilled

in Australia. Commercial performance is measured by well cost. Technical
performance is measured by Drilling Time.
2. To develop regional well cost models for applications within the CO2CRC
economic model for Carbon Capture and Storage.
My study is based on the following hypotheses –
1. Well costs are functions of well times.

2. Well time is a function of Drilled Interval.
3. Daily Costs are strongly influenced by the rig day rate.
My objectives are to –
1. Compile a database of historical and current well costs in Australia.

2. Identify the key factors that influence well costs.
3. Measure and compare well performance by time and by cost.
4. Model regional well costs as functions of Drilled Interval.
5. Analyse the relationship between the rig day rate and daily well costs.

Chapter 3 Background
3.1 Well construction.
Well construction usually starts with a long planning process by a team of technical
specialists from the operating company. The planning process may also involve
consultation with the many specialist contractors required to drill the well.
Typically, actual well construction is contracted out to third parties.
3.1.1 Coiled tubing drilling
New techniques such as coiled tubing (CT) drilling are increasing their market share
but are mainly used for specialist applications and only make up a small part of the
drilling market. CT drilling uses continuous pipe stored on a reel at the surface,
combined with downhole mud motors to drill faster than rotary drilling. Since CT is a
continuous length of ductile steel tubing, it eliminates having to connect and
disconnect threaded sections of pipe when going into and coming out of the well.
The tubing can be uncoiled into the well and returned back to the reel 50 times or
more before metal fatigue forces retirement (NETL, 2006). CT is suitable for
slimhole drilling (wellbores and related casing of less than 6 inches in diameter) and
even micro-hole drilling (ultra-small-diameter boreholes with 4½-inch-diameter
casing or less).
3.1.2 Rotary drilling rigs
Rotary drilling rigs are used for the vast majority of drilling done today. The hole is
drilled by rotating a bit to which downward pressure is applied. The cuttings are
lifted to the surface by circulating a fluid down the drillstring, through a bit and up
the annular space between the hole and the drillstring.
Rigs vary greatly in their appearance, but generally have the same basic drilling
equipment: a power system, a hoisting system, a fluid circulating system, a rotary
system, a well control system and a well monitoring system. Most power is consumed
by the hoisting and fluid circulating systems (Bourgoyne, Chenevert, Millheim, &
Young, 1991).
Rates of penetration (ROP) are determined by the density of the rock being drilled;
but also by the rig capability and design. Drilling hydraulics, rotary speed, torque,

and weight on bit (WOB) are also limiting factors in drilling performance (Hartley,
2004). If the rig can deliver more power from its rotary torque and hydraulics, wells
can be drilled farther and faster than they are today (Hartley, 2004). More powerful
mud pumps and top drives are being installed on new and old rigs to improve drilling
performance.
Drill bit selection is critical in determining ROP. Lessons learnt from nearby wells
influence the bit selection. Slow rates of ROP have been addressed by employing
new bit technology.
Drilling operations are subject to the usual hazards inherent in the drilling of oil or
gas wells. These include blowouts, loss of well control, cratering and cyclones.
Operations may also be suspended because of machinery breakdowns, abnormal
drilling conditions, and failure of subcontractors to perform or supply goods or
services or personnel shortages.
3.2 Drilling rigs
Drilling rigs can be broadly classified as either land rigs or marine rigs. The range of
water depth across which individual offshore rigs can operate, the maximum depth to
which a rig can drill a well, and the maximum bore-hole diameter it can drill depend
upon the engineering specifications of the rig. Table 3.1 shows the operating ranges
for two types of rigs which operated in Australian waters between 1997 and 2003,
those being semi-submersibles and jackups. The other class of offshore rig operating
offshore Australia, but not shown in the table, are platform rigs. Platform rigs are
used to work over existing wells or to drill new development wells from a platform.
Currently platform rigs are only used in the Gippsland Basin and on the Goodwyn
platforms, North West Shelf.

Table 3.1 – Operational water depths for Australian offshore rigs, 1997-2003
Rig Year Design water depth Operating water depth

constructed Minimum Maximum Minimum Maximum
SEMISUBMERSIBLES (metres) (metres) (metres) (metres)
Atwood Falcon 1983 No data 1,128 557 953
Jack Bates 1986 No data 1,646 No data No data
Marine 500 1975 23 1,524 118 1,501
Ocean Bounty 1976 38 457 51 456
Ocean Epoch 1977 38 500 83 220
Ocean General 1976 50 366 54 453
Sedco 702 1973 No data 457 59 394
Sedco 703 1974 No data 610 38 566
JACKUPS
Ensco 53 1982 9 92 14 57
Ensco 56 1982 6 92 6 65
Ensco 106 2005 No data 122 No data No data
Ron Tappelmyer 1978 No data 92 9 71
Ocean Heritage 1981 No data 92 29 29
Semisubmersibles are floating vessels that can be submerged by means of a water

ballast system such that the lower hulls are below the water surface. These rigs are
capable of maintaining their position over the well through the use of an anchoring
system or a computer controlled dynamic positioning thruster system. Some
semisubmersibles are self-propelled and move between locations under their own
power when afloat on pontoons, although most are relocated with the assistance of
tugs. Typically, semisubmersibles are better suited for operations in rough water
conditions than drillships. Semisubmersibles are the most versatile offshore rig,
having the widest operational range. Table 3.1 shows that from 1997 to 2003,
semisubmersibles operated in Australian waters between depths of 38m and 1,501m.

Jackup rigs are mobile self-elevating platforms equipped with legs than can be
lowered to the ocean floor until a foundation is established to support the drilling
platform. The drilling platform is then jacked further up the legs so that the
platform is above the highest expected waves. Water depth limitations confine
jackup rigs to the inner continental shelf. Table 3.1 shows that from 1997 to 2003,
jackup rigs operated in water depths from 6m to 71m. The overlap of 38m to 71m
with semisubmersibles could be extended by the new generation of jackups which
are being designed to drill in deeper water, for example the Ensco 106 (built in 2005
and now operating in Australia) extends the maximum water depth capability of
Australian jackups from 92m to 122m.
3.2.1 Rig life
Useful lives of rigs are difficult to estimate due to a variety of factors, including
technological advances that impact the methods and cost of oil and gas exploration
and development, changes in market conditions, and changes in laws or regulations
affecting the drilling industry. The fleet of offshore rigs operating in Australian
waters were built in the period 1973 to 1986. Their operational lives have been
extended by extensive refits and modifications for particular purposes. Refits may
take many months, but may be funded by the rig clients rather than the rig owner for
particular applications.
3.2.2 Rig construction
Singapore is now the leading manufacturer of offshore drilling rigs. A steady stream
of new jackup rigs is planned for next few years. Keppel shipyard in Singapore
currently accounts for 60% of all jackup rigs on order worldwide (19 of 30) (Ball,
2005). Orders began to surge at the end of 2004, coinciding with rising oil prices.
The new generation jackups are technically more advanced than their predecessors.
High pressure mud pumps being one feature. They are currently attracting day rates
comparable to the older generation semisubmersibles.
3.2.3 CSG rigs
Traditionally onshore rigs were imported to Australia from overseas but this pool is
being supplemented with new Australian made rigs. Australian made rigs are being
designed for specialist applications such as coal seam gas (CSG) drilling. Well costs
are a critical component of CSG economic evaluations, mainly because more wells

are generally required for CSG developments than for conventional oil or gas fields.
Truck mounted rigs have been developed to drill shallow CSG wells at low cost.
Operating hours for CSG rigs vary between 12 and 24 hours per day. CSG wells are
sometimes drilled and completed in stages using more than one rig. The completion
rig may extend the bore-hole depth before completing the well for production. The
completion rig is usually on a lower day rate to the main drilling rig.
3.3 Drilling Activity
The level of drilling activity has historically been cyclical and is affected by oil and
gas prices and by their volatility. There have been periods of high demand, short rig
supply and high dayrates, followed by periods of low demand and excess rig supply.
Petroleum companies’ expectations of future commodity prices typically drive
demand for drilling rigs (Transocean, 2005).
3.3.1 Rig contract
The contract drilling industry is highly competitive with numerous participants, none
of which has a dominant share. Intense price competition is often the primary factor
in determining which qualified contractor is awarded a job, although the quality and
technical capability of service and equipment may also be considered. For example,
water depth capability is a key component in determining rig suitability for a
particular drilling project. In an undersupplied market, rig availability may become
the primary consideration in awarding a rig contract. Late rig procurement will
usually involve higher contract rates.
Contracts to provide drilling services are individually negotiated and vary in their
terms and provisions. Drilling contracts generally provide for payment on a day rate
basis, with higher rates while the drilling unit is operating and lower rates (usually
90%) for periods of mobilisation or when the drilling operations are interrupted or
restricted by equipment breakdowns, adverse environmental conditions etc. Some
drilling contracts charge for mobilisation, contract preparation, capital upgrades,
bonuses and demobilisation revenue. A day rate contract generally extends over a
period of time covering either the drilling of a single well or group of wells or
covering a stated term. The contract term may, in some instances, be extended by

the client exercising options for the drilling of additional wells or for an additional
term, or by exercising a right of first refusal.
3.3.2 Rig supply
Drilling rigs operate in a competitive worldwide market. A rig could operate in

various regions of the world during its life. However, transporting drilling rigs long
distances can be a slow and costly operation. Rigs have to comply with jurisdictional
regulations within the country of operations, including employment, taxation,
occupational health and safety etc. A new drilling contract may require upgrades or
modifications to the rig.
For a short drilling programme, rather than pay high mobilisation rates to bring in a
new rig on a low day rate, it may be more economic to use a locally available rig on a
higher day rate. For longer duration drilling programmes, high mobilisation rates
may be offset against lower day rates. Mobilisation costs from other parts of the
world and/or modifications or upgrades, may also be shared amongst a group of
future clients. Thus, although drilling rigs tend to operate within one geographic
region for at least several years at a time, rig mobility ensues that significant market
variations between regions do not tend to exist in the long term.
Rig availability determines when a drilling programme can start. During periods of
high rig demand, such as has been the case since 2004, lack of rig availability may
seriously delay a drilling programme. Rigs may have to be contracted several years
in advance or rigs mobilised from other parts of the world to undertake a drilling
programme. There is currently a lead time of some three years to build a new
offshore rig (Transocean, 2005). With few new semisubmersibles planned, it is
expected that the tight supply for rigs operating in water depths beyond 100m will
continue for the next few years until the market reaches a new equilibrium.

3.4 Well phases
Times for significant events (e.g. contract start, spud, TD and rig release) recorded
in well completion reports enables well construction to be divided into three phases -
Pre-spud phase, Drilling phase and the Completion phase.
Figure 3.1 shows –
1. The Pre-spud phase extends from contract start to spud.

2. Drilling time starts at well Spud and ends at Total Depth.
3. The Completion phase covers the period from Total Depth to Rig Release.
Phase times can be calculated only if the start and end times are known. Onshore
well reports do not usually document a time and date for contract start, so Pre-spud
time cannot be determined for these wells.
Contract
start Spud Total Depth Rig Release
Next
Pre-spud Drilling Completion
Contract
P&A
Mob Rig-up Drill Test or
Case for
production
Case & Trip
Cement
Figure 3.1 - Well phases
Each well phase can be broken down into sub-phases and operations. Individual well
plans may detail tens to hundreds of operations for each well phase together with an
estimated time and cost for each. However, definitions and codes for detailed
operations differ from one company to another making regional analysis difficult. A
regional study of more than three well phases would require standardised reporting
formats, systematic reporting using these formats and considerable resources. A
description of the three well phases I analyse in this study follows.

3.5 Pre-spud phase
The Pre-spud phase extends from start of contract to well spud. The Pre-spud phase
comprises two sub-phases, the period from the start of the contract to the arrival of
the rig at the well location, called ‘mobilisation’; and the period from the end of
mobilisation to the start of drilling. The later is called ‘rig-up’.
3.5.1 Mobilisation
The mobilisation cost may be either a lump sum; or a function of daily charges from
contract start to arrival of the rig at the well location; or a combination of both.
Pre-spud charges may also include some operator technical overheads, site surveying
and site preparation. The allocation of non-rig, pre-well charges to the Total Well
Cost reported in a WCR depends upon the accounting policy of the operator.
3.5.2 Contract start
It is common industry practice, for both onshore and offshore operations, that the
receiving well is charged for the mobilisation costs from the previous location. Off
the North West coast of Australia, a new drilling contract commonly starts, and the
previous contract ends, when the rig is towed one kilometre from the previous well
site. A major exception has been Apache’s contracting of ENSCO jackup rigs in the
Carnarvon Basin. Apache has long term contracts on ENSCO jackup rigs. Apache’s
well contracts usually start when the rig reaches one kilometre from the new well
site. The contract ends when the rig is one kilometre off well location. If other
operators ‘borrow’ a rig during an Apache well campaign then they often pay for
mobilisation from Apache’s last well and demobilisation to Apache’s next well.
Arrival of the rig at an offshore well site is recorded in WCRs as the time when the
‘first anchor is dropped’ for semisubmersibles or when the legs of the jackup rig are
‘pinned’ to the sea floor.
3.6 Drilling phase
I define Drilling Time as the time interval from start of drilling (spud) until total
depth is reached and drilling ahead stops. Occasionally, as part of the site
preparation, the conductor hole is drilled prior to the main drill rig arriving on
location. I define well spud as the time when the primary drilling rig commences
drilling.

3.6.1 ROP
The rate at which a drill bit can penetrate a type of rock is related to the density of
the rock. Rock density is a function of its mineralogy and its depth of burial. Overall
rock density increases with depth. This is because sediments are subject to higher
temperatures and pressures as their depth of burial increases. Burial induces
chemical and physical changes within the rock in a process called diagenesis.
The rate of penetration (ROP) of the drill bit can be expected to slow with increasing
depth. For example we can expect that it will take longer to drill a metre of rock
below 2,000m than it will in the above 1,000m. However, at any given depth rock
density will vary according to the type of rock. Santos divides the Cooper Basin into
three types of drilling rates, fast, medium and slow. The slow drilling may be due to
the presence of thick bands of calcarenite.
3.6.2 PDC drill bits
Traditionally, hard, more difficult formations have been drilled with roller cone bits.
A major breakthrough in Polycrystalline Diamond Compact (PDC)) bit design is
allowing PDC bits to be used on harder formations (Hartley, 2004). The new PDC bits
penetrate further and faster on an average bit run than other bit types.
3.6.3 Mud drilling
Petroleum wells are usually drilled with a drilling fluid (‘mud’). The mud maintains
pressures within the bore hole, sufficiently high to prevent the invasion of reservoir
fluids into the bore hole. However, these pressures are not so high as to cause major
loss of fluid into the surrounding rock or damage to the rock formations.
Unconventional drilling fluids may be required in environmentally sensitive locations
at substantially higher cost than traditional materials.
3.6.4 Air drilling
Mud drilling may cause permeability damage to a producing CSG formation.

Compressed air drilling is used by CSG operators to reduce formation damage and
improve gas production (Day et al., 2006, p.376). Air drilling usually has faster rates
of penetration than mud, but is more expensive to operate. An air drilling fluid
system does not have the cuttings carrying capacity of a liquid, and because of its

light weight, it cannot control formation pressures as well as a liquid mud system can
(Kennedy, 1983). Air drilling is therefore limited to competent low permeability
formations (Economides, Watters, & Dunn-Norman, 1998).
3.6.5 Casing
As the bore-hole deepens, casing is required to maintain the drilling fluid pressure
balance. Bore-hole size decreases below each new casing. Running and cementing
the casing adds substantially to drilling time and rig cost. Moreover, the cost of the
casing itself is a significant part of Total Well Costs. Therefore, the selection of
casing size, grade, connectors, and setting depth is a primary engineering and
economic consideration (Economides et al., 1998).
3.6.6 Flat time
Flat time is time when no actual drilling occurs. Flat time occurs when -
1. Tripping. This involves bringing the drill string to the surface and returning it to
the bottom of the borehole. Tripping is required to change a drill bit. Trip time
is dependent on well depth, borehole problems, rig capacity and crew
efficiency.
2. Setting casing. Surface casing or intermediate casing is inserted and cemented
within the wellbore.
3. Testing. Tests may be conducted before reaching TD to evaluate a formation.
4. Non-productive time, including weather downtime, encountered during drilling.
Drilling may be suspended intentionally or slowed to evaluate a formation of

economic interest. Evaluation methods include coring, logging or drill stem testing.
Conventional coring involves capturing continuous segments of rock within the drill
pipe and bringing it to the surface. The rates of penetration for continuous coring
are substantially slower than for normal drilling. Drilling may be suspended to run
intermediate logs over a geological formation of special interest. Increasing use of
‘logging while drilling’ (LWD) tools, which records information such as resistivity,
density, porosity and gamma ray, has reduced some of the necessity for intermediate
logs. Drill stem tests (DSTs) may also be run prior to completion. DSTs involve
measuring hydrocarbon flow rates from a formation over a period of time ranging
from hours to several days. Intermediate DSTs are more likely to be run onshore
where daily well costs are substantially less.

3.6.7 Total Depth
‘Total depth’ (TD) is the maximum hole depth. If a side-tracked hole is drilled for
testing or coring purposes, then the side-tracked hole is regarded as a new hole. If
no side tracked holes are drilled, then TD time is marked when drilling ahead ends,
and well operations change to circulating the well ‘bottoms up’ in order to clean out
drilling fluids and drill cuttings. Exxon’s study of North Sea platform wells
(Noerager, White, Floetra, & Dawson, 1987) defines the transition from drilling to
completion as occurring when production casing is set. However, production casing
is rarely set in an exploration well. Even when production casing is set, the time for
this operation is not always reported. CSIRO Petroleum excludes from the drilling
phase all operations performed after reaching well TD (Kravis, Irrgang, Scott, &
Lollback, 2004).
3.7 Completion phase
I define the completion phase as the period from when the drill bit reaches total
depth to the time when the rig is released. Electric logs are normally run after a
well reaches TD, although, LWD or MWD may reduce the need for end of well logs.
Additional tests, such as side-wall coring and velocity surveys, will extend well time.
If the well is to be abandoned, then cement plugs are strategically set within the
well bore to seal a reservoir from leakage or contamination. The dry hole
completion phase may also include removal of casing. Operators such as Apache,
who may drill more than 60 wells a year in the Carnarvon Basin, try to complete each
exploration well on a P&A basis, regardless of whether hydrocarbons are
encountered. This ensures that exploration drilling costs are completed within AFE
budget. Apache assesses its hydrocarbon discoveries as part of an appraisal drilling
programme.
Demobilisation from a well site usually involves moving the rig to another well within
the same basin. For semisubmersibles this typically involves raising the anchors and
moving the rig one kilometre from the well location, at which point the rig is handed
over to the new client. If the well is the last in the contractor’s drilling programme,
then the client may incur costs to demobilise the rig to the nearest port. The next
client usually incurs the mobilisation cost from that port to the next well location.
An offshore rig contractor may send the rig to Singapore for repairs or upgrades.

3.8 Well type
Wells may be classified as being either, exploration, appraisal, or development wells.

Exploration wells are typically located at substantially greater distances from
previous wells than appraisal wells or development wells. In general, the drilling
phase of an exploration well is more uncertain than drilling appraisal or development
wells. Exploration wells range from frontier areas like the Great Australian Bight
where Gnarlyknots-1 was drilled by Woodside in 2003 to densely drilled areas of the
Barrow Sub-basin, where Apache has been conducting infill drilling between
petroleum accumulations. More often than not, an exploration well fails to find
indications of hydrocarbons, in which case well operations are quickly concluded, and
the well is plugged and abandoned (P&A).
A drilling ‘Authority For Expenditure’ (AFE) usually refers to the ‘dry hole cost’.
However, there appears to be no convention across the petroleum industry as to
what should be included in, or excluded from, an AFE, nor a precise definition of ‘dry
hole cost. I was not able to estimate dry hole time or cost based on the times and
costs provided in most WCRs.
Appraisal wells are drilled close to previous wells to evaluate a petroleum-bearing

reservoir. Appraisal wells should therefore operate with some increased certainty
over an exploration well. An appraisal well may include full-hole coring, extensive
logging and an extended period of production testing. A comprehensive testing
programme can double the dry hole well cost. If the well is to be used as a future
producer, it may be suspended for re-entry at a later date. Production casing and
production tubing may be run, and a well head attached.
As more geological information is obtained over the target reservoir, less additional
testing and evaluation is required from subsequent wells. If testing determines the
discovery to be commercial then development wells are drilled.
Large offshore developments may involve drilling deviated or horizontal wells from a
central drilling platform. The increased complexity of a development well is often
accompanied by additional risk. However, risks should be mitigated by ‘lessons
learned’ from previous wells.

3.9 CO2 storage
Carbon Capture and Storage (CCS), also know as geosequestration, is under

consideration as a primary method to reduce atmospheric emissions of anthropogenic
CO2. It involves injecting compressed CO2 into deep geological reservoirs where it
will be trapped and stored for thousands of years or more.
The technology used for drilling CO2 injection wells is standard within the upstream
petroleum industry. CO2 has been injected into petroleum reservoirs for enhanced
recovery in some US oil fields since the 1960s. Storage of CO2 in saline aquifers using
petroleum technology is seen as an ‘off the shelf technology’ that can be applied
immediately to reduce CO2 emissions to the atmosphere.
Well costs play a critical role in selecting sites for CO2 injection. Some storage sites
will require significantly more wells than others. Large scale CO2 storage projects
may require tens to hundreds of wells. Drilling Costs are, however, subject to
substantial variability and can be difficult to predict with accuracy. Understanding
well costs, improving predictive accuracy, and determining how drilling costs can be
reduced, are major components on the critical path to the introduction of geological
storage of CO2.
The minimum depth for CO2 injection into a clastic reservoir is approximately 800m
(Ennis-King & Paterson, 2002). Below 800m reservoir pressure should be sufficiently
high for the CO2 to maintain a supercritical state. However, competing resources
such as ground water or petroleum reserves may already be present. Examples of
competing resources are found at Barrow Island (oil), Surat Basin (ground water) and
Gippsland Basin (oil and gas).
Moreover, suitable combinations of reservoir and seal may not exist at shallow
depths. At shallow depths there is also little latitude for the CO2 to migrate
vertically before it changes phase to a gas, then damages the formation and possibly
leaks to overlying formations and possibly to the surface. Alternative reservoirs may
be present at greater depth in the same location. Provided these reservoirs have
adequate seals, CO2 can then be injected and stored into these deeper reservoirs
with lower risk of contamination of the shallower resources. Deeper reservoirs may
provide greater long term containment potential and reduce overall leakage risks. In

the North Sea, TNO successfully conducted a CO2 injection test into a depleted,
under-pressured gas reservoir at a depth of some 3,800m (van der Meer, Hartman,
Geel, & Kreft, 2004).
Consideration may also be given to injecting CO2 into coal seams as a gaseous phase
at depths less than 800m where substantial adsorption of CO2 into the coal matrix
can be expected. A full range of drilling depths should therefore, be evaluated when
considering the economics of CO2 injection.

Chapter 4 Previous studies
4.1 Introduction
Historically, the primary tool for assessing drilling performance has been the classic
days versus depth plot. Following the application of learning curve methods to
drilling by Brett and Millheim (1986), a small number of international studies of well
performance have been published by major operators for specific regions. However,
results are often applicable only to one specific region and period.
Several Australian case studies have been published discussing the development of
individual fields. However, if costs are discussed, at all, it is usually only in terms of
productivity gains. I failed to find, a regional analysis or regional benchmarking
study of well performance for Australia. Woodside claim they benchmarked their
North West Shelf wells with those of their partners, but did not publish the results
(Bond et al., 1996).
The literature on well performance looks mainly at better planning and management
techniques for drilling wells, implementing lessons learned from previous drilling to
reduce drilling time, reducing Non-Productive Time (NPT), introducing new
technology and eliminating unnecessary tasks. Case studies focus on the successful
introduction of new technologies that cut the costs of conventional wells.
The raw data necessary for detailed performance benchmarking are now appearing in
more recent WCRs. Companies occasionally present detailed time analysis of
individual wells within their WCRs, but seldom are comparisons made with multiple
offset wells or benchmark wells. The following is a review of international well
performance studies appearing in the literature over the past two decades.
4.2 Time, depth and cost
Seventy percent of Woodside’s offshore well costs on the North West Shelf of
Australia have been time-sensitive (Bond et al., 1996). More than half of
development drilling costs in West Canada are time-dependant (Adeleye, Virginillo,
Iyoho, Parenteau, & Licis, 2004).

The time estimate is the single most influential factor for estimating well costs
(Peterson, Murtha, & Roberts, 1995). Measured depth is the most important factor in
predicting well times (Noerager et al., 1987). Estimating the time required to drill,
and complete, a well or series of wells, is therefore an important part of project
planning. Such estimates directly influence the economic analysis of any drilling
project, be it a single onshore coal seam gas (CSG) well or a billion dollar offshore
platform.
4.2.1 Rock hardness
The most obvious aspect of the downhole environment that influences drilling
difficulty is rock hardness. A given distance will usually take longer to drill through
hard rock than it will through soft rock. Other aspects of the downhole environment
that influence the ease of drilling include lithology, abrasiveness, and downhole
pressures. Typically, increasing the borehole pressure will reduce penetration rate in
an impermeable rock. Variations in inherent drilling difficulty can render
meaningless comparisons of performance measures based on drilling time per unit
depth.
4.2.2 Technical Limit Specific Energy
Curry et al. (2005) introduced a new index of drilling performance evaluation called
‘Technical Limit Specific Energy’ (TLSE) to make more equitable comparisons of
drilling performance of wells from contrasting geological environments using
different equipment. The index predicts the lowest bound to the ‘mechanical
specific energy’ (defined as the energy input required to excavate a unit volume of
rock) that can be reasonably be expected when drilling rock with specific properties
in a specific pressure environment. The input data includes the rock’s acoustic
travel time, lithology and, borehole and formation pressures. Unfortunately, TLSE
requires considerably more data, and data analysis, than time depth analysis. It is
therefore a less likely candidate for a statistical analysis of costs for a large pool of
data. Moreover, its predictive capability depends upon detailed geophysical
knowledge of the section to be drilled. Information which may only be available to
the operator.

4.2.3 Completion time
The completion time for Exxon’s North Sea platform wells represented less than 20%
of well time prior to 1986 (Noerager et al., 1987). This figure is low by today’s
standards. This is partly because the pre-1986 figure excludes the time for setting of
production casing which Exxon classified as drilling time. However, more
importantly, it is because major reductions in drilling times have occurred since
then. Exxon also found completion times increase with depth at a rate slightly less
than linear. They presume this to be because there are more depth independent
activities with completion operations than for drilling operations.
4.3 Learning curve analysis
Learning effects need to be considered when predicting well times. The drilling
performance curve, introduced by Amoco’s Brett and Millheim (1986), applies
learning curve theory to the drilling of a consecutive series of similar wells, to a
common depth, through the same geological section. Based on a study of over 2,000
wells within which Amoco had an interest, they found that sequences of 4 to 19 wells
were found to show learning. Reductions in drilling time for the last well in a
sequence compared to the first ranged between 30% and 65%. On average, the first
well costs 2.1 times the last well drilled. They then modified the original learning
curve equation proposed by Wright (1936) for aircraft manufacture to the following
form for drilling a well to a given depth –
t = C1 × e(C2 ×(1-n)) + C3 (1)
where –
t is the time to drill the nth well
n is the well number in the area of uniform geology
C1 is the difference in time between the first well and the last well
C2 indicates how fast an organisation takes to reach the ‘technical limit’
C3 the minimum drilling time for the region (or time asymptote)
Wells are plotted in sequence on the ‘x’ axis and the time it takes to reach a given
depth is plotted on the ‘y’ axis. Initially, drilling time decreases rapidly for each
new well. The rate of improvement then decreases to an asymptote where there is
little further reduction in drilling time as more wells are drilled. This is a

quantification of what has been known qualitatively. That is, that the first well
drilled in an area is expensive and the last well cheap.
Brett and Millheim’s Learning Curve model shows that performance reaches a plateau
at a level determined only by technical factors. The rate at which performance
approaches this limit (C3) is a measure of learning rate (C2). Once the learning curve
flattens out, new technology needs to be applied and a new operational approach
needs to be introduced if further reductions in time and cost are to be achieved.
4.3.1 Limitation of learning equation
One disadvantage of Brett and Millheim’s formula is that the constants are depth
dependant. If the drilling depth changes then the constants have to be changed to
maintain accuracy. The constants will need to be changed to depth dependant
variables if the learning curve equation is to be independent of depth.
4.3.2 Rate of learning
The rate of learning can be used to evaluate the performance of a drilling

organisation. Brett and Millheim’s 1986 study of over 2,000 wells indicated an
industry average rate of learning value (C2) of 0.34. Values varied from a low of 0.15
to a high of 1.26. A high C2 value indicates that the drilling operator adapts quickly
to the new drilling environment by learning from the experience of the first few
wells to reduce well time in subsequent wells. Completions start further along the
learning curve than drilling, because they are more mechanically controlled (Bond et
al., 1996).
The rate of learning can be used to measure potential cost savings. An organisation
that learns quickly will reduce costs more rapidly and have lower total costs.
Potential cost savings can be used to budget appropriate investments in corporate
learning to achieve potential savings.
4.3.3 Economic impact of learning
Brett and Millheim (1986) illustrated the economic impact of learning by graphing
days to drill to a given depth, for different rates of learning, as a drilling programme
progressed from first to last well. Using their learning curve equation (1), Figure 4.1
compares three drilling programmes. The first well for each programme takes 90

days to drill; and the last well (well 14) approaches 43 days to drill (the technical
limit); but each programme has a different rate of learning (C2 = 0.34, 0.50 or 1.0).
The drilling programme with a learning curve constant of 0.34 takes 15% longer (87
rig days) than the programme with a learning curve constant of 1.0. The greatest
savings occur for short drilling programmes (5 wells or less) and during the first half
of longer programmes. The cost saving can be estimated by multiplying the rig days
saved by the average daily well cost.
100
Economic impact of learning
90
t = C1 × eC2 ×(1-n) + C3
80 C2 = 0.34
70
Days (t )
C2 = 0.50
60
C 2 = 1.00
50
40
30
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Wells drilled (n)
(modified from Brett and Millheim, 1986)
Figure 4.1 – Economic impact of learning.
4.3.4 Well complexity
There is a tendency for well time to increase significantly with well complexity
(Williamson, Sawaryn, & Morrison, 2004). In recognition of this, many multi-well
projects start by drilling easier projects first, so that as learning progresses, more

challenging wells can be tackled successfully. If this strategy is successful, well time
will only increase moderately with well complexity (Williamson et al., 2004). The
learning curve for the project will be less obvious, and more difficult to quantify,
because of the increasing complexity of the wells.
4.3.5 Applied Learning
Anadarko applied drilling analysis to their database of wells in the Gulf of Mexico
(Iyoho et al., 2005). The found that lessons learned from one area (e.g., deep
water) can be successfully transferred to a more difficult drilling environment (e.g.,
ultra-deep water). This can lead to an improved initial well time/cost and a shorter,
improved, learning curve.
The complexity of oilfield operations results in an ongoing learning curve

(Woodhouse, 2005). A project without a learning and knowledge management plan
shouldn’t take credit for learning in its forecast (Williamson et al., 2004).
Improvements should be attributed to other factors, such as technological
improvements.
4.3.6 Batch drilling
Zoller, Graulier and Paterson (2003) discuss the Bijupira and Salema developments in
Brazil. The input data was based on offset well data, rig specification information
and expert opinion from meetings. The first well was drilled in one operation to
prove up well design, while the remaining wells were drilled in batches. Batch
drilling involves drilling multiple wells from the one location or template. Each
phase (for example, drill top hole or well test) is repeated for each well before
starting the next phase. Drilling operations are continuously alternating between
holes until each well is completed. The same approach has been employed by
Apache and Woodside on the North West Shelf, Australia. The advantages are a
reduction in common operations and logistics. Zoller et al. (2003) claimed batch
drilling maximised the learning effect. Others would disagree, claiming that there
was too little time to analyse performance and problems on one well, and then make
significant operational changes for the next well starting immediately after. What is
more likely to have occurred is a ‘training effect’ where the crew learned to do the
same job more quickly rather than a learning effect where work procedures were
significantly changed.

4.4 Statistical analysis of North Sea drilling time
The study most similar to this thesis is perhaps Exxon’s statistical analysis of platform
wells in the North Sea (Noerager et al., 1987). A database of data from 489 wells
was established. Their database included the following information –
x Well name
x Spud date
x Total measured depth
x Maximum hole angle
x Drilling order
x Total well time
x Drilling time
x Completion time
x Trouble time
Exxon found that regression analysis is a useful method for fitting equations to well
time data. Two equations for expressing time as a non-linear function of measured
depth were derived based on lowest standard deviations when fitted to the data.
(1) Time = A x mdB

(2) Time = A x mdB x LCF x SDF
where LCF is a learning curve factor and SDF the spud date factor.
LCF = 1.0 + C × e(
0.693×(1-n)/ D)
SDF = (1.0 - E)((spud _ date)-(reference _ date))

md – measured depth
A – constant factor (days/metre)
B – exponent of measured depth
C – penalty factor in learning curve
D – half life of learning curve (days)
E – Annual improvement factor (percentage/100)
LCF – learning curve factor
SDF – spud date factor (discount for annual improvement, dates in years)

Their consensus value of ‘B’ (exponent of measured depth) was about 1.4. This
means for instance, that it takes 2.6 times longer to drill to 2,000 metres as it will to
drill to 1,000m.
4.4.1 Learning effects
Exxon modified the learning curve equation introduced by Brett and Millheim (1986)
to decay exponentially from some initial value to 1.0. However, while depth is a
variable in both equations 1 and 2 above, LCF (the learning curve factor) is still
depth dependant and will thus lose accuracy when the measured depth deviates from
the original reference depth for LCF. This may not have been a significant
consideration in Exxon’s study since most wells analysed were drilled to a common
reservoir and depth, in a region with similar geology.
Noerager et al. (1987) found an increased correlation between well time and well
depth when learning effects and well order (on a platform) were considered. In their
statistical analysis of 21 platforms in the North Sea, the first well starts with a
penalty factor of 41% which declines exponentially with a half-life of 2.5 wells. This
contrasts markedly with their analysis of subsea template wells which starts with a
penalty factor of 275% and a half-life of 15.6 wells. The learning process is longer
and slower for subsea template wells than for platform wells. The North Sea study
found learning effects for completion time and trouble time more difficult to define.
4.4.2 Spud date factor
The ‘spud date factor’ is a term introduced by Noerager et al. (1987). The spud date
factor is the regression relationship between total well time and well spud dates. It
estimates historical annual reductions in drilling time. They reported that average
well times decreased by 4.8% per year between 1976 and 1985 in the North Sea, or
35% over nine years. The authors surmise that the reduction in time is because of
improvements in drilling and completion technology. Later studies suggest improved
work practices also contribute to improved annual performance.
The spud date factor assumes that past improvements have been linear, constant and
will continue into the future in the same manner. It also assumes that reductions in
drilling time are independent of drilling depth. However, the study by Noerager et
al. (1987) considered only platform and subsea development wells drilled into the

Jurassic of the central and northern North Sea. My results, described later, indicate
that reductions in drilling time from 1980 to 2004 are related to well depth, and
should be defined as a depth dependent variable with larger reductions in drilling
times at deeper depths.
4.4 3 Standard deviation
Statistical theory suggests that the uncertainty of a multi-well time prediction should
be the single well uncertainty divided by the square root of the number of wells
drilled (Noerager et al., 1987). The reality from the North Sea is that the
uncertainty is reduced, but only to a level midway between the single well
uncertainty and the lower level defined by statistical theory. This may suggest that
there is a co-dependency between the wells in the North Sea study. That is the
outcome of each well is partially dependent on the outcome of the others.
4.5 Technical limit analysis
Woodside conceded that its drilling performance offshore on the North West Shelf
from 1968 to 1992 was erratic (Bond et al., 1996). Figure 4.2 shows a plot of drilling
time as a function of depth for 108 drilled by Woodside during this period. Woodside
deemed the scatter of their drilling times to be unacceptably high in comparison with
the published performance of Exxon’s wells in the North Sea (Noerager et al, 1987).
We can see that the range of drilling times increases exponentially with increasing
well depth. Woodside drew a time line on their figure for drilling time as a function
of depth which indicates the minimum time for each depth below which no wells are
recorded. They called this line the ‘Technical Limit’. Woodside adopted the
Technical Limit as their benchmark for subsequent drilling programmes.
Woodside undertook to improve its drilling performance before development of the

Wanaea and Cossack fields commenced. They conducted a time analysis of previous
drilling to pursue rigorously the identification, and removal of drilling problems. The
outcome was an innovative new approach to planning and drilling petroleum wells
called ‘Technical Limit Analysis’ (Bond et al., 1996), which has been widely adopted
by the petroleum industry since its introduction.
‘Technical Limit’ (TL) time is a composite time derived from historical data. TL, by
definition, requires valid offset data upon which the detailed time analysis can be

carried out. It comprises the best ever performances achieved to date for each
component of a drilling operation. TL time is therefore considered the most ‘perfect
well’ possible using the technology and operational practices of the day. It assumes
a flawless operation. If an operation is subsequently carried out in less time than the
previous technical limit time for that operation, then the new time is used in future
planning as the technical limit time for that operation.
Technical limit analysis benchmarks well performance and identifies areas for
improvement. Woodside uses the technical limit time with an ‘uplift factor’ to
estimate budget time (AFE time). In 1998, Woodside’s typical uplift factor for
platform wells was from 1.3 and 1.6 times the technical limit time (Dolan et al.,
2003) . An analysis of Woodside’s uplift factor for other offshore wells, based on
data collected for this thesis, is presented later.
(from Bond et al. 1996)
Figure 4.2 – Woodside historical drilling performance, 1968 to 1992.
Woodside’s well plan includes preparation of a ‘look-ahead’ spreadsheet, listing

component operations, TL time and budget time. Each departure from the plan is

recorded as down time (DT) and coded. Woodside called the difference between
‘actual well time’ and ‘theoretical well time’, ‘Removable Time’ (see Figure 4.3). It
included conventional lost time and down time (NPT – ‘Non-Productive Time’), and
another component they termed ‘Invisible Lost Time’ (ILT), defined as time
deviations from a plan that would normally be accepted or previously accepted
wasteful events. ILT may be caused by use of sub-optimal equipment, lack of
resources and sub-optimal use of equipment or procedures. For example, if the rate
of penetration (ROP - when the bit is actively making hole) was lower than expected,
then the lost time because of this lower ROP would be classified as ILT. This
becomes a target for improvement in later wells. Adeleye et al. (2004) listed
additional operational areas for ILT as –
x Drillstring trips and tool handling

x Wellhead and BOP operations
x Casing and cementing
x Wireline evaluation and coring
x Well-bore surveys
Performance
here needs “Technical Limit” Concept
new technology
Total valid target range
Valid target range for current technology

“Normal” target range
Theoretical or Technical Conventional NPT

Invisible Lost Time
Limit Well Time (Lost + Down Time)
Removable Time (Opportunity)
Theoretical Best or “Normal” Best “Normal” Average

Technical Limit Performance Performance Performance
Figure 4.3 – The Technical Limit concept.

(Dolan et al., 2003) consider technical limit methodology and performance

improvement groups are best suited for complex, high cost drilling projects.
Nevertheless, the methodology can also improve the performance of wells drilled
within mature fields where the learning curve appears to have flattened out.
Woodside noted that the introduction of Technical Limit analysis initiated a new
learning curve as personnel acquainted themselves with new procedures.
Anadarko drilled 41 wells in the Wild River Field, West Central Canada, between 1999
and 2002 (Adeleye et al., 2004). Well times to reach the 3,050 metre reservoir
initially ranged from 56 to 70 days. A learning curve trend ensued with the addition
of more wells reducing well times to between 22 and 38 days (averaging 29 days in
2003). In 2003 Anadarko applied Best Composite Time methods (the same as
Woodside’s ‘Technical Limit’ time) to all subsequent wells. This initiated a new
learning curve. Well times reduced a further 37% over a six month period to an
average of 19 days per well (measured from spud to rig release), reducing well costs
by a further 15% over the period (Adeleye et al., 2004).
4.6 Time independent costs
Marshall (2001) points out that a substantial proportion of well costs are not time
dependent and are thus not amenable to reductions through technical limit analysis.
He suggests that well construction comprises three cost elements –
a) Time dependent variable costs, such as drilling day rate.

b) Time independent variable costs, such as cement, drill bits and other
consumables.
c) Fixed costs, such as casing and wellheads, lump sum mobilisation and
demobilisation
Marshall’s (2001) view is that the relative proportion of each cost element in terms
of the total project cost may vary from well to well but Total Well Costs should be
roughly proportional to the rig day rate (which is also the largest component of any
normal well cost). The time dependent proportion of the total cost tends vary
between 40% and 70%. For offshore wells with high rig and boat costs the proportion
will be toward the upper range of 70%. For land wells with relatively low rig day
rates, but high dependent costs such as civil works and equipment mobilisation and

demobilisation, the proportion of time dependent costs will be toward the lower end
of the range. The relative proportion of time dependent variable costs for all wells
increases as the duration of the well increases (Marshall, 2001).
A minimum of 30% and as much as 60% of well construction costs is not time
dependent and therefore not affected directly by the Technical Limit approach. For
example, reducing operational time by 25% for a well with 40% time variable costs
will reduce overall well cost by only 10%.
In a well with a high proportion of time dependent variable costs, we may be able to
justify increasing a time independent variable cost such as drilling fluids if such an
increase results in improved drilling performance and a consequential reduction in
operating time. Contracting a more expensive rig with a higher unit day rate may
decrease operational time and hence time dependant costs.
Casing is a significant fixed cost that can exceed 10% of the well construction cost
(Marshall, 2001). Casing is typically considered as a tangible capital cost rather than
an intangible operating cost because it is purchased ahead of the well being spudded,
usually because it is a long-lead item. Consequently, the operator carries this capital
cost against the well account including the cost of money invested in addition to
storage charges – direct ones such as the yard and indirect ones such as damage and
corrosion. Moreover, because much more casing is paid for than is typically needed,
there is a surplus that builds up over time to the operator’s account (Marshall, 2001).
4.7 Drilling The Limit
Schreuder and Sharpe (1999) from Shell note that the construction industry spends
up to 15% of project budget in up-front planning. In well engineering, up-front
planning costs have usually been less than 5%. In 1999 the Shell group drilled 35
wells with cost reductions of up to 50% versus AFE estimates based on median
outcomes and with time reductions of between 15% and 70%. They attribute the
largest reductions to implementation of their ‘Drilling The Limit’ (DTL) methodology.
Shell defines DTL as maximising the value of the wells by achieving low unit technical
cost (Jones & Poupet, 2000). Shell’s DTL process is similar to Woodside’s Technical
Limit analysis. The DTL process depends heavily on painstakingly detailed

preparation. In DTL, Shell emphasises the collaborative effort between the operator,
the drilling contractor and the service providers to improve well performance. Shell
suggests that a change in operating culture by the rig crew can be offered as a
professional service by the rig contractor and will influence the choice of service
providers (Jones & Poupet, 2000). Shell attributes large reductions in ‘flat spot’
activities (e.g. tripping) on their Goldeneye well in the North Sea to the DTL process.
Planning and supervisory manpower was increased by 25% amounting to 1% of the
total AFE. The increased planning effort produced substantial benefits with a final
cost 25% less than the planned AFE cost.
The greatest performance improvements can be made in the earliest conceptual

planning stages by using smarter and optimised well design. Late involvement of
well engineering in field development restricts the opportunity of optimisation to
only faster execution, realising relatively limited gains. Performance gains are made
by better planning and more efficient work practices, rather than by rushing
(Schreuder & Sharpe, 1999).
Shell found that faster well delivery resulted in less time was available to plan the
next well, thus making it impossible to sustain performance without additional
resources. Operating costs increased to meet increased demands of striving for
perfect conditions. However, accelerated production from development wells
provides significant financial benefits. The first barrel of oil produced will be worth
more than at any other time in the life of the well (assuming constant oil price).
4.8 “Trouble Time”
“Trouble Time” or unscheduled events are ‘any occurrence which causes a time
delay in the progression of planned operations’ (Kadaster, Townsend, & Albaugh,
1992). It includes the total time required to resolve that problem and the time to
bring the operation back to the point or depth at which the event occurred. Trouble
Time is thus anything that you do not intend to do but are required to do anyway. An
example of Trouble Time is ‘fishing operations’. The cause of the problem might be
drillstring failure or stuck pipe.
Drilling time studies have been undertaken by companies for some time. All have
different names for Trouble Time. Amoco refers to this time as Unscheduled Events;

BP calls it ‘Non-Productive Time’; Mobil and Superior both call it ‘Accountable Lost
Time’; Dome refer to it as ‘Problem Time’; while Exxon and Tenneco call it ‘Trouble
Time (Kadaster et al, 1992). Companies may also refer to it as Unplanned Events.
The principle cause of the discrepancy between planned and actual times is Trouble
Time (Kravis et al., 2004). ‘The ultimate goal of any drilling organisation is to
improve drilling performance by reducing Unscheduled Events and thus reduce well
costs’ (Kadaster et al 1992). That is not to say that actual times cannot be reduced
by the elimination of inefficiencies (that is, Invisible Lost Time).
4.8.1 Predicting Trouble Time
Marathon’s study of three years of drilling data from the North Sea found that the
number of problem drilling days was strongly dependent on depth (Peterson, Murtha,
& Schneider, 1993). This finding is contradicted by several later studies. Dodson,
Dodson & Schmidt (2004) studied ten years of drilling data from the Gulf of Mexico
(1993 to 2002) concluding that problem incidents are consistent regardless of the
depth of the well. A standardised analysis of drilling performance for a wide range
of wells by CSIRO Petroleum (Kravis et al., 2004) found that actual trouble time is
not significantly correlated with well or well section length. However, the
probability of Trouble Time is significantly correlated with borehole length. This can
be seen in Exxon’s North Sea study (Noerager et al, 1987). Compared to other time
variables, the Trouble Time in North Sea wells were highly scattered with a strong
negatively skewed distribution. Most wells encountered low trouble times.
However, a small proportion of wells recorded very high amounts of trouble, the so
called ‘train wreck’ scenario. Trouble Time predictions based on mean values will
slightly overestimate most wells and greatly underestimate a few. Trouble Time is
better modelled as an additive rather than as a multiplicative factor (Kravis et al.
2004).
The accuracy of Trouble Time predictions increase as the number of wells increases.
4.8.2 Exxon’s Trouble Time
It seems reasonable to assume that the probability of encountering Trouble Time may
increase with the complexity of the well. Exxon’s North Sea study found a modest
correlation between bore-hole angle and Trouble Time (Noerager et al., 1987).

A popular method of quantifying drilling performance has been to look at problem

time as a percentage of actual time (Peterson et al., 1993). Drilling Trouble Time for
Exxon’s North Sea study averaged about 70% of total well time and completion
trouble time 30%. Since drilling represented 80% of well time and completion 20%,
there was proportionally more Trouble Time during completions than while drilling
(Noerager et al., 1987).
4.8.3 Amoco’s Trouble Time
In 1989, Amoco studied the drilling time for 25 wells drilled in the North Sea and off
the west coast of Africa. The major drilling problems were - weather downtime,
casing and cementing problems, and lost circulation. Amoco then analysed over 250
international and domestic wells drilled between 1990 and 1992 (Brett & Millheim,
1986). They found a definite correlation between organisational structure,
manpower and the occurrence of unplanned events.
4.8.4 Gulf of Mexico Trouble Time
In the ten years, 1993 to 2002, Trouble Time caused by bore-hole problem incidents
consumed 24-27% of Gulf of Mexico operator’s drilling budgets. The largest
proportion of hole problem incidents in the Gulf of Mexico (for wells less than 4,572
m) relates to rig equipment failure, which averaged 21% of the incidents since 1993,
followed by lost circulation (13%), waiting on weather (12%) and stuck pipe (11%),
(Dodson & Dodson, 2004).
Andarko’s 2003 Trouble Time in the Gulf of Mexico was 26% of the total drilling time
from spud to rig release. This was down from a high of 35% in 2001 and 2002 (Iyoho
et al, 2005). Tool/equipment failure was a significant trouble-time component.
Major drilling problems were also found to be mostly well-pressure related (for
instance, well control, lost circulation, and stuck pipe), supporting increased
emphasis on improved planning and quantification of equivalent circulating density,
deepwater geopressures and narrow drilling margins, especially in ultra-deepwater
environments.
The 25% proportion has become the industry best practice and the AFE ‘fudge factor’
many drilling engineers use when preparing well plans (Dodson and Dodson, 2004).

However, few if any, operators clearly distinguish problem-free time from problem
time on the AFE.
4.8.5 Offshore versus onshore Trouble Time
CSIRO Petroleum has developed a trouble probability plot (Kravis et al. 2004). CSIRO
Petroleum studied trouble time from 50 offshore vertical wells. Trouble Time
accounted for 13-18% of well time and about half were trouble free. The lowest
total Trouble Time percentages were found in onshore wells, but the median Trouble
Time values were lowest for offshore vertical wells. This implies that Trouble is
rarer on offshore operations, but when it occurs it is more likely to take longer to
remedy (Kravis et al, 2004). Deviated and horizontal wells increase the total Trouble
Time and the median value of trouble, and reduce the number of trouble free
phases.
4.8.6 Weather down time
Cyclones can be a major impediment to drilling operations across northern Australia

during the summer and autumn months. Bond et al. (1996) noted that drilling during
the cyclone season potentially added 13% to Woodside’s drilling costs on the North
West Shelf of Australia. After Oil Company of Australia incurred A$200,000 in
weather charges on their Kenmore horizontal drilling program, Eromanga Basin,
western Queensland, in the summer of 1999/2000, they recommended that drilling in
summer should be avoided (Hedger et al., 2000).
Weather conditions across southern Australia are perhaps less extreme but offshore
have been known to cause frequent and prolonged drilling delays. Bad weather
offshore southern Australia is also less seasonal and more difficult to avoid than
northern Australia.
Although weather is uncontrollable, its impact on drilling operations can be managed

to help reduce down time and associated costs. Analysis of historical data along with
local weather data can be used to schedule wells to reduce weather down time.

4.9 Well planning and AFEs
4.9.1 Well planning
Well planning requires an intensive investment in data collection, processing and

analysis of previous wells drilled in the area of a proposed drilling programme.
Woodside estimate their removable time analysis of each ‘offset well’ prior to
drilling the Wanaea and Cossack developments took one man week. It also required
the analyst to have a high level of drilling and completion knowledge (Bond et al.
1996). However, by knowing what problems had been experienced previously,
Woodside was able to produce more successful drilling plans. Applying Technical
Limit analysis to historical data enabled Woodside to substantially outperform their
own past performance and that of their competitors.
Many companies now follow a well planning process similar to the one introduced by
Woodside in 1996. Anadarko’s well analysis process involves the use of best
composite time and cost, learning curve analysis and quantification, detailed cross-
correlative plot/analysis of drilling problems, interdisciplinary collaboration, and
feedback of learning and solutions to problems (Iyoho et al, 2005). The primary
source of data for Anadarko’s analysis is their corporate database.
4.9.2 The AFE process
The Authority for Expenditure (AFE) is an estimate of the costs to be incurred and a
request for funds. Daily operations reports in a WCR give estimates of costs incurred
to that date. In accounting terminology, this is a report of accrued costs rather than
a cash flow. The booked cost is the final amount of money paid for the well which
should agree with the cash flow report.
The AFE decision making process starts with an idea or concept and concludes with
the cost of a well. However, in the past many oil companies did not regard AFE
preparation as a process to be documented or flow charted (Pieters, 1994).
Traditionally, the engineer would make a ‘best estimate’ of the time required to
complete each well activity, based largely on historical performance in
representative offset wells. The estimates of time for each activity would be
summed to give an estimate of total well time. Well cost would be calculated by
multiplying the times by the anticipated total daily cost of rig and services
combined, and adding an amount for fixed costs. The result was a deterministic

estimate of well time and cost (i.e. an estimate built up from single values and itself
expressed as a single value) (Williamson et al, 2004). Often it was unclear, however,
exactly how the AFE time estimate was derived (Peterson, 1993). The best
deterministic estimates of Total Well Cost (if outliers are discarded) generally
produce a value less than the mean and close to, or less than the P50 or median
outcome (Williamson et al, 2004).
Well costs were typically based on time estimated to drill a ‘trouble free’ well with
0% Unplanned Events (i.e. no Trouble Time). Usually, a gross contingency factor was
added to account for possible unknowns. An Amoco analysis of over 250 international
and domestic wells drilled between 1990 and 1992, found that an analysis of
historical well data is a more accurate predictor of costs than an estimated gross
contingency factor (Kadaster et al, 1992).
4.9.3 AFE accuracy
Arco analysed AFE data for their domestic development wells from three districts
during the period 1986 to 1989. They found that, when averaged as a whole, their
AFE estimates exceeded actual costs by +5% to +9% (Shilling & Lowe, 1990), an
apparently good result. However, these figures were distorted by random canceling
of over and under-estimating errors. The standard deviation for the difference
between AFE estimates and actual costs divided by actual costs (expressed as a
percentage) was 43%, 27% and 36%, for the three development regions. The average
of the absolute differences between each AFE and each booked cost was 21%, 25%
and 34%. At a detail level the percentage variation was magnified. Arco give an
example of a well where the average difference between the AFE and actual detail
cost was 37%, but the standard deviation was 175%. Looking at absolute error, there
was an 88% difference between the AFE’s detailed estimates and the actual detailed
costs. Arco concluded that their cost estimating and tracking methods produced
adequate performance only on a gross statistical basis. For any given well estimate
and even more so for any given cost category on a single well, Arco’s cost errors
were in general substantial and only limited confidence could be placed in their
accuracy (Shilling and Lowe, 1990). These findings prompted Arco to design a new
well AFE tracking system for their company for which they gave an overview. The
new system improved estimating accuracy and the reliability and consistency of
booked costs. However, Arco’s position in 1990 was that “AFE cost estimates should

be done using the ‘simulation method’ rather than the statistical method” (Shilling
and Lowe, 1990). What they meant was that the drilling engineer should attempt to
anticipate exactly what costs will be incurred during well drilling.
4.9.4 Objectives of an AFE
‘There is no such thing as a typical AFE: they are all different’ says Pieters (1994).
Companies differ in what they charge to a well. Should planning costs, or corporate
or country head office costs, be allocated to the AFE? If the well is the first in the
campaign, should the cost estimate include rig mobilisation (Williamson, 2004)?
The AFE is primarily an instrument of cost control. Historically, it has sometimes

been made to play an additional and ultimately incompatible role in acting as a
target for well delivery. For example, Marathon used AFE deviation analysis as a
method of evaluating drilling performance (Peterson et al, 1993). The AFE time or
cost for a well, if set near the mean, will represent a balance of upside and downside
outcomes, and hence moderate performance. It does not, therefore, make a good
target. Decoupling performance targets from budgetary control is a necessary step
towards consistent delivery beyond expectations (Williamson et al., 2004).
The conventional philosophy has been that AFEs should be written to ensure enough
money is approved to drill the well, without being short of funds or leaving unspent
funds (Peterson et al, 1993). Most companies now realise that treating the AFE as a
‘delivery promise’ which will under no circumstances be exceeded is clearly
unrealistic. The principle of ignoring sunk costs means that the well cost may
eventually exceed this threshold.
4.9.5 What does an AFE represent?
At times Woodside have based their AFEs on the P50 (50/50 or median) estimated
time (Bond et al. 1996). They assume that there is a 50% probability that the final
well will be less than the AFE estimate and a 50% probability that the final cost will
exceed the estimate. Another method is to set the AFE to the mean cost plus an
allowance of say 10% of the mean cost. This however is more likely to correspond to
a P70 outcome. P70 means that 70% of wells will cost less than the AFE while 30% of
wells financed in this way will exceed the AFE and require supplementary funds. The
percentiles at which the initial collection of funds and the AFE are set are a matter

of choice. If careful financial control is deemed important then lower AFE percentile
values can be chosen. If a higher degree of autonomy for the operation is required,
say for a remote exploration well, then a higher threshold may be more appropriate.
A large divergence between the AFE and the final well cost does not mean that the
well was unsuccessful. It could be due to readily explainable circumstances such as
changed scope of work for an enhanced formation evaluation programme.
Peterson et al. (Marathon, 1993) said that ideally, the AFE should –
a) Be written using the results of statistical analysis of offset wells.

b) Present a range of possible times and costs in recognition of the inherent
uncertainty associated with drilling wells.
c) Distinguish between problem free time and problem time.
d) Be fully reproducible by any qualified engineer designing the well plan under the
same operating parameters.
4.10 Historical data and databases
4.10.1 Offset wells
‘Offset wells’ are representative wells that measure historical well performance in a
particular drilling region (Williamson et al. 2004). Careful analysis of offset well data
and operating practices is essential for effective risk identification and mitigation
(Williamson et al. 2004). The use of historical data to calibrate drilling simulation
time and estimate costs facilitates very accurate predictions (Shilling and Lowe,
1990).
In an analysis of drilling performance in the Gulf of Mexico, Iyoho et al. (2005)

comment that “large amounts of quality historical data are needed to ensure
appropriate drilling analysis results, much of which are based on statistics”. Large
well databases are necessary for drilling engineers to formalise the tools and
processes that would unambiguously constitute drilling analysis.
If good offset data is available it is vital to plot it graphically to look for and identify
trends, correlations, bi-modal behaviour, or outliers which may require further
investigation, before attempting to characterise the data with parameters. Peterson

et al. (1993) from Marathon used the chi-square test to match historical data to
distributions.
Massive volumes of daily drilling data are routinely acquired by operators, often at
great expense, yet at the same time, researchers in the field of drilling performance
lament the lack of quality benchmark data with which to conduct statistical analyses
of well performance. Several factors contribute to this apparent paradox.
Documents and databases are not knowledge. Large operators maintain their own
extensive well databases, but there is little open standardisation of analysis and no
public comparison of results. ‘Information does not produce value unless it can
enable an effective action’ (Dunham, 2000). A knowledge management system
should include benchmarking and best practice information (Irrgang, Kravis, &
Nakagawa, 2002).
In Canada, the Centre for Frontier Engineering Research, who are establishing a
database of Canadian wells, state in their project proposal ‘one of the important
challenges facing Canadian producers as they strive to improve drilling cost
performance and efficiency is the limited amount of high quality benchmark data
available’ (http://www.cfertech.com/Pdf_Files/1pagers/dPBS%20JIP.pdf). They
initiated a ‘Drilling performance benchmarking system’ in 2005 to facilitate sharing
drilling and completions performance information among operators in Canada. At
the time of writing the system was still in development.
Lack of public information about well costs does not mean that it is unimportant.
Petroleum companies regard their knowledge base as their competitive advantage.
The larger operators are investing heavily in databases covering all aspects of the
petroleum industry. There are management and service companies that specialise in
the sale of drilling and cost information acquired from industry sources at
considerable cost. However, commercial databases do not usually contain the detail
for many types of drilling analysis. The well databases that many drilling engineers
seek to establish include highly detailed sequences of events with each job task and
activity classified and coded for analysis. This information is routinely recorded for
each well and usually included in WCRs. However, formats for presenting the data
are different for each operator. To re-enter this data manually into an electronic
database and reclassify job tasks into standard formats is a massive task and

impractical for regional studies (unless heavily resourced). Data would need to be
collected in electronic format from the companies or from government submissions
to establish such a database for Australia.
4.10.2 Milestone events
Milestone events are accessible, require little time to register, and are very useful
for measuring performance. In 1990 Amoco began their ‘Drilling Time Analysis’ by
analysing and monitoring their company’s drilling performance (Kadastar et al. 1992)
using ‘milestone’ events such as –
x Report start date & time

x Start mob/rig-up date & time
x Spud data & time
x TD date & time
x Rig release date & time
x Suspension periods
Daily hours, depth and daily cost were also recorded, as well as an explanation for
Unscheduled Events. Three key performance parameters were produced - $/Day,
$/Foot and Unscheduled Events (Kadaster et al, 1992).
4.11 Knowledge Management
Australia’s CSIRO Petroleum organised workshops with oil industry participants to

determine their knowledge management needs (Irrgang et al, 2002). More and
better information exchange across companies was one issue. An example of a cross
company oil industry knowledge group was given at the CSIRO forum, called COIN,
which swaps information on innovative completion designs between 15 major
companies. The COIN group believes that a network will only function successfully if
its members meet at least occasionally and build trust with each other (Irrgang et al,
2002).

CSIRO Petroleum listed a number of key issues in knowledge management success

(Irrgang et al, 2002) –
x A knowledge management system should include benchmarking and best

practice information.
x Successful oil and gas companies are developing an organisational learning
culture. This generally focuses on capturing lessons learned at a particular rig
location and incorporating those lessons into planning the next well.
x Development of a supportive company culture is a prerequisite for success.
x A knowledge store must be active. Problem solving processes must be
included and additional knowledge added to designs.
x A knowledge management system should include networks of people as well
as stored computer knowledge bases.
x Mechanisms for motivating operators to share knowledge.
On the whole, the industry suffers from inertia and remains very conservative,
making changes hard to enact (David Dowell, Texaco, Flat Time Forum, 1999, in
Irrgang et al., 2002). The CSIRO forum concluded that it was easier to convince
management to try innovations if other companies have already reported success
with a new technology.
Information from these workshops was used to assist the design of CSIRO’s drilling
management software called Genesis (Irrgang et al, 2002). The software
automatically captures drilling data and knowledge, and extracts key information
required for drilling new wells (Irrgang, Damski, Kravis, Maidla, & Millheim, 1999).
The software makes statistical estimates of well times and costs based on previous
wells drilled in similar regions and conditions. The system is designed to allow
intelligent planning of new oil or gas wells. The core of the system is a global
database of drilling data, information and knowledge contributed by participating
companies, most of whom were collaborating to share drilling data in the belief that
capturing and sharing experience will lead to better well designs in the future with
significant savings in time and cost (Irrgang et al, 1999). Unfortunately, it became
too difficult for CSIRO Petroleum to keep the extensive database current with up to
date well information. The software system now largely relies on the user company
to maintain their own reference database.

Data and knowledge may be valuable, but knowing what to do with it is most
valuable. The industry is said to be full of examples of teams repeating costly errors
because knowledge gained has not been made freely available (Irrgang et al, 2002).
Unfortunately, many companies still tend to ignore all reports, data and analysis, and
make decisions on the basis of a chat with fellow engineers whose opinion they
respect (Irrgang, 2002). This indicates both a lack of confidence in, and a lack of
understanding of, the well planning process.
4.12 Benchmarking
To become innovative in an area one must first fully understand the problems
associated with the area. Benchmarking indicates how much further the process can
be improved (Pieters, 1994). Benchmarking is a process of continuously comparing
ones own performance against recognised leaders. Benchmarking is a business
practice that leads to increased competitiveness. As soon as one individual or
organisation realises there is someone else doing the same thing better, it becomes a
‘competitive necessity for survival’ to learn ‘why’ and ‘how’ and then take steps to
improve (Valdez & Sager, 2005).
Many factors influence drilling performance. Borehole size and trajectory, bit type
and design, mud weight, operating parameters, hydraulics, operating practices, etc
are not inherent to the drilling environment but are specific to the well design and
drilling tactics adopted in that particular operation (Curry et al., 2005).
Benchmarking evaluates the methods employed.
Figure 4.4 shows that benchmarking is a process that requires extensive planning,
measurement, comparison and analysis. Benchmarks are subject to periodic revision
(typically every year), so that new targets and performance baselines are based on
the latest information collected. The reward comes through implementation of
lessons learned and process improvements which can yield long term positive results
(Valdez and Sager, 2005).
One marked advantage of using performance criteria as benchmarks between wells is

that they are readily quantifiable. However, Kadaster et al, (1992) found that-
definitions and rules have to be established to ensure that the results of the analysis
of each well are comparable, from region to region, and from operator to operator.

Collect
Performance Data
Identify Best-In-
Monitoring
Class Performance
Adopt Best
Practice Analyse Processes
Identify Best
Practices
(from Valdez and Sager,2005)
Figure 4.4 – The benchmarking process.
‘Cycle time’ is a primary measure by which improvement is judged (Pieters, 1994).

Time taken to drill a fixed depth interval is (still) widely adopted as a key measure of
drilling performance (Curry et al, 2005). The simplest and most common comparison
is the time/depth curve (Marshall, 2001). The other key performance indicator (KPI)
that has endured is ‘cost per metre’.
When benchmarking drilling performance between contrasting geological regions

where the capabilities of the drilling equipment may also be quite different,
traditional benchmarking indices may not be able to do the job and new tools need
to be developed. Curry et al. (2005) from BP analysed data from 10 wells, drilled in
varying on and offshore locations around the world, which were selected as good
benchmarks for the performance achievable in their drilling environments. Three
measures were used to represent drilling performance in these wells – total dry days

per 1,000 m (excluding coring, logging and completion activities), normal drilling
days per 1,000m, and rotating days per 1,000m. These measures showed extremely
wide variations across the 10 wells, reflecting the range in drilling difficulty posed by
the different geological environments. They developed an algorithm to calculate the
mechanical specific energy (discussed earlier) to better compare drilling operations
between different drilling environments.
4.12.1 Time versus cost
Unfortunately, optimised time performance does not necessarily mean optimised

cost. Well comparisons should be by cost as well as by performance. However, this
requires detailed cost data, which both currently and historically tends to be limited
in both quality and quantity. Without a rigorous cost accounting system we cannot
be sure of the accuracy of the actual well cost. Clearly an ‘Optimal Cost Limit’
analysis is a more complicated process and more difficult to implement. Analysis of
historical cost data is difficult because it has probably not been captured accurately
or in sufficient detail. Another major principal problem is the variation in unit costs
over time.
Rig costs may account for 40% or more of the Total Well Cost, yet the unit cost of a
rig varies enormously depending on market conditions. This makes comparisons of
Total Well Costs over time very difficult. A well may be significantly cheaper, not
because it was drilled more efficiently, but because the prevailing Rig Rate was half
the rate of the more expensive well (Marshall, 2001).

4.13 Statistics
4.13.1 Predictive modelling using regression analysis
A relationship between two variables may be seen by graphing them on a scatter

plot. If there is a correlation between the variables then prediction models can be
formulated. Least squares regression is commonly used to calculate the best
prediction equation. Prediction modelling gives the best prediction of a variable (the
dependent variable) from the observed values of another variable (the independent
variable).
The model equation that makes the best prediction of A from B is not the same as
the model equation that best predicts B from A. Similarly, equations created to
predict Variable A cannot be inverted to predict Variable B. Thus, the model’s
purpose must be carefully considered. The independent variable is always positioned
on the x-axis and the variable to be predicted (dependent variable) on the y-axis.
For example, in order to predict time or cost from depth then depth must be plotted
on the x-axis. In two dimensional prediction modelling there is a different equation
for each predicted variable (Woodhouse, 2005).
If the variables are accurately measured and accurately paired with each other then
the scatter displayed on a two dimensional ‘scattergram’ must be caused by factors
not considered in the simple two variable model. The correlation between two
variables may be improved by considering other factors in a multi-dimensional model
or by only applying the model when other influences are either present or absent.
Regression analysis can compensate for random scatter in the data but not for
systematic errors (Woodhouse, 2005). Data points lying far from the central part of
the plot have a high influence on the slope of the regression line. The regression
calculation process treats outlying points as part of a normal distribution of data and
does not reduce their importance, as human observers tend to do. If there were
sufficiently large number of data points there should be an equal number of outliers
above and below the line in a normal data distribution. A decision is required
whether the outlier should be retained or removed from the data set. If the unusual
data point seems plausible, then it should be retained. If it appears to be a rogue
point, then it should be deleted (Woodhouse, 2005). However, automatic rejection
of outliers is never justified (Williamson et al. 2004).

4.13.2 Monte Carlo Simulation
Traditionally drilling cost predictions have been based on either the deterministic
approach (single point) or the scenario approach that presents worst, most likely,
and best cases. Probabilistic time and cost estimating is an alternative approach
that is gaining rapid acceptance. Probabilistic models are based on the use of the
Monte Carlo simulation technique (McIntosh, 2004).
Williamson et al. (2004) divides the Monte Carlo forecasting process into five steps –
a) Defining the model

b) Data gathering
c) Defining input distributions
d) Sampling input distributions
e) Interpreting and using the results.
A Monte Carlo simulation begins with a breakdown of well construction times and
costs. The planned, productive time taken to conduct each of these steps will have
an uncertainty associated with it. For each input a probability distribution is
generated which describes the ranges of time each step could take and how probable
each possible time is likely to occur within this range. Selecting these distributions is
guided by experience and fundamental principles, but is driven by historical data.
The simulator randomly selects a time or cost from one input probability distribution.
This data is recorded and the process continues until time and costs from each input
distribution have been generated. These times and costs are added together to give
the overall duration and cost of the well for one iteration of the Monte Carlo
simulation. To get a meaningful result, a large number of iterations are usually
required. It is not uncommon to run 10,000 iterations for a typical well simulation
(Akins, Abell, & Diggins, 2005). Results are generated as distributions.
4.13.3 Offset data
The closest wells relevant to a reference well location are called ‘offset wells’.
Gathering, interpreting and analysing offset data can be one of the most time
consuming parts of the probabilistic estimation process, but generally results in more
appropriate inputs and hence better quality outputs (Akins et al, 2005). Peterson

(1995) demonstrated a case of a rank wildcat and the usefulness of a large database
from which to draw representative distributions.
The most frequently used normalisation factor for fitting well times from offset wells
to the planned well is measured depth (Williamson et al, 2004). However, it is
important to graph offset well data before attempting to characterise it with
parameters. Graphs may reveal trends, correlations, bi-modal behaviour, or outliers
which may require further investigation.
Limited or poor offset data is often used as a reason for not pursuing probabilistic
methods (Atkins et al. 2005). Many of the benefits of the probabilistic approach can,
however, be realised even without the availability of a large database of offset
wells. The use of expert judgement may be a valid way to generate an estimate
provided a range of opinion is sort (Akins et al, 2005). However, careful analysis of
offset data and operating practices is essential for effective risk identification and
mitigation (Williamson et al, 2004).
4.13.4 Input data
Mathematically, the duration of a well can be regarded as the sum of the times taken
to complete a sequence of operations. Earlier studies assumed that the duration of
an event is independent of those taking place before or after it (Thorogood, 1987).
The total time on a well has been regarded as the sum of a set of independent
random variables. The mean duration of a well is then the sum of the means of the
individual operations and the overall variance is the sum of the individual variances.
The Peterson et al. (1993) basic well time model is –
Total time = total problem free time + total problem time

where
Total problem free time = problem free (Mob/Demob + drilling time + evaluation
time + Plug and abandon time)

Williamson (2004) suggests well costs should be modelled with the following
breakdown –
1. Productive drilling performance

2. Drilling trouble time and risk events
3. Productive completion performance
4. Completion trouble time and risked events
5. Fixed costs
6. Variable costs
The sampling process for a Monte Carlo simulation requires only the existence of a
distribution function for each of the parameters being sampled (Peterson et al.
1993). There are no rules that dictate what should be included in a model (Atkins et
al. 2005). Initial scoping estimates may be built up using high level benchmark data
for well performance. However, forecasting well time may start with a single
variable.
4.13.5 Modelling Trouble Time
A probabilistic well-construction model comprises not only the desired sequence of

events but also should include unplanned events (i.e. Trouble Time) that have a
defined probability of occurring, e.g. stuck pipe, lost circulation etc (McIntosh,
2004). The threshold for inclusion of an unplanned event in a probabilistic model is
to determine –
1. Can we exert some control over the frequency of the event occurring?
2. Can we exert any control over the sequence of events that follow an unplanned
event?
3. Is there anything in the drilling programme that we will change as a result of
modelling these events?
Trouble Time is better modelled as an additive rather than as a multiplicative factor
(Kravis et al. 2004). A reduction in overall Trouble Time should only be forecast if a
track-record of continuous Trouble Time reduction in the past can be demonstrated
(Williamson, 2004).
Waiting on weather is a component of non-productive time but is usually applied to

the model separately as it can be significant and may have a strong seasonal

influence. A probabilistic analysis will never capture all risks. There will always be
unknown unknowns.
4.13.6 Percentiles, standard deviation and the mean
The basic output of a Monte Carlo forecast will be a set of probability distribution
curves – one for each forecast quantity. The most common percentiles used when
looking at the results of a model are P10, P50 and P90. P10 is the value below which
10% of the outcomes fall, and P90 is the value below which 90% of the outcomes fall.
P50 is the median, below which, and above which, 50% of the results lie. Well
models are often negatively skewed such that the mean is commonly between P60
and P70.
The letter ‘P’ in the statistical terms P10 and P90 stand for ‘Probability’ and should
not be confused with the oil industry reserve term P90, which is defined as a 90%
probability that the quantities actually recovered will equal or exceed the reserves
estimate (proved reserves) and P10 which is defined as a 10% probability that the
quantities actually recovered will equal or exceed the reserves estimate (possible
reserves).
For the purposes of economic evaluation, time and cost estimates for multi-well
projects are often premised on a single ‘base case’. Over time, the project will
experience both good and poor performance, and these will have a tendency to
cancel out more completely than they do with single wells.
The standard deviation is the root-mean-square distance of data points from the
mean (this approximates to the average distance of points from the mean).
Statistical theory tells us that for less than perfectly correlated wells the standard
deviation, and therefore uncertainty, for the time or cost variable being estimated
decreases as the number of wells increases. For these reasons, the spread in time
and cost relative to the mean can be expected to be significantly less for multi-well
projects than it is for their individual wells at a similar level of planning maturity.

4.13.7 Rules for addition
Percentiles should not be added. Summing P50 values of individual well distributions
will not usually give the P50 of the summed well distribution. The error increases
with the number of wells summed.
Means can be added. Cash flows, positive and negative, are additive, and only by
adding mean values can we obtain statistically valid results. The same reasoning
tells us that mean values should be used when including well costs in annual spending
forecasts comprising many wells and are therefore used as the primary input to all
economic evaluations (Williamson, 2004).
4.13.8 Distributions
In order to run a Monte-Carlo simulation it is first necessary to select statistical

distributions for the inputs. In Marathon’s statistical analysis of three years of
drilling data for the North Sea, many of the times to a given depth were best
represented by the gamma distribution (Peterson et al. 1993). Depth variation was
given a normal distribution to account for variations in actual depths and drilling
problem days an exponential distribution (Peterson et al. 1993).
However, if rigorous data analysis has been performed, with unrepresentative points
removed, uniform distributions are frequently found to provide adequate descriptions
of small datasets. Triangular and uniform distributions have now become the
standards on well time and cost model building (Atkins et al. 2005). The uniform
distribution is described only by a minimum and a maximum. The triangular
distribution extends the uniform distribution by adding a most likely value (mode).
However, the two elements of input distributions that are propagated through a
model to the final output are the mean and the standard deviation. To be
consistent, input distributions should have the same mean and standard deviation as
the offset data (Williamson et al, 2004).
Kravis et al. (2004) found Trouble Times to be best modelled by a log-normal

distribution, but say that a binomial distribution of trouble free phases needs to be
included in any Monte Carlo modelling process.

Engineers are generally very poor at estimating the range of possible values which an
unknown quantity should take. They tend to underestimate ranges (Williamson et al,
2004). The effect of this is systematic underestimation of uncertainty in the forecast
results. Defining minimum and maximum distribution values from minimum and
maximum offset wells assumes that the offset wells cover all possible outcomes,
which is unlikely. Extremes of our distribution must be wider than the extremes of
our data set.
4.13.9 Central limit theorem
The central limit theorem states that the sum of probability distributions, of any
shape, will tend towards a normal distribution with progressively diminishing
standard deviation. This implies that choice of distribution type is not critical in
forecasting well costs. If a number of distributions are summed then a distribution is
produced that –
x Has a mean close to the sum of the means of the individual distributions.
x Has a variance close to the sum of the variances of individual distributions
(provided we sample the distributions independently).
x Has a shape that approximates the normal, bell shaped distribution.
These approximations will become more exact as we increase the number of

distributions. In other words, the distribution of the sum of a large number of
random variables depends only on the mean and standard deviation of those
variables, and very little on their individual distribution shapes. However, the
resulting standard deviation depends on the degree of correlation between the input
variables.

4.13.10 Correlation and independence
Any relationship or common influence between two input quantities which causes
their joint distribution to deviate from statistical independence is called a
correlation (Williamson et al. 2004). Inputs to the analysis may be correlated
because they are influenced by common factors, e.g. the costs of all tubular goods
will be affected by steel prices at the time, the time taken to run many operations
will be affected by the efficiency and competence of the rig crew, the longer the
well runs the more likely Trouble Time will also increase.
The inclusion of correlation in a forecast retards the effects of the Central Limit
Theorem. Increasing the correlation between activities increases the spread of the
output distribution and its standard deviation. Correlations can be found by
evaluating historical data or by experimentation. Using historical data is fraught
with complexity (Williamson et al., 2004). Experimentation with different
coefficients until the resulting forecasts accord with experience in terms of overall
spread and distribution shape provides useable results with even limited analysis.
The issue of correlation in multi-well forecasts is even more important than for single
wells (Williamson et al., 2004). Not only are there many more uncertain inputs being
combined, but the relationships between them are often very strong. We can expect
the performance of different activities and the cost of different goods and services
to be correlated within a single well. We can also expect the performance of the
same activity and the costs of the same item to correlate between wells.
Peterson et al. (1993) incorporated dependency into their probabilistic model of

North Sea wells using the ‘bounding box method’. However, Williamson et al. (2004)
claims that correlation principles in Monte Carlo simulation are not well understood
and that correlation methods are still in development. There are, however,
techniques to approximate correlation. Williamson et al. (2004) suggests that for
modelling multiple wells “We can expect the performance of different activities and
the costs of different goods and services to be correlated within a single well. We
can also expect the performance of the same activity and the costs of the same item
to be correlated between wells. If we sample the performance of each activity and
the costs of item independently but only once per Monte Carlo trial (so that they
have the same value for every well), we will in effect be setting all within-well

correlation coefficients to zero and all cross-well coefficients to unity. The result is
the same as if some intermediate value of correlation had been used throughout.”
This compromise has the advantages –

1. It avoids the use of correlation coefficients.
2. It is easy to implement in software.
4.13.11 Event model
The event model provides a driver for all of the intangible costs (i.e. those driven by
duration). A probabilistic cost model may run in conjunction with the event model.
This allows a multivariate cost estimate to be made at any point in the planning and
execution cycle. In the early stages, an event model may only describe the phases of
a well using three point distributions based on benchmark data. As the project
evolves, the level of detail available to construct a cost model increases and revised
forecasts can be made. As the well progresses, the number of variables decreases
and the range of outcomes diminish.

4.13.12 Statistics conclusions
Graphs are still the best way to communicate results. Graphs often reveal
relationships and trends in the data more effectively than other mathematical forms
of analysis. As well as being an effective form of communicating results, graphs are
an excellent method of checking and verifying results.
Probabilistic AFEs enable operators to take a portfolio analysis approach to selecting

drilling projects (Peterson et al. 1995). Monte Carlo simulation has the potential to
enhance the reliability of well forecasts but only if applied with care (Williamson et
al. 2004).
Some forecasts are the building blocks of other forecasts. Errors in one forecast will
propagate through to others. However, if the initial forecasts are basically sound,
random variation due to the inherent unpredictability of well operations ought not to
have a significant effect on the final results (Williamson et al 2004).
If two or more variables are dependent on one another, that dependency must be
included in the model. However, correlation methods are still in development.
Historical frequencies conditional on the events having occurred at least once will
always be biased estimates because the distribution of frequencies does not include
risks yet to occur.
Probabilistic forecasts should be benchmarked against historical data, previous

experience and on expectations. The forecasts should also be benchmarked against
outcomes to check and verify the results.

4.14 Case Studies
4.14.1 Deep drilling in the USA
In North America, researches are focussing on reducing costs in frontier areas of deep
drilling and deep water Gulf of Mexico. In a study of the cost of ‘deep’ drilling’
(deeper than 15,000 ft or 4,572m vertical), the US Department of Energy (DOE)
identified 3,015 wells drilled over a seven year period as being ‘deep’ wells (Rogers,
Lambert, & Wolhart, 2004). These wells were grouped according to operator and
region to select wells suitable for study. From 140 operators regarded as
experienced (78% of the deep well data set), 50 were invited to provide data for the
study. Only 12 operators responded, providing 22 usable data sets for study,
including AFEs. This is a sample size of less than 1% of the wells drilled. One of the
challenges of the US DOE study was to categorise costs in a consistent manner across
companies. They established a standard set of cost categories and each AFE line was
analysed to determine in which category it belonged. Costs were then grouped into
larger components such as drilling costs, and subcomponents such as down-hole
equipment. They then established various drilling scenarios and calculated average
costs for each scenario. They found that because some operators provide more
information than others, the Total Well Costs estimated by the study may not have
been accurate for every region studied. However, they provide a credible picture of
the average costs of many of the major technology areas benchmarked in the study.
The DOE study gave an example of how technology advances have played a
significant impact in the reduction of drilling time and costs. Comparing a 2002 well
drilled to the same depth in the same location as a well drilled in 1985, they showed
that drilling time to 15,000 feet (4,572m) in 2002 was reduced to one third the time
required 17 years earlier, the greatest improvements being below 6,000 feet
(1,830m). This improvement is attributed to advancements in bits, downhole tools,
directional drilling capability, fluids and hydraulics, safety systems, as well as the
effective application of lessons learnt in this particular area. Bit and downhole
motor and turbine technology have improved significantly during the past several
years, leading to faster rates of penetration (ROP) for deep wells. The adoption of
PDC (polycrystalline diamond cutter) bits is one of the most significant technology
improvements in the drilling industry over the past 20 years (Rogers et al. 2004).

Rogers et al. (2004) concluded that the limits of conventional well construction were
tested below 15,000 feet (4,572m). At these depths, the last 10% of a well’s depth
can account for 50% of its total cost. A more complete analysis by DOE of deep
drilling is being hampered by insufficient numbers of operators willing to provide
data for the study.
4.14.2 Goodwyn Field, Woodside, NW Shelf
The last six wells of Woodside’s 13 well Goodwyn Phase 1 programme ending in April
1998 overran AFE estimates by an average of 68%. The wells were technically
challenging with horizontal step-outs of up to 7.3km. Before commencing Goodwyn
Phase 2 a rigorous review of past performance was conducted in order to reduce well
time and cost. Root causes for the poor performance were related to lack of
detailed planning, short lead times for planning, a limited number of personnel, and
no formal processes for hazard management and mitigation (Adams & Charrier, 1985;
Dolan et al., 2003).
Changes to work practices were then implemented resulting in a new work culture
that practiced hazard management, planning and learning. Three of the next four
wells were then drilled under AFE estimates. The last, Goodwyn 17, was drilled and
completed in 31% less time than the P50 estimate (Dolan et al, 2003).
Woodside claim an increase in operations personnel of 20% provided a return on

investment of more than 5,000% for Goodwyn Phase 2. They established a limited
number of Key Performance Indicators (KPIs), such as dollars per metre drilled and
days per 1,000 metres of hole drilled to measure performance. The number of KPIs
used was limited to avoid diluting impact and to provide clear focus (Dolan et al,
2003).
4.14.3 North Rankin A big bores, Woodside, NW Shelf
Everything else being equal, horizontal wells and large borehole diameters increase
individual development well costs. However, fewer development wells are usually
required to achieve the same production objectives as vertical wells. Thus total
development costs are usually reduced.

Woodside increased the bore size of two wells drilled from their North Rankin A
production platform on the North West Shelf in 1999 (Dolan, Williams, & Crabtree,
2001). Their Big Bore well design incorporated 9 5/8” production tubing to maximise
production. The Big Bore design cost 10% more than a conventional well with 7 5/8”
tubing. However, fewer wells and fewer platform slots were required to produce a
given quantity of gas and condensate resulting in a halving of the Unit Technical Cost
(UTC) of well construction per unit gas production ($/MMscf/d) (Dolan et al, 2001).
4.14.4 The Kenmore Field
Well costs can be substantially reduced, and production increased, by utilising

existing infrastructure and lessons learned from previous drilling in a field. For
example, twenty two wells had been drilled on the Kenmore oil field in central
Queensland prior to 1999 when the cost of a vertical development (1,390m TVD) was
given as A$720,000 for a 7” hole with jet pumps. In late 1999, Oil Company of
Australia drilled three horizontal wells into the same formation for A$2,580,000 (or
A$793,000 per well after A$201,000 is deducted for wet weather). The horizontal
wells were producing 340 BOPD five months after commencement (Hedger et al,
2000).
The horizontal well costs included a service rig to prepare two existing vertical wells
for re-entry. A conventional rotary land drilling rig (stacked at Kenmore) was used to
mill casing windows, drill horizontal laterals and complete the wells barefoot. Cost
reductions were achieved by eliminating entire cost categories from the well design,
including casing, cementing and well tie-in. A rig move was eliminated by drilling
two laterals from a single joint of casing in Kenmore-16. Conventional, quality
equipment and consumables were used off the shelf with minimal modification to
further reduce cost and risk. From data provided, I estimate that nominal drilling
costs averaged between A$6.45 and A$7.82 per barrel of total oil recovered, based
on ranges of likely ultimate recovery (Hedger et al, 2000).
Heavy rain and an inexperienced crew contributed to the doubling of trouble free rig
time on one well from 6.5 days to 13.5 days.

Chapter 5 Method
5.1 Sequence of analysis
My analysis has eight steps –

1. Define the problem, objectives and approach.
2. Collect data.
3. Tabulate data.
4. Process data.
5. Graph relationships.
6. Analyse statistics and correlate variables.
7. Design cost models.
8. Index cost models.
At step three I decided upon the most useful and practical data to tabulate. The
choice of data determines the types of analyses and outcomes that can be achieved.
My choice of data was strongly influenced by four factors –
1. Known influences on well time and cost.

2. The type, and quality, of data recorded in reports.
3. The quantity of data to be analysed.
4. The time available to analyse the data.
While graphing relationships I determined a sequence of analysis based upon those

factors I found to influence well times and costs during preliminary analysis. Much of
my analysis employed bivariate regression analysis which establishes the relationship
between two parameters. This is the basis for my predictive cost modelling. I could
have examined relative influences of three or more variables on well times and costs
by using a multivariate regression analysis. However, multivariate analysis is
considerably more complex, and in any case basic bivariate relationships need to be
understood before multivariate analyses are undertaken.
This chapter discusses the first four research steps listed above, up to the end of
data processing. Cost models and indexes are also explained. Analyses of onshore
and offshore data are presented in subsequent chapters.

5.2 Well database
I established a substantial database of information for wells drilled within Australia’s

main petroleum exploration provinces the aim being to conduct a statistically
significant study of well times and costs. Recent data has been emphasised, but
older data has been incorporated to study yearly trends or when recent data was not
available.
The purpose of establishing a new database of Australian wells has been to –

a) Incorporate more detail than existing public databases.
b) Reduce the error rate inherent in existing databases.
c) Capture the variability of key well parameters.
d) Identify yearly trends in well times and costs.
e) Evaluate key performance indices in a statistically significant manner.
5.2.1 Data collection
Initially, I requested well cost data from a few drilling operators. The information I
received was limited, often non-specific, and not suitable for a statistical analysis.
Companies resisted providing more detailed information due to perceived
‘confidentiality issues’. An objective of my study has been to publish the results.
Most drilling information gained from industry was going to have publication
constraints. By default, my study is based mainly on publicly available data. The
advantage of this is that I have avoided confidentiality issues.
5.2.2 Data sources
My data sources included –
x Open file well completion reports for historical well times and costs.
x Select government spreadsheet listings of well statistics for well times.
x Company stock exchange submissions for recent well times and rig day rates.
x The ‘RigLogix’ (at www.riglogix.com) commercial database for offshore rig
day rates.
x International Association of Drilling Contractors database for offshore rig day
rates.

5.2.3 Well completion reports
5.2.3.1 Submission
Petroleum exploration in Australia is governed by both Commonwealth and State

legislation. The Commonwealth Government jointly administers petroleum
exploration and development for offshore Australia. Sate governments solely
administer onshore activities and jointly administer the offshore with the
Commonwealth Government. Australian petroleum regulations require that
operators submit reports to the state and Federal government detailing their
exploration and development operations. The reporting requirements may differ
according to whether the wells are drilled within exploration licences or
development licences. However, at the completion of all wells, companies are
required to submit a ‘Well Completion Report’ (WCR) to the administering
government body.
There are two parts to a WCR, the basic data report and the derived (interpretative)
data report. These reports are initially confidential but, after a designated period,
are released to the public as ‘open file reports’. Most state petroleum legislation
require the basic data from WCRs to become open file after two years and one month
from when an exploration well was completed and after one year for a development
well. However, basic data for Queensland development wells remain confidential for
five years. All derived data reports become publicly accessible after five years from
when the well was completed. In practice, reports may not be released within the
legislated period. For example, operators may not submit their reports on time.
More commonly, the basic data report is combined with the derived data report, in
which case the basic data can not be released until the derived data report becomes
available or the basic data report is physically separated from the derived data
report. Occasionally, reports are regarded as commercially sensitive and the
governing body agrees to extend the confidentiality period of the report.
5.2.3.2 WCR content
The content requirements for WCRs vary slightly from one government jurisdiction to
the next, and report design and content differs from one operator to the next, but
reports still have many common features. The basic data report list all milestone
times. Some reports include detailed time logs for each operation. Appendices are
usually attached containing extensive reports from the main contractors, e.g.

geological descriptions, mud loggers, electrical loggers and surveyor. Most basic data
reports for offshore wells include appendices containing the daily operations reports
for the well. These reports give the cumulative well cost at the end of each 24 hour
period. These daily costs form the basis for most of my well cost calculations.
Unfortunately, while onshore WCRs typically contain extensive time analysis data,
they reported their costs less frequently.
5.2.3.3 Access to well completion reports
The analyses in this study are based mainly on data from open file basic well data
reports. Operators are now required to submit electronic copies of their WCRs to the
respective government. Table 5.1 lists the government agencies from which I
sourced well data. The Western Australian, Queensland and NSW governments
operate online databases which allow WCRs to be downloaded over the internet.
However, few petroleum wells have been drilled within NSW in recent years.
Western Australia’s ‘WAPIMS’ online database has the most extensive and accessible
database of WCRs of any state. WAPIMS provided the largest single source of data for
my study. I made three visits to Geoscience Australia’s Canberra office where I
photocopied WCRs for which no digital copies were available. Onshore WCRs were
also obtained through data requests to the Victorian, Northern Territory and South
Australian governments. Other WCRs were obtained from data packages advertising
new acearage releases, from the Western Australian and South Australian state
governments.
Table 5.1 – Government data sources.
Government agency - Coverage - Online Database - Hard Copies -

Geoscience Australia (GA) offshore Australia No public access photocopies
New South Wales (NSW) onshore NSW DIGS Not available
Northern Territory (NT) onshore & offshore No public access CDs
Queensland (Qld) onshore Qld QDEX Not available
South Australia (SA) onshore & offshore No public access CDs
Victoria (Vic) onshore & offshore No public access CDs
Western Australia (WA) onshore & offshore WAPIMS Not available

5.2.4 Sample size
I obtained data from over 400 Australian petroleum WCRs, about two thirds of which
contained well costs. Table 5.2 shows –
(a) The number of wells drilled within Australia each year.

(b) The corresponding number of well completion reports containing well cost data
analysed for this thesis.
(c) (b) / (a) as a percentage.
Many more offshore WCRs contain cost information than do onshore WCRs. I analysed
cost data for 194 offshore wells and 85 onshore wells. My only intentional bias in
selecting wells for analysis was to select the most recently available WCRs and to
select WCRs containing cost information over those that didn’t. This
Table 5.2 – Well reports with cost data as a percentage of all wells drilled.
1996 1997 1998 1999 2000 2001 2002 2003 2004 Total
Offshore* 132 118 91 86 81 73 94 nd 675
This study** 6 14 23 41 44 33 28 5 194
Sample % 5% 12% 25% 48% 54% 45% 30% --
Onshore* 164 199 138 85 120 151 99 110 nd 1,066
This study** 9 7 8 5 5 25 16 6 4 85
Sample % 5% 4% 6% 6% 4% 17% 16% 5% --
* Reference: Oil and Gas Resources of Australia 2003 (Petrie & others, 2005).
** The number of well reports studied containing cost data.
I included some older offshore wells (1997 and 1998) with AFE (Authority For
Expenditure) data to give an historical perspective to costs. South Australian
government well files don’t record TD times. To fill this gap in my time data I
sourced additional South Australian Cooper Basin WCRs for well times. However, few
of these WCRs contained costs.

5.2.5 Well types
Table 5.3 – Numbers of wells with cost data by well type.

Total Exploration Appraisal Development CSG*
Onshore 85 41 10 7 27
Offshore 194 118 43 33 0
Total 279 159 53 40 27

* Coal Seam Gas
Table 5.3 shows that more than half of the wells analysed are exploration wells. This
is in line with statistics from Geoscience Australia for the period 1996 to 2003, which
show that exploration wells constituted 62% of all offshore drilling and 53% of all
onshore drilling in Australia for the period (Petrie & others, 2005, Appendix F).
CSG (coal seam gas) are a well class that has only come to prominence in Australia
over the past decade. These shallow onshore wells are now being drilled in large
numbers in the Surat/Bowen Basins and in the Sydney Basin.
5.2.5.1 Time Data
My analysis of well reports was supplemented by drilling time data tabulated by the
Queensland, Victorian and Western Australian Governments. The government
spreadsheets list all wells drilled within their states with spud time, total depth time
and rig release time to the nearest full day. I incorporated time data for these wells
drilled between 1980 and 2005 into my study. These data are not as accurate as that
obtained directly from WCRs, which give time to the nearest 15 minutes. However,
the large number of wells in the government listings offsets the lower accuracy of
each data point. Moreover, the higher accuracy of the WCR data becomes less
significant for longer drilling periods.
I also obtained government well data listings for South Australia, the Northern
Territory and N.S.W. These listings did not contain dates for total depth (TD) and
thus had limited usefulness for analysis. APPEA also compiles a file of key data for
wells drilled in Australia. The data are derived from a commercial information
service which in turn obtains much of its information from stock exchange

announcements. I did not use the APPEA data because of its numerous inaccuracies,
particularly in its completion dates.
5.2.5.2 Rig Rates
My analysis of Rig Rates for onshore wells was limited to data from WCRs containing
AFEs. Substantially more Rig Rate information is available for offshore rigs. I
sourced a limited number of offshore rig day rate data from AFEs but mostly from the
RigLogix database (www.riglogix.com), stock exchange submissions by the US based
rig contractors, and from the International Association of Drilling Contractors
database (IADC). Most offshore drilling rigs currently operating within Australian
waters are owned by companies listed on the New York Stock Exchange. I extracted
offshore Rig Rates for the period 2005 to 2007 from New York Stock Exchange
submissions. There are some discrepancies between the different data sources.
Occasionally, I had to choose a cost which seemed the more credible.

5.2.6 Regions studied
My study analyses well data from Australia’s main petroleum producing basins, both
onshore and offshore. Figure 5.1 shows locations of many of the wells for which
WCRs were studied. Offshore wells were sourced from the Carnarvon Basin, Timor
Sea, Gippsland Basin and Otway Basin. Onshore wells were sourced from the
Cooper/Eromanga Basins, Surat/Bowen Basins, Otway Basin and Perth Basin.
Ë
Ë
Ë
Ë
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Timor Sea ËËËËËËË ËË
Ë
Ë ËËË
Ë
Ë Ë
Ë Ë
Carnarvon Basin
Ë
Ë
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Bowen
Ë Ë
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Basin
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Cooper / ËËËËËËË
Ë Ë Surat ËËËËË Ë
Ë ËËË ËË
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Eromanga ËË
Ë Basin
Perth ËË
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Basins
Basin Ë
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Ë
Ë
Ë
Ë ËË Gippsland
Ë
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Otway Ë Basin
Basin
Figure 5.1 – Locations of wells with WCRs studied.

5.2.7 Variables
Figure 5.2 illustrates the relationships between the factors that influence well time
and cost from site selection to rig release. This information is routinely documented
and forms the basis of my well database. It includes –
x Operating company’s name.

x Well name.
x Location – onshore/offshore, basin, sub-basin, state and permit name.
x Rig – name and type (land, CSG, jackup, semisubmersible, platform etc).
x Dates and times – start move, on location, spud time, total depth, and rig
release.
x Depths – total depth, rotary table elevation, water depth, ground elevation.
x Well type – either exploration, appraisal, development, sidetrack, CSG or DST.
x Well direction – either vertical, directional, horizontal or core hole.
x Well results – P&A, Oil, Gas, Oil & Gas, Gas P&A, suspended.
x Previous well name and next well name
x Trouble time ( or Non Productive Time) and waiting on weather (WOW) days.
x Borehole diameter at TD and maximum depth of casing diameters.
I recorded commercial data including –

x Costs – First daily cost, last daily cost, final cost, Rig Rate and AFE estimate.
x Exchange rate - US$/A$ (from WCRs, company and USA Federal Reserve).
x Budgeted well days and ‘Technical Limit’ days (for Woodside wells).
From my database of basic data I derive variables for -

x Drilled Interval.
x Well phase times – Pre-spud, Drilling, Completion, spud to release, time off
well, total contract time.
x Phase costs – Pre-Spud, Drilling & Completion.
x Daily Cost – Average Daily Cost at well site, total cost/total time, budget cost.
x Rig day rate as a percentage of Daily Cost.
x Key Performance Indicators – metres per day & drill cost per metre.
A CD containing my well database in EXCEL format accompanies this thesis.

OPERATOR
State LOCATION
Basin
Sub-basin
Licence Water
WELL NAME depth
ONSHORE OFFSHORE
RIG TYPE CONTRACT START RIG TYPE
CSM Jackup
Slim hole WELL SPUD Semisub
Conventional Platform
+ Rig name + Rig name
HOLE DIAMETER
Casing depth
Bottom hole Vertical
diameter Directional
HOLE DIRECTION
Horizontal
ELEVATIONS
Ground/seabed INTERVAL DRILLED Drill time &
kick off depth trouble time
TD depth
RT
End time &

COMPLETION trouble time
WELL TYPE
exploration
appraisal P&A
development RESULT suspend
discovery
(oil/gas)
Transit time
RIG RELEASE End time
to next well
Figure 5.2 – Factors influencing well time and cost.

5.2.8 Data
5.2.8.1 Side-tracked wells
Side-tracked wells may be drilled by re-entering old wells, but are usually drilled
immediately after drilling the vertical well, either because of drilling problems in the
main well, or to test a prospective formation, or to core a prospective formation, or
to drill multiple development wells (usually horizontal) from the one location. I
obtained WCRs for a number of side-tracked wells. I included the data in my
correlations of time with cost, but excluded them from correlations of well times or
costs with Drilled Interval.
5.2.8.2 Daily Costs
Daily costs reported in WCR daily operations reports are an estimate of accrued costs
rather than actual paid costs. The accuracy of WCR Daily Costs depends upon the
ability of the operator to keep a ‘real time’ tally of total costs. For some wells, if a
cost is not posted one day it is posted later as a ‘catch up cost’. This creates
artificial fluctuations in WCR daily costs. Some costs could be attributed to the next
well phase if they are not charged immediately. For instance some drilling charges
may not appear on the daily records for some days after TD is reached. Averaging
reduces the influence of posting errors.
5.2.8.3 Currency
I use Australian dollars (A$) for my analysis. However, for offshore operations, most
costs originate in US$. Unfortunately, the original currency of a cost item is rarely, if
ever, stated in either WCRs or AFEs. Most operators convert foreign costs to
Australian dollars for the WCR, although a few WCRs report costs in US dollars. I
requested, and obtained, conversion rates from some operators. I converted US$
costs to Australian dollars using the operator’s stated exchange rate. If I could not
get the operator’s exchange rate, I used the average monthly US Federal Reserve
Bank exchange rate.
I found substantial differences, at times, between the conversion rates used by

operators and the US Federal Reserve Bank. During periods of exchange rate
volatility, as was experienced over the period of my study, exchange rate
fluctuations can add significant inaccuracies to the final well cost.

5.3 Terminology
There are no standard industry wide definitions for many of the terms used in this
study, so these need to be stated. I derive a number of analytical measures for
analysis including Drilled Interval, Daily Cost, Total Well Cost, Pre-Spud Cost,
Drilling Cost and Completion Cost.
5.3.1 Well phase
I analyse three well phases in this study –
1. The Pre-Spud Phase is the time from contract start to well spud.
2. The Drilling Phase is the time interval from spud to when Total Depth is reached.
3. The Completion Phase is the time from TD to rig release from the well site.
5.3.2 Drilled Interval
Drilled Interval is a term used by BHBP as part of its KPI analysis (e.g. Xanthe-1 WCR,
2001). It is the total measured interval of rock drilled from ground level or sea floor
to total depth. Drilled Interval excludes the water column and air above ground or
sea. WCRs usually reference well depths to RT (Rotary Table or Kelly Bushing), so
corrections need to be applied to reported depths to calculate the Drilled Interval.
For wells that deviate from the vertical, Drilled Interval is not the true vertical
depth. For sidetracked wells I measure Drilled Interval from the top of the cement
plug (that is drilled out) to total depth. Some operators (e.g. Esso in the Gippsland
Basin) include water depth when calculating their key performance indicators (KPIs).
KPIs that include the water column in their drilled depth will produce higher ROPs.
This approach distorts comparisons of drilling performance between deep water and
shallow water wells.
5.3.3 Daily Cost
Daily Cost = (Last Cost – First Cost) / (Last Cost Time – First Cost Time)
The average Daily Cost is used to estimate phase costs. Daily Cost is an average of
all Daily Costs while the drilling rig is at the well site. I estimate Daily Cost from the
daily operations logs. The first reported cumulative cost in the daily reports is
subtracted from the last reported cumulative cost and divided by the time interval

between the first and last costs. For wells reporting AFE costs but not daily costs, I
estimate the average Daily Cost by subtracting the Pre-Spud Cost from the final cost
and dividing by the time from spud to rig release.
I calculate only one Daily Cost while the rig is Onsite. Fixed costs during are
averaged for all Onsite time. Thus Drilling Costs may be an overestimated while
Completion Costs may be underestimated.
5.3.4 Total Well Cost
In most cases my Total Well Cost is the total ‘booked cost’ for the well. The booked
cost may not be confirmed for some time after well operations are concluded. If the
Total Well Cost is not stated in the well summary I refer to the daily operations
report. The last reported cost in the daily operations report is usually very close to
the booked cost. For some wells, however, the last reported cost occurs before the
rig was released. For these wells I estimate a Total Well Cost by multiplying the
Daily Cost by the number of Onsite well days.
5.3.5 Pre-Spud Cost
Pre-Spud Cost = Last Cost – (Average Daily Cost x (Last Cost Time – Spud Time))
The Pre-Spud Cost includes all costs incurred up to well spud. It includes Onsite
costs for rig-up and all off-site costs. Pre-spud Time is not required to calculate Pre-
Spud Cost only the spud time, a last cost and last cost time.
5.3.6 Drilling Cost
Drilling Cost = Daily Cost x (TD Time – Spud Time)

Drilling Cost is the product of Daily Cost and Drilling Time. Drilling Cost can only be
estimated if Daily Cost and TD time are known.
5.3.7 Completion Cost
Completion Cost = Daily Cost x (Rig Release Time – TD Time)

Completion Cost is the product of the Daily Cost and the Completion Time. Rig
release typically occurs when the rig leaves the well site. Rarely does it include
demobilisation.

5.4 Analysis
5.4.1 Methods of analysis
Previous studies have concluded that well time and cost is a function of well depth.
A primary objective of my study has been to model regional well time and cost as a
function of Drilled Interval. To do this, relationships need to be established between
the parameters to be predicted (time and cost) and the factors that may influence
them. This can be achieved through the analysis of historical data. In this study, I
employ scatter plots, least squares regression, correlation analysis and frequency
distributions to determine these relationships.
Figure 5.2 lists some of the variables that influence well time and cost. Many
permutations of the variables are possible. To facilitate analysis, I grouped wells
according to common attributes. For example, one well group may be all “P&A,
vertical explorations wells, drilled within the offshore Carnarvon Basin, using a
jackup rig, between 2000 and 2004”. I didn’t have sufficient well data to evaluate
statistically each and every combination of the variables that influence well costs in
Australia. Some groups of wells with common attributes lacked sufficient members
for a statistically significant analysis (for example platform wells). I either pooled
these wells with other data to analyse higher-order common factors, or excluded
them from some analyses. My study, therefore, focuses on well groups with a large
amount of data such as exploration P&A wells.
Figure 5.3 shows a flowchart for an analysis of well times for one group of wells
possessing a set of common attributes. Data for each well is separated into phases,
e.g. ‘Pre-spud’, ‘Drilling’ and ‘Completion’. Best time estimates are made for each
phase using either frequency distributions or regression analysis or both. The type of
analysis used depends on the well phase and whether there is a known or logical
relationship with Drilled Interval. If there is no correlation then the relationship can
be represented by a constant and a frequency distribution. Analysis of frequency
distributions yields a mean, a median, a standard deviation, a maximum and
minimum. Regression analysis yields equations that estimate phase time as a
function of Drilled Interval. The final result is a Total Well Time which is the sum of
mean times and/or least squares regression estimates of the time to complete each
well phase. The same approach can be applied to the analysis of well costs. In

addition, I carry out a regression analysis of onsite well cost as a function of onsite
well days.
Location
Rig
WELL GROUP
Direction
Completion
PERIOD
e.g.
2000-2003
1996-1999
PHASE
TIME
REGRESSION ANALYSIS
SCATTER PLOT FREQUENCY DISTRIBUTION
Time vs Depth
DOCUMENT
NO DOCUMENT Mean time
Least squares Maximum time
Expected time CUMULATIVE Minimum time
Maximum time TIME ESTIMATE Median time
Minimum time Standard deviation
LAST
PHASE?
YES
BEST ESTIMATE OF
WELL TIME
TO WELL DEPTH
Figure 5.3 – Flowchart for an analysis of well phase times.

5.4.2 Regression analysis
Before conducting a regression analysis, a scatter plot should be produced. Scatter

plots reveal many attributes of the data including trends, boundaries, variance,
skewness and outliers. Scatter plots also reveal data that cluster together and other
aspects of the data that may influence the accuracy of the regression analysis.
Scatter plots facilitate the formulation of equations for maximum and minimum time
as a function of depth.
Least squares regression gives a best estimate of the relationship between the
dependent (y-value) and the independent variable (x-value). Equations can be
derived for the median or other statistics on a case by case basis.
5.4.2.1 Exponential equations
For most cases I found exponential equations of the following form gave the highest
correlation between time or cost and Drilled Interval.
y = ae bx ,
where –
y = Drilled Interval;
a = value at spud; and
b = rate of change with increasing well depth;
x = length of Drilled Interval
The shape and gradient of exponential curves can be compared only if they are
plotted on the same scale Cartesian axes. Graphically, an exponential relationship
starts from the origin with the dependent variable (y axis) increasing at a relatively
slow rate relative to the independent variable (x-axis). As the independent variable
increases in value the dependent variable increases at a faster rate. A region is
reached where the gradient of the exponential curve becomes sharply steeper.

5.4.2.2 Coefficient of determination
The square of the correlation coefficient (r) gives the coefficient of determination
(R2), which is the proportion of the variance of the dependent variable that is
predictable from changes in the independent variable. Relationships may be indirect
so correlation does not imply causality.
Coefficient of determination values (R2) need to be interpreted in conjunction with

scatter plots. Low values do not necessarily imply a higher degree of variability in
the data or that the regression equation is less accurate than an equation with a
higher coefficient of determination. For example a straight alignment of values
parallel to the horizontal axis has a coefficient of determination of zero but the
regression line is a perfect representation of the data. It just happens to be a
constant.

5.5 Cost modelling
5.5.1 Cost factors
Differences in well locations and the depths of reservoir objectives cause

considerable variability in well costs. Changes in market conditions also influence
well costs. Figure 5.4 shows how key factors influencing well phase costs relate to
each other. Factors such as location, year, reservoir depth, etc, (yellow boxes) are
usually determined by the drilling operator prior to drilling. Market rates are an
outside influence. Drilling success, phase time and daily costs (green boxes) are
outcomes of the drilling, all of which influence costs (pink boxes).
LOCATION
YEAR
DRILLING
RESERVOIR DEPTH
SUCCESS MARKET
RATES
TIME WELL
TYPE OF WELL INDEPENDENT DRILLING RIG SERVICES
COSTS
WELL PHASE
PHASE DAILY
COST
TIME COSTS
TIME
VARIABLE
COSTS
Figure 5.4 – Factors influencing phase costs.

There are many ways to model well costs. I model well costs as a function of
reservoir depth. Provided there is adequate historical data, models based on a
specific region and type of completion should give more accurate cost estimates than
more broadly based models. Location tells us whether the well is onshore or
offshore, the basin and sub-basin, and the elevation or water depth at the well site.
The type of drilling rig to model can be determined from the location and reservoir
depth. Well location provides links to historical data, seasonal variations, and the
amount of Non Productive Time that can be expected. Reservoir depth links to the
geology and to rates of drilling.
Drilling Cost predictions for a wildcat well in an area with sparse well control will be
inherently more uncertain than predictions for a new well drilled in a mature
exploration area close to many other wells. Moreover costs should be more stable in
a mature exploration regions due to lessons learned from previous drilling.
5.5.2 Phase costs
The Total Well Cost is the sum of the phase costs. Phase costs can be calculated
from Daily Cost and phase times. Phase costs can include an expected cost
determined from regression analysis or a mean cost, a maximum and a minimum
times cost. If the cost information is available then each phase and sub-phases can
be broken down into cost categories for more detailed cost estimates.
Phase cost is the sum of –

1. Time dependent variable costs – for example the drilling rig.
2. Time independent variable costs – for example consumables.
3. Fixed costs – for example mobilisation and well head
4. Non Productive Time costs
Where –
x Fixed costs can be represented by constants.
x Time dependent variable costs are functions of phase time.
x Time independent variable costs are functions of well depth.
x Phase time is a function of well depth or type of operation.
x Type of operation may or may not be a function of well depth, for example
testing time can be highly variable and may be unrelated to well depth.

Only a few operators report all well times in terms of productive and non-productive
time. Fixed costs are only reported in AFEs. For this study, phase costs were best
represented as the product of Daily Costs and phase times, where Daily Cost included
a proportion of fixed costs and time independent variable costs.
The well information available for this study was suited to the analysis of no more
than three well phases. Figure 5.5 shows three levels of phase cost modelling-
One Phase Cost = Total Well Cost.

Two Phase Cost = Pre-Spud Cost + Onsite Cost.
Three Phase Cost = Pre-Spud Cost + Drilling Cost + Completion Cost.
Total Well One phase
Off-site On-site Two phases
Pre-spud Drilling Completion Three phases
Contract Spud Total Depth Rig Release

start
Figure 5.5 - Well cost phases
5.5.3 Phase models
5.5.3.1 One Phase Cost Model
The One Phase Cost Model is simpler to derive and apply than multi-phase models.
All that is required are Total Well Costs for a broad range of Drilled Intervals and a
strong correlation between the two variables. The One Phase Cost Model can provide
a quick initial cost estimate. It has the advantage that more data is publicly
available for Total Well Cost than the more detailed costs required for a multi-phase
model. The model can be specific to a particular basin or sub-basin or it can be
more broadly based.

5.5.3.2 Two Phase Cost Model
If the Pre-Spud Cost is known and Daily Costs can be estimated for the time the rig in
Onsite then Onsite Cost can be estimated and the Total Well Cost can be modelled in
two phases from -
Onsite Cost = Daily Cost x Onsite Time
5.5.3.3 Three Phase Cost Model
If the well TD time is also known then the Two Phase Model can be changed to a
Three Phase Model.
Well Cost = Pre-Spud Cost + Drilling Cost + Completion Cost
Daily Cost and the rig day rate are common to all three phases, which creates a
cross-correlation between the phases. Phase costs are more accurate if they are
specific to a group of wells with common attributes. Estimates for one group of
wells may not be applicable to another group.
5.5.4 Pre-Spud Cost
The cost of the drilling rig is typically the dominant Pre-Spud Cost. The Pre-spud
Phase commences when the rig contract commences and ends with spudding the
well. The basic equation used to estimate the Pre-Spud Cost is –
Pre-Spud Cost = Mobilisation + Site preparation + Overheads + Rig move + Rig-up

where
Mobilisation cost is a one off cost to bring a rig into an exploration region. The cost
may be borne entirely by the first well drilled or shared amongst several wells or
operators. Mobilisation cost is thus highly variable. For some wells it is a substantial
cost but for most wells in a mature exploration region it may not be a relevant cost.
Site preparation cost includes preparing the well site. For onshore wells it may
include road building.

Overhead costs are charged by the operator for well planning and administration.
Some operators charge substantial overheads to the well while other operators
charge nothing to the well itself.
Rig move is the time from the end of the previous contract to arrival at the new well
location. Several tugs are usually required to transport offshore rigs to the well site.
Personnel may be flown to the rig. The rig day rate for the rig move may be less
than the rate at the well site. Typically, the rig day rate for the move is 90% of the
rig day rate once the rig is onsite.
Rig move = rig day rate x 90% x rig move time + transport costs.
Rig up = Rig Rate x rig-up time. Nowadays it is often a matter of hours rather than
days from when a rig arrives on site until drilling commences.
Pre-Spud Costs are specific to a basin and type of drilling rig. As a general rule, Pre-
Spud Costs for a mature development region are less than for a basin that is lightly
explored. For a mature offshore exploration region the Pre-Spud Cost model may be
simplified to –
Pre-Spud Cost = Rig move + Rig-up
In this equation, mobilisation, site preparation and overheads are excluded.
5.5.5 Drilling Cost
The Drilling Phase includes all well construction activities from when well spuds until
when the drill bit reaches total depth. The basic equation to estimate the Drilling
Cost is-
Drilling Cost = Drilling Time x Daily Cost
Drilling time and Drilling Cost are best represented as exponential functions of the
Drilled Interval. Equations are derived by regression analyses. My Daily Cost
estimate includes fixed costs in addition to time dependent costs. Production
completions have higher fixed costs than P&A completions. Thus it is preferable to
estimate separate Drilling Costs for the two types of completion.

5.5.6 Completion Cost
The Completion Phase covers all time from cessation of drilling at total depth to rig
release. The Completion Phase includes testing, running casing and production
tubing, perforating and installing completion equipment. Rig release is assumed to
be at rig down for onshore wells. Demobilisation costs are usually charged to the
next well and are therefore not included in the well costs for this well. The basic
equation to estimate Completion Costs is –
Completion Cost = Completion Time x Daily Cost + Completion fixed costs.
Completion Costs are strongly influenced by the type of completion. Completing the
well for production takes longer than for a P&A completion and incurs substantially
higher fixed costs. AFEs usually include an estimate to P&A the well and a
supplementary cost to complete the well as a producer.
The approach used to estimate Completion Cost depends on the available data and
analysis of the wells to be modelled. Completion Time may be modelled as either a
constant or as a function of Drilled Interval. Completion Cost can be modelled using
one of two approaches. The first approach averages completion fixed costs over the
period the rig is at the well site and incorporates them within Daily Costs. The cost
equation reduces to -
Completion Cost = Completion Time x Daily Cost
Using this approach, wells with P&A completions need to be modelled separately
from wells with production completions for both the Drilling and Completion phases.
The second approach involves estimating Drilling Cost and Completion Cost for a P&A
completion and adding a supplement for a production completion. The equation is
Completion Cost = P&A Completion Time x Daily Cost + Production Completion
‘Production Completion’ includes additional fixed costs to a P&A completion plus

additional time based costs.

Completion Costs for a production or injection well are usually specific, can be highly
variable and difficult to predict, even within one field development. It is important
to estimate a range of costs.
5.5.7 Basic Regional Cost Model
The basic regional cost model is –
Well Cost = Pre-Spud Cost + Daily Cost x (Drilling Time + Completion Time)
Separate equations should be derived for P&A completions and production

completions. The equation can be broadly based or can be specific to a region,
period, rig type and well type. The more specific the equation is to a particular type
of well, the more accurate the results are likely to be. In order to index the well
cost, the model needs to be representative of a particular year or period.
Cost models need to be based on regional analyses of historical data to determine

best estimates for –
1. Phase times.
2. Phase costs.
3. Daily Costs.
4. Completion Costs
Objectives of the statistical analyses of historical data are to relate each time and
cost variable to Drilled Interval, to a region, a period, a rig and a well type.

5.5.8 Well cost from Rig Rate
The Total Well Cost (TC) to a predefined total well depth (TD) can be estimated from
four variables -
1. Pre-Spud Cost (PS).

2. Onsite Well Time (T).
3. Rig Rate (RR).
4. Rig Ratio (RO).
If TC = PS + C (A)
And C = T x DC
Where -
DC = Daily Cost
C = Onsite Well Cost (spud to rig release)
Then TC = PS + T x DC (B)
RR RR
But RO = So DC =
DC RO
RR
Therefore TC = PS + T × (C)
RO
Where -
x Pre-Spud Cost (PS) is estimated separately.
x Onsite Well Time (T) is derived from equations relating historical well times
to Drilled Interval.
x Rig Rate (RR) is estimated from future contracts or projections.
x Rig Ratio (RO) is a mean value derived from historical data.

Example – Estimating Well Cost

RR
Using equation ‘C’, TC = PC + T ×
RO
let
PC = $200,000 (Pre-Spud Cost)
T = 10 days (Onsite Well Time)
RR = $36,000/day (rig day rate)
RO = 0.36 (rig day rate is 36% of Daily Costs)
then
10 × $36,000
TC = $200,000 +
0.36
Well Cost = $1,200,000

5.6 Indexing costs
5.6.1 CPI indexing of historical costs
Well costs are primarily influenced by industry factors such as the expected future
price of oil (Transocean, 2004), the cost of oil, goods and services, changes in the A$
to US$ exchange rate and the supply and demand for drilling rigs. Inflation has little
effect on well costs when compared with movements in the price of oil and the
supply and demand for drilling rigs. My historical cost data is for a relatively short
period (1996-2004) and the variability in well costs in this study overshadows any
influence from cost inflation. Therefore, I did not index historical cost data to
inflation to give costs in real terms for a particular year.
Over the period of this analysis (1996-2004) the oil price fluctuated within a narrow
range and expectations were for future oil prices to remain stable. Since 2004, the
price of oil has increased significantly outside of the range of the previous decade.
Therefore historical costs need to be indexed if they are to be relevant in the future.
5.6.2 Indexing cost models
Well costs estimated by the cost models proposed in this thesis can be indexed to
changes in the Rig Rate and other costs. When the Rig Rate increases, the Daily Cost
also increases, the Rig Rate being the largest single contributor to the Daily Cost.
Factors that cause the Rig Rate to change may also cause other well costs to change
although not always to the same degree. The ratio of the Rig Rate to the Daily Cost
(the ‘Rig Ratio’) tends to change only within a narrow and predictable range even
though absolute costs change. This makes the Rig Ratio a very useful predictive tool.
During periods of high demand, rigs are contracted years in advance at a

predetermined Rig Rate. Assuming that the mean Rig Ratio does not change
appreciably, then future well costs can be estimated from known, or estimated,
future Rig Rates.

5.6.2.1 Equation for indexing well costs
In this section I present the derivation of a method to index well costs to the Rig
Rate and Rig Ratio based on the following terms –
Onsite Well cost = Cost from spud to rig release

C1 = Old Onsite Well Cost
C2 = New Onsite Well Cost
T1 = Old Onsite Well Time (spud to release)
T2 = New Onsite Well Time (spud to rig release)
DC1 = Old Daily Cost
DC2 = New Daily Cost
RR1 = Old Rig Rate
RR2 = New Rig Rate
RO1 = Old Rig Ratio
RO2 = New Rig Ratio
If C1 = T1 x DC1
C2 = T2 x DC2
C2 T2 × DC2
Then =
C1 T1 × DC1
T DC
C2 = C1 × 2 × 2 (D)
T1 DC1
RR1 RR 2
If DC1 = & DC2 =
RO1 RO2
DC2 RR 2 RO1 RR 2 RO1
Then, = × = × (E)
DC1 RO2 RR1 RR1 RO2
Combining equations (1) and (2) gives the equation for calculating the new Onsite
Well Cost by indexing the old Onsite Well Cost to changes in the Onsite Well Time
(T), the Rig Rate (RR) and the Rig Ratio (RO). Thus,
T RR RO1
C2 = C1 × 2 × 2 × (F)
T1 RR1 RO2

5.6.2.2. Example - indexing well costs
Old well -
Onsite Well Cost, C1 = $800,000
Onsite Well time T1 = 10 days
Rig Rate RR1 = $24,000/day
Rig Ratio RO1 = 0.30
New well -
Onsite Well Cost C2 = unknown
Onsite Well Time T2 = 10 days
T RR RO1 10 36,000 0.30

C2 = C1 × 2 × 2 × = $800,000 × × ×
T1 RR1 RO2 10 24,000 0.36
New Onsite Well Cost = $1,000,000
In this example a 50% increase in the Rig Rate results in a 25% increase in Onsite well
costs.
Rig costs increase from $24,000/day x 10 days = $240,000

to $36,000/day x 10 days = $360,000
for an increase of $120,000 or 50%
Non rig costs increase by $200,000 - $120,000 = $80,000
or from 0.7 x $800,000 = $560,000
to 0.64 x $1,000,000 = $640,000
for an increase of $80,000 or 14%
A lower future Rig Ratio indicates a higher increase for non-Rig Rate costs and
produces a higher New Well Cost.
5.5.2.3 Indexing Pre-Spud Costs
For most offshore wells, the Pre-Spud Cost is the rig move plus the rig-up. The Pre-
Spud Cost can thus be indexed directly to the Rig Rate.

5.6.3 Cost Category Index
Table 5.4 shows an example of how to estimate a New Well Cost by indexing an Old
Well Cost to changing market conditions for individual cost categories.
x In step one, the Old Well Cost is broken down into categories.
x In step two, the Old Well Cost of $1,000,000 is allocated 100 units of $10,000
each (the Old Unit Value).
x In step three, units are allocated to each cost category in proportion to their
Old Category Cost. In the example, Rig Onsite Cost has 30 units of $10,000
each for an Old Category Cost of $300,000. In other words, Rig Onsite Costs
are 30% of the Well Cost.
x In step four, changes in market costs are estimated for each Cost Category.
For Rig Onsite Cost the example shows a 100% increase.
x In step five, the number of New Units based on the Old Unit Value is
calculated for each cost category by multiplying the number of old units by
the change in market costs. For Rig Onsite Cost, a 100% market increase
doubles the number of old units from 30 to 60.
x In step six, the New Category Cost is estimated by multiplying the Old Unit
Cost by the number of New Units based on the Old Unit Cost. For Rig Onsite
Costs $10,000 is multiplied by 60 units to give a $600,000 for the New
Category Cost.
x The New Well Cost is the sum of all New Category Costs ($1,600,000).
x The New Unit Cost is the New Well Cost divided by 100 ($16,000)
x Finally, New Units are allocated. Rig Onsite Costs now has 37.5 units or 37.5%
of the New Well Cost.
The example of cost category indexing in Table 5.4 shows a 100% increase in rig costs
and tubulars together with a 50% increase in services, with the remaining 30% of
costs unchanged, leads to a 60% increase in the well cost.
This method can also be used to –

1. Estimate a new Daily Cost from a change in the Rig Rate and other costs.
2. Estimate a new Rig Ratio.

Table 5.4 - Example - indexing cost categories
Old Old Units %¨ in Units New New Units

Category from category from Category from
Cost Old Cost costs Old Costs Cost New Costs
Rig pre-spud $100,000 10 100% 20 $200,000 12.50
Rig Onsite $300,000 30 100% 60 $600,000 37.50
Tubulars $100,000 10 100% 20 $200,000 12.50
Consumables $200,000 20 0% 20 $200,000 12.50
Services $200,000 20 50% 30 $300,000 18.75
Other costs $100,000 10 0% 10 $100,000 6.25
Total well $1,000,000 100 160 $1,600,000 100.00
1. Breakdown the Old Well Cost into categories.

2. Allocate 100 units to the Old Well Cost so that -
Old Well Cost
Old Unit Cost =
100
1. Allocation units to each Cost Category so that -
Old Category Cost
Old Category Units =
Old Unit Cost
2. Estimate market changes for each cost category as a percentage increase.
(100 + %¨ Old Category Cost)
3. New Units from Old Costs = Old Category Units ×
100
4. New Category Cost = Old Unit Cost × New units from Old Costs
5. New Well Cost = New Category Costs
6. Allocate 100 units to the New Well Cost so that -
New Well Cost
New Unit Cost =
100
New Category Cost
7. New Category Units from New Costs =
New Unit Cost

5.6.4 Rig Ratio
5.6.4.1 Daily Cost from Rig Ratio
Daily Cost is a function of the Rig Ratio and the Rig Rate. For a given group of wells
the Rig Ratio will vary within a historically defined range. We can predict Daily Costs
for a new Rig Rate using historical Rig Ratios. For example, assuming a new Rig Rate
of $40,000 -
$40,000
If the mean historical Rig Ratio is 0.32, then Daily Cost = = $125,000
0.32
$40,000
For a low historical Rig Ratio of 0.25, Daily Cost = = $160,000
0.25
$40,000
For a high historical Rig Ratio of 0.40, Daily Cost = = $100,000
0.40
+$35,000 +24%
Expected Daily Cost is therefore $125,000 or
-$25,000 -20%
Rig Rates should be skewed towards lower rates. Rigs on long term contracts are
usually contracted on a lower rate than for short term contracts. Overall, more wells
should be drilled on long term contracts than short term contracts.
5.6.4.1 Maximum Rig Ratio
A new Rig Ratio can be estimated for a known increase in well costs and Rig Rate.
For example, if Well time T1 = 10 days
Well cost C = $800,000
and well costs increase from $800,000 to $1,000,000 due to an increase in the Rig
Rate (i.e. 83%), but no other costs change, then the Rig Ratio changes from –
$240,000 $440,000
= 0.30 to = 0.44
$800,000 $1,000,000
Thus 0.44 is the maximum Rig Ratio for the new well if non-rig costs do not change.
If all costs increase at the same rate then the Rig Ratio remains at 0.30 and rig costs
increases by only $60,000 (25%). In contrast, an 83% increase in the Rig Rate for a
constant Rig Ratio of 0.30 gives a new well cost of 1.83 x $800,000 = $1,464,000.

Chapter 6 Onshore wells
6.1 Introduction
This chapter is a study of regional well times and well costs for Australia’s onshore
petroleum basins. Well times indicate technical performance. Well costs indicate
commercial performance.
I sourced well times and costs for this study from government databases, industry
and over 200 recent well completion reports for the Cooper/Eromanga Basins, the
Surat/Bowen Basins, the Otway Basin and the Perth Basin.
My objectives have been to -

(a) Evaluate regional well performance.
(b) Develop regional well cost models.
Central to these objectives are the following questions -

1. Is well depth a reliable predictor of well cost and well times?
2. Are there significant differences in well performance or costs from one basin to
another?
3. How much variability is there in well costs and what are possible causes of this
variability?
4. Can chronological changes in well cost and performance be discerned?
5. What is the relationship between rig day rate and well cost?
6.1.1 Previous studies
Several papers have been published discussing onshore drilling costs for individual
petroleum fields within Australia, for example the Kenmore field in Central
Queensland (Hedger et al., 2000) and the Kogan North CSG field in the Surat Basin
(Day et al., 2006). However, nothing has been published that discusses the expected
costs or range of costs encountered by drilling operators across an exploration region
such as the Surat Basin or the Cooper/Eromanga Basins. Moreover, no comparisons
have been published between well costs in one basin with well costs in another, for
example comparing the Perth Basin with the Cooper/Eromanga Basins.

6.1.2 Analysis
Three well phases are studied – Pre-spud, Drilling and Completion. Relationships
between factors influencing well costs are considered, including phase time, phase
cost, daily well cost, rig day rate, well depth, basin, rig type, well direction, well
objective (e.g. exploration), and type of completion (P&A or producer). Times and
costs are analysed using basic statistics, bivariate scatter plots, correlation and
regression analysis.
6.1.3 Presentation
This chapter is presented in the following sequence (bold type indicates a section
heading) –
1. A brief History of onshore drilling in Australia.

2. Technical Performance. The literature on technical performance focuses on
reducing well times. Onshore drilling times are analysed for the period 1980 to
2004. Comparisons are made between time and cost as measures of
performance.
3. Construction costs. Well costs are analysed for the period 1996 to 2004.
Regression analyses relate well times and costs to Drilled Interval, producing
equations which form the basis of my cost modelling. AFEs are also analysed to
breakdown well construction costs into cost categories which can be indexed to
market rates.
4. Cost models. Regional cost models are proposed using results from the
preceding analysis.
5. Indexing. Market trends and indexing methods are discussed.
6. Discussion
6.1.4 Additional analyses
More detailed analyses are presented in Appendices A, B and C. Appendix A presents

the results of a bivariate correlation analysis of factors that influence onshore well
times and costs. Correlation results support and guide the direction of the regression
analyses. Appendix B presents a detailed analysis of Coal Seam Gas (CSG)
operations, drilling times and costs for the Surat/Bowen Basins. Appendix C presents
analyses of drilling times and costs for the Cooper and Eromanga Basins.

6.2 History of onshore drilling
Drilling for oil and gas in Australia has undergone a series of boom and bust cycles
over the past hundred plus years as petroleum prices have changed and as new
discoveries have been made. The first well drilled in Australia in search of oil was in
the Coorong district in the south east corner of South Australia. There is some doubt
within the literature as to the year the well was drilled. An APEA publication on the
history of Petroleum in Australia published in 1988, reported different dates by
different authors within the same book, from 1866 (Richter & Dumbrell, 1988), to
1886 (Wilkinson, 1988) to 1892 in the Foreword. APPEA’s current website
(http://www.appea.com.au/History/) reports the well being drilled in 1866.
From 1865 to 1905 kerosene was produced in N.S.W. from shale at Hartley Vale and
from 1870 to 1907, at Joadja Creek. In 1900, gas was discovered in water bores at
Hospital Hill, Roma, Queensland and at Grafton racecourse, N.S.W. In 1924, Lake
Bunga-1, near Lakes Entrance, Victoria, encountered Australia’s first oil. In 1928, oil
(condensate) was sold to the motorists of Roma from Roc-1, but production was short
lived. Over the ensuing twenty years drilling in Australia was sporadic.
Almost all petroleum exploration has taken place in Australia since the Second World
War. Not until Rough Range-1 flowed oil for a short period in 1953 was Australia of
any interest to international oil companies. Australia’s first truly commercial oil
discovery was made in 1961 with the drilling of Moonie-1 in the Surat Basin. The
next ten years was a boom period for onshore exploration drilling with a string of gas
and oil strikes across the country, including -
x The Gidgealpa gas field in the Cooper Basin, 1963.
x The Merinee oil & gas field in Amadeus Basin, 1964.
x The Barrow Island oil field, 1964.
x The Dongara gas field, in the Perth Basin, 1966.
Drilling slumped in the 1970s, but rose again in the early 1980s before declining
steadily after the collapse of oil prices in 1986. Onshore rigs currently (2006)
operating in Australia, vary broadly in design, power and drilling capabilities. Day
rates vary according to the type of rig, their availability and to their demand. The
rise of the CSG industry in Queensland and N.S.W. since the late 1990s is due in part
to the use of low cost truck mounted drilling rigs.

6.3 Technical performance
6.3.1 Time performance
The most commonly reported benchmark for drilling performance is drilling time to a
given depth. Figure 6.1 shows a scatter plot of Drilling Days as a function of Drilled
Interval for 831 exploration wells drilled across onshore Australia between 1980 and
2004. There are several reasons for not including drilling times for appraisal wells or
development wells in the analysis.
1. Appraisal and development wells may include directional or horizontal wells

which would distort the correlations.
2. Appraisal drilling times are likely to include non-drilling activities such as coring
and testing which would distort drilling rates.
3. Development wells are strongly influenced by learning effects making it more
difficult for the analysis to determine the impact of technological advances over
time.
4. Government well data does not indicate if the wells were sidetracked from
within the well-bore of an older well.
In addition, Figure 6.1 does not include wells less than 400m deep, nor any CSG
wells, nor drilling times greater than 100 days. It does show all other onshore wells
drilled within Queensland, Western Australia, Victoria and Northern Territory. The
dataset for South Australia, however, is incomplete. I could only obtain drilling
times for South Australian wells from WCRs and ASX reports. Most of the data for the
other states were sourced from state government files.
6.3.1.1 Results
I conducted a regression analysis for each five year period from 1980 to 2004. Figure
6.1 shows the regression lines for each period converging at shallow depths,
indicating little reduction in drilling times at shallower depths (less than 2,000m)
over the past decade.
Drilling times to deeper depths decreased significantly from the period 1985-1989 to
the period 1990-1994. In the early 1990s the exploration industry adopted
Polycrystalline Diamond Compact (PDC) drill bits and improved drilling hydraulics.
These measures virtually doubled rates of drilling penetration. Since 1995,

reductions in drilling times at deeper depths have been far less significant, although
PDC bits continue to improve and use of Top Drives often improves rates of
penetration.
100
1980-1984 1980-1984
1985-1989
y = 4.954e0.738x
90 1990-1994
1995-1999 R2 = 0.61
2000-2004 175 wells
Expon. (1980-1984)
80 Expon. (1985-1989)
Expon. (1990-1994) 1985-1989
Expon. (1995-1999)
y = 2.837e0.903x
Expon. (2000-2004)
70 Expon. (Technical Limit) R2 = 0.56
217 wells
60
Drilling Days.
1990-1994
y = 3.965e0.617x
50 R2 = 0.40
139 wells
40
1995-1999
y = 4.453e0.538x
30
R2 = 0.42
200 wells
20
2000-2004
2004 Technical Limit
y = 4.011e0.542x
10 y = 1.342e0.767x R2 = 0.44
100 wells
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Drilled Interval (thousand metres)
Figure 6.1 – Drilling Days versus Drilled Interval, 831 onshore wells, 1980-2004.
6.3.1.2 Technical Limit
Figure 6.1 also shows an exponential line called the ‘2004 Technical Limit’,
representing the shortest drilling time to a given Drilled Interval for exploration wells
drilled before 2005. The Technical Limit is a term first coined by Bond et al. (1996)
from Woodside for offshore wells on the North West Shelf. As early as 1985-1989,
wells have been drilled to the onshore 2004 Technical Limit. Delineation of the 2004
Technical Limit has become clearer as more wells have been drilled. Since 1980, the
most significant reductions in the Technical Limit have occurred at depths of

between 2,000m and 3,500m. No realistic Technical Limit has been set below
3,500m, where few wells have been drilled and drilling times increase sharply with
increasing depth.
6.3.1.3 Variability
There is a great deal of scatter in the number of Drilling Days for a given Drilled
Interval. The scatter increases as Drilled Interval increases. Some wells incurred
high well times due to long periods of rig ‘down time’ caused by bad weather,
equipment breakdown, or rig release and return. Each successive five year period
shows a flattening of the regression curve, and with it, a corresponding reduction in
data scatter with depth. In other words, shorter drilling times provide an added
benefit of less variability and greater certainty for drilling time predictions.
6.3.1.4 Correlation
The relationship between Drilling Days and Drilled Interval, as measured by the
coefficient of determination (R2), has been consistent from one five year period to
the next. Since 1990, only 40% to 44% of the variance in the number of Drilling Days
can be attributed to length of the Drilled Interval. The other 56% to 60% of variance
may be attributed to a combination of drilling location (basin, permit and geology),
drilling rig (equipment and crew), drilling season (resulting in weather down time)
and the operator (planning, experience and testing requirements while drilling).
6.3.2 Cost performance
I obtained Total Well Costs for 56 of the wells shown in Figure 6.1 for the period 1996
to 2004, plus 26 coal seam gas (CSG) wells. Figure 6.2 shows a scatter plot of Total
Well Cost as a function of Drilled Interval. The Total Well Cost includes Pre-Spud
Costs, Drilling Costs and Completion Costs. Wells are distinguished by the basin
within which they were drilled and by type of completion - that is, whether they
were completed cased and suspended (C&S) as an oil or gas discovery or plugged and
abandoned (P&A).

5.0
Cooper Basin - P&A
1996 to 2004
4.5 Cooper Basin - Oil or Gas
Otway Basin- P&A y = 0.1418e0.947x
4.0 Otway Basin - Oil or Gas
R2 = 0.73
82 wells
Total Well Cost (A$ million) .
Perth Basin - P&A

3.5 Perth Basin - Oil or Gas
Surat/Bowen - Conventional rig - oil or gas
3.0 Surat/Bowen - Truck rig - P&A
Surat/Bowen - Truck rig - Oil or Gas
2.5
2.0
1.5
1.0
0.5
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.2 – Well Cost versus Drilled Interval, 82 onshore wells, 1996-2004.
Observations from Figure 6.2-

a) The coefficient of determination (R2) between Total Well Cost and Drilled
Interval is 0.73, indicating a high correlation between the two variables.
b) Total Well Costs to a given Drilled Interval fall within upper and lower limits.
The difference between these limits – the scatter range - increases with
increasing well depth.
c) Data points for individual basins are clustered around reservoir targets. This
results in a narrow range of well depths and costs for a given basin. Data from
one basin may, or may not, overlap data from other basins
d) P&A wells generally have a lower total cost than discovery wells.
e) In the Surat/Bowen Basin, oil or gas discovery wells cost less if drilled with a
‘truck rig’ than with a more ‘conventional rig’.
f) Well costs were generally higher in the Perth Basin than in the Cooper/Eromanga
Basin. However, many of the Perth Basin wells were technically more complex

directional and horizontal wells. In addition, most of the Perth Basin wells
shown have been drilled more recently than the Cooper/Eromanga Basin wells.
g) High cost outliers may result from long periods of non-productive time due to
hole problems, or from introduction of new or unconventional drilling
techniques.
6.3.2.1 Expected well cost
From Figure 6.2, the expected well cost for the period 1996 to 2004, to –
a) 500m is A$ 227,675
b) 1,000m is A$ 365,555
c) 2,000m is A$ 942,388
d) 3,000m is A$2,429,443
6.3.2.2 The data
As we would expect, cost data from one basin are unlikely to yield good correlations
with Drilled Interval if the data is sampled from a narrow range of well depths.
Merging data from drilling environments across Australia enables well times and costs
from a broad range of Drilled Intervals to be correlated.
The number of data points at shallower depths could be greatly expanded by

including intermediate costs and times for each well. However, intermediate well
costs and times from deeper wells may distort the true time and cost to drill a
shallow well. For example, a rig drilling a well to 3,000m may reach 1,000m more
quickly than a smaller rig that only drills shallow wells. However, the Total Well
Cost may be higher due to a higher day rate for the larger rig. Mobilisation and
Completion Costs can be expected to be higher for a bigger rig, without adding to the
productivity of these non-drilling phases. There is also a dilemma associated with
incorporating intermediate depth data in how to apportion Pre-spud and Completion
Costs to estimate Total Well Cost.
6.3.2.3 Sampling effects
Figure 6.3 shows a scatter plot of Total Well Cost as a function of Drilled Interval for
the same data set plotted in Figure 6.2, but without the 26 coal seam gas (CSG)
wells. Now there are only four well costs for drilling depths less than 1,000m. The

scatter plot also shows two regression lines. One line is for the data plotted while
the other is the regression line from Figure 6.2, which include CSG wells.
4.5
Excluding CSG
Including CSG
4.0 Expon. (Excluding CSG)
y = 0.1418e0.947x
Expon. (Including CSG)
3.5 82 wells
Total Well Cost (A$ million) .
3.0
2.5
2.0
Excluding CSG
1.5
y = 0.3268e0.6211x
2
R = 0.55
1.0 56 wells
0.5
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.3 – Well Cost versus Drilled Interval, 1996-2004.
Narrowing the data range by excluding shallow CSG wells reduces the regression
coefficient of determination from an R2 of 0.73 in Figure 6.2 to an R2 of 0.55 in
Figure 6.3. Excluding data from the analysis also changes the shape of the regression
line and the regression equation for the remaining data. The ‘y’ intercept is
substantially higher in Figure 6.3 (A$0.3268 million) than in Figure 6.2
(A$0.1418million). In other words, the regression analysis predicts a Pre-Spud Cost of
A$326,800 if CSG wells are excluded and a Pre-Spud Cost of A$141,800 if CSG wells
are included. The regression curve is flatter without CSG wells, implying lower costs
at deeper depths, yet the data is the same at Drilled Intervals greater than 1,800m
because CSG wells have not been drilled to these depths. At a Drilled Interval of
3,500m the regression equation including CSG wells (Figure 6.2) predicts a Total Well
Cost of A$3.9 million, while the equation excluding CSG wells (Figure 6.3) predicts a
Total Well Cost of A$2.9 million. This anomaly is attributable to the particular

sample set selected for analysis and is a limitation of regression analysis as a

predictive tool.
The inclusion or exclusion of CSG wells has less influence on maximum and minimum
costs. At Drilled Intervals greater than 1,500m the data scatter and vertical data
range do not change from Figure 6.2 to Figure 6.3.
Different results for Figures 6.2 and 6.3 illustrate how regression analysis outcomes
are influenced by the content, diversity and quality of the data set. Well data may
be biased by the type of wells analysed, where, when and how they were drilled, and
by how they were completed. If the sample data set being analysed is biased, or too
small to be representative of the complete data set, changing the data mix may have
a significant influence on regression analysis outcomes.
6.3.3 Time or cost?
Well time indicates technical performance. Well cost indicates commercial

performance. The literature on well performance focuses on reducing well times.
This may be due to reluctance by the petroleum industry to publish cost information.
This section compares time and cost as measures of performance.
6.3.3.1 Rig performance
The performance of drilling rigs and other drilling services varies. Ideally,
performance should be factored into charge-out rates. A lower performing rig or
contractor should charge less than a better performing one. However, rig
performance is less significant during the completion phase than during the drilling
phase. To reduce costs, lower cost rigs are occasionally considered for completing a
discovery well, although additional mobilisation costs, time delays and unavailability
of rigs often offset any cost advantages.
6.3.3.2 Well cost
Figure 6.4 shows the same 82 wells in the same positions as in Figure 6.2, but this
time drilling period and well outcomes are highlighted rather than basins and
outcomes. The drilling periods are ‘1996-1999’ and ‘2000-2004’, while well
outcomes are either ‘P&A’ (plugged and abandoned) or ‘Oil or Gas’. Bivariate

regression equations and coefficient of determinations (R2) for Total Well Cost as a
function of Drilled Interval are presented for the four data sets.
Each regression line in Figure 6.4 shows a substantial to strong relationship between
Total Well Cost and Drilled Interval. Drilled Interval correlates more closely with
P&A wells than with oil or gas wells.
Total Well Cost increased from 1996-1999 to 2000-2004 for drilled intervals greater
than 2,000 metres. The 2000-2004 period includes a high proportion of deep,
deviated and horizontal wells (mainly from the Perth Basin). These are technically
more difficult and more expensive wells to drill and complete.
For drilled intervals less than 2,000 metres, well costs decreased in the later period.
Lower shallow well costs for 2000-2004 were the result of the introduction of low
cost, truck mounted rigs to drill CSG wells in the Surat and Bowen Basins,
Queensland.
4.5
2000-2004 Oil or Gas
2000-2004 - Oil or Gas 1.104x
y = 0.0131e
4.0 2000-2004- P&A 2
R = 0.72
1996-1999 - Oil or Gas
34 wells
3.5 1999-1999 - P&A 2000-2004 Oil or Gas
Total Well Cost (A$ million).
2000-2004 P&A
3.0 2000-2004 P&A 1.127x
y = 0.0915e
2
R = 0.91
2.5 19 wells
2.0 1996-1999 Oil or Gas

0.429x
y = 0.4995e
2
1.5 R = 0.62
14 wells
1.0 1996-1999 P&A
1996-1999 P&A
0.601x
y = 0.2557e
2
0.5 R = 0.78
15 wells
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.4 – Well costs distinguished by drilling year and outcome.

6.3.3.3 Completion Cost
As Drilled Interval increases, the vertical separation between the 2000-2004

regression lines in Figure 6.4 for P&A wells and oil & gas wells increases. For the
2000-2004 period at 1,000m, the incremental cost for an oil or gas completion over a
P&A well is estimated to be – A$395,123 minus A$282,404 = A$112,719. At 3,000m
the difference is A$3,594,633 minus A$2,690,114 = A$904,519. This result implies
that the cost of an oil or gas completion is related to well depth. However, if we
analyse the 1996-1999 period in the same manner, we see that at 1,000m the
incremental Completion Cost for an oil or gas discovery is – A$767,092 minus
A$466,382 = A$300,710, while at 3,000m the difference is – A$1,809,141 minus
A$1,551,542 = A$257,599. This indicates a slight decrease in Completion Cost with
depth for this period, which is an unlikely occurrence. However, fewer wells were
analysed for the 1996-1999 period, so the regression equations may not be as
representative as for the later period. The 1996-1999 period consists predominantly
of simple vertical wells from the Cooper/Eromanga Basin with one horizontal well
appearing as a high cost outlier (red triangle) lying amongst the 2000-2004 data. The
2000-2004 data contains a high proportion of low cost shallow CSG wells and high
cost deeper deviated and horizontal wells from the Perth Basin.
6.3.3.4 Well time
Figure 6.5 shows a scatter plot of Well Days as a function of Drilled Interval for the
same 82 wells plotted in Figure 6.2 and Figure 6.4. Unfortunately, Pre-spud days are
not usually reported in WCRs for onshore wells. Well Days in Figure 6.5 represent the
time from spud to rig release, whereas the Total Well Cost plotted in previous figures
includes Pre-Spud Costs.

45
2000-2004 2000-2004- Oil or Gas
Oil or Gas 2000-2004- P&A
40
1996-1999- P&A
35
Expon. (2000-2004- Oil or Gas)
Well Days (spud to release).
Expon. (2000-2004- P&A)

30
Expon. (1996-1999 Oil or Gas)
1996-1999 Expon. (1996-1999- P&A)

25
Oil or Gas
y = 6.3164e
0.524x 2000-2004
2000-2004 2 Oil or Gas
20 R = 0.53
P&A 34 wells
0.187x 2000-2004
y = 12.51e
15 2 P&A
R = 0.24
19 wells
10 y = 12.413e
0.275x 1996-1999
1996-1999 2 Oil or Gas
R = 0.58
P&A 14 wells
5
y = 6.2764e
0.437x 1996-1999
2 P&A
0 R = 0.59
15 wells
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.5 – Well Days (spud to release) versus Drilled Interval, 82 onshore wells.
Three of the regression time lines in Figure 6.5 show a similar pattern to the
regression cost lines in Figure 6.4, but the line for 2000-2004 P&A wells is different.
CSG P&A wells drilled during the 2000-2004 period took substantially longer to drill
than the non-CSG P&A wells drilled to similar depths the during the 1996-1999
period. At depths greater than 1,500m, where CSG wells have not been drilled,
regression lines for the two periods converge and cross-over.
6.3.3.5 CSG wells
Factors contributing to longer well times for CSG wells are -

a) Truck rigs often Shut Down For Night (SDFN), with operating hours varying
between 12 hours and 24 hours a day. Well times have not been adjusted to 24
hour operations for this analysis.
b) Truck rigs may have less power than conventional rigs resulting in slower rates of
drilling penetration.
c) Truck rigs may leave the well site and then return some time later to complete
the well. I applied corrections to well times for well site absences, to reduce its

impact on well time, but the additional rig ups and rig downs are still included in
well time.
d) Continuous coring can significantly slow drilling progress and prolong well time.
All CSG P&A well numbers were continuously cored with intervals ranging
between 80m and 405m for an average of 172m per well. No CSG C&S discovery
wells were continuously cored. None of the 1996-1999 P&A wells plotted here
were continuously cored.
In addition to causing longer well times these factors also contribute to the high
degree of scatter in CSG well times. However, low CSG rig day rates tend to
compensate for slower drilling, resulting in a less variable well cost. Overall, Drilled
Interval is a better indicator of CSG well cost than CSG well time.
6.3.3.6 Completion time
Regression equations in Figure 6.5 indicate that in 1996-1999 it took 7 days longer to
complete an oil or gas well than a P&A well at 1,000m, and 5 days longer at 3,000m.
For the 2000-2004 period, P&A wells took longer than oil or gas wells at depths less
than 2,000m. Longer P&A well times result from the high proportion of CSG P&A
wells continuously cored, as described above.
6.3.3.7 Correlations
The results of the regression analysis show that for each of the four groups of wells
(‘1996-1999 P&A’, 1996-1999 oil or gas’, ‘2000-2004 P&A’ and ‘2000-2004 oil or gas’)
studied Drilled Interval correlates more closely with well cost than with well time.
The differences are greater if CSG wells are included in the data sets. For example,
Figure 6.4 shows a very high coefficient of determination (R2) of 0.91, between Total
Well Cost and Drilled Interval for 2000-2004, P&A wells. Figure 6.5 shows a
significantly weaker coefficient of determination (R2) of 0.24 between Well Days and
Drilled Interval for the same wells. The 2000-2004 data sets contain CSG wells. The
1996-1999 data set does not contain CSG wells and corresponding difference in R2
values between ‘Total Well Cost and Drilled Interval’ and ‘Well Days and Drilled
Interval’ are substantially less for wells from this period.

6.3.3.8 Conclusions
x CSG wells drilled with truck rigs take longer to drill than conventional wells
but cost substantially less.
x There is less variability in well costs than well times.
x Drilled Interval is a better indicator of well cost than well time.
x There are more costs unrelated to well depth for an oil or gas completion
than for a P&A completion. Thus, Drilled Interval is a better indicator of
costs for wells with P&A completions than for wells with oil or gas
completions.

6.4 Construction costs
6.4.1 Cost breakdowns
Drilling operators break down their well construction costs into categories for
budgeting and cost accounting. The majority of these cost categories are functions
of well times, for example, the rig day rate and professional services. Non-time
based variable costs include consumables such as casing, cement, mud chemicals,
fuel, drill bits and office overheads. Fixed costs include the well head, pumps and a
mobilisation appropriation.
If the ratio of a particular cost category to Total Well Cost is consistent from well to
well, and therefore predictable, then that ratio can be used to index Total Well Cost
to that cost category and to changes in market rates for that cost category.
6.4.1.1 CSG wells
Operations reports for Tri-Star’s Fairview CSG development wells in the Bowen Basin
show a breakdown by category of daily costs for each well. I tabulated Tri-Star’s
daily costs by cost category for seven of their wells. I summed the category costs for
each well and then divided the category totals by the total cost of the seven wells to
obtain percentages for each cost category with respect to Total Well Cost. Figure
6.6 shows the results. Pre-Spud Costs are in red and time charges in blue. The other
cost category (green) includes consumables (with associated service fees) and
tangible items. Tangible items include the well head and casing. Consumables such
as casing, bits, cement, and fuel for the rig and air compressors are related directly
or indirectly to well depth.
Pre-Spud Costs for the Tri-Star’s Fairview CSG development include the rig move
(14.0%) and pre-spud logistics items such as road building and site preparation (2.1%).
Total Pre-Spud Costs therefore account for around 16.1% of Tri-Star’s Total Well
Costs. The remaining 83.9% of well costs are incurred ‘onsite’ between spud and rig
release. The drilling rig is the biggest single well cost item. It accounts for 40.4% of
Total Well Costs, of which 14.0% is incurred pre-spud, and 26.4% is expended onsite
through the rig day rate.
The second highest cost category after drilling rig costs is the air compressor
equipment at 12.6%. The Fairview CSG development wells differ from conventional

oil or gas wells in that they were drilled with compressed air (and sometimes water)
rather than a mud mix of drilling chemicals. Compressed air enables faster drilling
with less formation damage than drilling with mud. However, the geological
environment needs to be conducive to drilling without mud or hole problems could
result. For instance, in the Surat Basin, air drilling may not used for the main hole
because of water incursions, although CSG operators sometimes drill with air through
the reservoir formation if borehole conditions allow. Air compressors require a lot of
fuel (7.8% of total costs at Fairview), which increases overall well costs. A majority
of CSG wells in the Surat/Bowen Basins are now drilled with water based drilling
fluids.
All other costs 2.1%

Engineering 0.6%
Bits 0.6% Consumables and tangible costs
Casing 1.1% Prespud costs
Logs 1.2%
Time based costs
BOP rental 1.2%
Wellhead 1.3%
Each bar represents a % of total well costs
Water 1.5%
Total well cost is a composite of 7 wells
Contingency 1.6% Location - Fairview, Bowen Basin, Queensland
Location/road 2.1% Operator - Tri-Star Petroleum
Consultant 4.8% Well type - Coal Seam Gas
Tubing Well completion - Gas development
4.9%
Drilling rig - Hunt Energy #2
Cement 4.9%
Drilling period - 1999-2002
Rentals 5.0% Average depth per well - 692 metres
Camp 6.2% Average rig rate per well - A$11,100/day
Fuel 7.8%
Air Equipment 12.6%
Pre-spud Rig 14.0%
Rig Day Rental 26.4%
0% 5% 10% 15% 20% 25% 30%
Figure 6.6 – Cost categories for Tri-Star operated CSG wells, Bowen Basin.
Logistics in the form of camp (6.2%), road (2.1%), water (1.5%), etc, account for
around 10% of costs. As a group, well completion consumable materials such as
tubing (4.9%), cement (4.9%) and casing (1.1%), account for around 11% of costs. It is
worth noting that, unlike some operators, Tri-Star does not attribute any office costs
to either their Pre-Spud Costs or to their Daily Costs.

6.4.1.2 Santos wells
Some Santos WCRs include detailed comparisons of final well costs against NOPEs
(Notification Of Proposed Expenditure). Figure 6.7 presents a breakdown of costs by
category for seven Cooper/Eromanga Basin and Otway Basin wells drilled by Santos
between 1998 and 2001. The seven wells include four gas completions and three
wells that were plugged and abandoned. The cost categories are basically those
reported by Santos. The percentages are average costs for each category from the
seven wells.
In Figure 6.7 cost categories are grouped according to whether they are ‘Time based
costs’, ‘Consumables and tangible costs’ or ‘Pre-Spud Costs’. While some categories
are categorised as being a Pre-Spud Cost, in reality a small proportion may be post
spud charges. Similarly, a small proportion of time based costs may have been
incurred pre-spud. However, these transgressions tend to cancel one another, so
that a reasonable balance between Pre-Spud Costs and post-spud costs is maintained.
Other costs 1.0%

Consumables and tangible costs
Water 1.0%
Wellhead 1.5% Pre-Spud costs
DSTs - services 1.6% Time based costs
Office professionals 1.8%
Transport 2.3% Each bar represents a % of total well costs
Total well cost is a composite sum of 7 wells
Mud logging 2.7%
Location - Cooper/Eromanga and Otway Basins
Drilling tool rental 3.1% Operator - Santos
Field professionals 3.4% Well type - Oil & Gas
Directional / MWD 3.4% Well completion - P&A or Oil or Gas
Drill Bits 4.2% Drilling rig - Century (3,18 & 27), ODE (30, 32)
Access & lease 4.8% Drilling period - 1998-2001
Drilling fluids 5.2% Average depth per well - 2,592 metres
Average rig rate per well - A$19,364/day
Operator costs 5.4%
Cementing 5.7%
Electric Logs 6.7%
Casing & tubing 10.5%
Rig mob/demob 10.8%
Rig Day Rate 24.9%
0% 5% 10% 15% 20% 25% 30%
Figure 6.7 – Cost categories for Santos operated wells, Cooper/Eromanga & Otway
Basins.

Santos’ Pre-Spud Costs (23.3% in Figure 6.7) are higher than Tri-Star’s CSG Pre-Spud
Costs (Figure 6.6, 16.1%). A large part of the difference is due to Santos’ allocation
of office overheads to well costs (5.4%). Other prominent differences between the
Bowen Basin CSG cost categories and the Santos’ costs relate to the use, or not, of
drilling fluids. In the Bowen Basin air compressors and associated fuel account for
20.4% of Total Well Costs. Santos wells do not drill with air but they do use drilling
fluids (5.2%) and mud logging (2.7%).
Figure 6.7 shows that Santos’ rig day rates in the Cooper/Eromanga and Otway Basins
averaged 24.9% of Total Well Costs and 32.5% (i.e. 25/77) of post-spud costs. Total
rig costs, including rig move and rig day rates, accounted for around 35.7% of Total
Well Costs. This compares with total rig costs for Tri-Star’s Fairview wells which
accounted for 40.4% of all well costs.
6.4.2 Pre-Spud Costs
Pre-Spud refers to the period from the start of the rig contract to the start of
drilling. Only a quarter of onshore WCRs in this study documented the pre-spud
time. This means, that I do not have enough data for a meaningful statistical
analysis of Pre-spud times. I do however, have enough data to analyse Pre-Spud
Costs.
Pre-Spud Costs include rig mobilisation and ‘rig up’ at the well site. It may also
include expenditures for well planning and road and site preparation. Pre-Spud Costs
may be a lump sum or a combination of lump sum and time charges. The rig up
period is usually short. Rig mobilisation time may vary considerably. Onshore
mobilisation time may also be unpredictable. For example, during wet weather,
unsealed roads may be impassable for long periods.
6.4.2.1 Well depth, rig and cost
Figure 6.8 shows Pre-Spud Costs as a function of Drilled Interval for 69 wells drilled in
various basins between 1996 and 2004. There is a moderate coefficient of
determination (R2) between Pre-Spud Cost and Drilled Interval (R2 = 0.61). This
indicates that 61% of the variance in Pre-Spud Costs can be attributed to changes in
the Drilled Interval.

The Spearman’s Rho correlation between Pre-spud Cost and Drilled Interval is rs =
0.83. This confirms the regression results and indicates a very significant
relationship. How can this be? Pre-Spud Costs are incurred before drilling
commences. The relationship must be indirect.
Deeper wells incur higher Pre-Spud Costs. Drilling rigs are contracted based on their
cost and drilling efficiency. Deeper wells require more powerful rigs than shallow
wells. More powerful rigs are more expensive to mobilise. Also, deeper wells take
longer to drill, requiring movement of more equipment to the well site, thus adding
to Pre-spud time and cost.
6.4.2.2 Cost modelling
Theses findings have implications for well cost modelling. Rather than treating Pre-
Spud Cost as a constant that is estimated through averaging, or mainly as a function
of mobilisation time, more reliable results may be obtained by treating Pre-Spud
Costs as a function of Drilled Interval in the well cost model.
1.6
Cooper Basin
Otway Basin
1.4
Perth Basin
All wells
Surat/Bowen Conventional
1.2 y = 0.0135e1.2961x
Pre-spud Cost (A$ million).
Surat/Bowen Truck Rigs

R2 = 0.60
Expon. (All wells)
69 wells
1.0
0.8
0.6
0.4
0.2
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.8 – Pre-Spud Cost versus Drilled Interval by basin.

The expected Pre-Spud Cost to –

1. 500m is A$ 25,808
2. 1,000m is A$ 49,338
3. 2,000m is A$180,312
4. 3,000m is A$658,978
6.4.2.3 Barrow Island mobilisation
Exceptions need to be recognised. Chevron is embarking on a drilling programme on

Barrow Island to drill a number of CO2 injection wells. Barrow Island is an
environmentally sensitive nature reserve. Drilling rigs destined for Barrow Island
have to be disassembled on the mainland and thoroughly cleaned. The rig is then
reassembled on Barrow Island. This process takes two months. The mobilisation cost
is 90% of the drilling day rate multiplied by the number of mobilisation days. The
mobilisation cost to the island is then shared amongst all wells drilled on the island.
6.4.3 Drilling Costs
I define Drilling as the period from spud until the total depth is reached. I estimate
Drilling Costs by multiplying the average daily onsite well costs by the Drilling Time.
I exclude wells from the drilling analysis if Drilling Cost could not be accurately
estimated. Thirteen of the excluded wells were drilled by Santos in the
Cooper/Eromanga Basin.
6.4.3.1 Cost correlations
Figure 6.9 is a scatter plot of Drilling Cost as a function of Drilled Interval for 66
wells drilled within five Australian onshore basins between 1996 and 2004. The wells
are a subset of the data used for the earlier analysis of Total Well Cost (Figures 6.2
to 6.4). There is a high correlation between Drilling Cost and Drilled Interval (R2 =
0.79, r = 0.92). Correlating the same data set with Total Well Cost yields a similarly
high correlation, but Drilling Costs show less variability and fewer outliers than Total
Well Costs. Similarly, comparing Figure 6.9 with Figure 6.2 suggests that Drilled
Interval is a more reliable predictor of Drilling Cost than Total Well Cost.

3.0
All wells
Perth Basin
y = 0.0607e1.0784x
Cooper Basin
R2 = 0.79
2.5 Otway Basin 66 wells
Surat/Bowen Conventional
Drilling Cost (A$ million).

2.0 Expon. (All wells)
1.5
1.0
0.5
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.9 – Drilling Cost versus Drilled Interval, 66 wells 1996-2004.

6.4.3.2 Maximum and minimum Drilling Cost
Maximum and minimum Drilling Costs can be defined by equations. Figure 6.10
shows three exponential lines for Drilling Cost as a function of Drilled Interval. The
middle line is the least squares regression line of best fit - the ‘expected cost’. The
upper (red) line is what I interpret to be the maximum Drilling Cost. The lower
(blue) line is what I interpret to be the minimum Drilling Cost. The wells are the
same as in Figure 6.9, but this time wells are distinguished by drilling period rather
than basin.
3.0
1996-1997
1998-1999
2000-2001
2.5
2002-2003
2004
Expon. (High Cost Limit)
2.0 Maximum cost
Expon. (All wells)
y = 0.222e0.85x
Expon. (Low Cost Limit)
1.5 1996-2004
y = 0.0625e1.067x
R2 = 0.78
1.0 66 wells
Minimum cost
0.5
1.2x
y = 0.0220e
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.10 – Maximum and Minimum Drilling Cost, 1996-2004.
Table 6.1 compares maximum and minimum Drilling Costs at 500 metre intervals for
the equations in Figure 6.10. The minimum Drilling Cost to a given depth is less than
half of the expected cost, while the maximum Drilling Cost is two to three times the
expected cost. In absolute terms, the difference between maximum and minimum
cost increases exponentially as Drilled Interval increases. In percentage terms,
maximum Drilling Cost shows greatest divergence from the regression equation at
shallow depths and a convergence with increasing Drilled Interval.

Table 6.1 – Onshore Drilling Cost (A$), max, min & regression 1996-2004.
Depth Expected Minimum Min -Expd Maximum Max-Expd Max-Min

500 $ 107,000 $ 40,000 -62% $ 340,000 219% $ 299,000
1,000 $ 182,000 $ 73,000 -60% $ 519,000 186% $ 446,000
1,500 $ 310,000 $133,000 -57% $ 794,000 157% $ 661,000
2,000 $ 528,000 $243,000 -54% $1,215,000 130% $ 973,000
2,500 $ 901,000 $442,000 -51% $1,859,000 106% $1,417,000
3,000 $1,535,000 $805,000 -48% $2,843,000 85% $2,038,000
6.4.3.3 Drilling year and period
Well data in Figure 6.10 are not evenly distributed. All wells drilled between 1,000m
and 3,000m, during 2002-2003 lie above the regression line. They were drilled in the
Cooper/Eromanga and Perth Basins. All other wells, except one, lie near or below
the regression line. I used a Spearman’s Rho correlation for non-parametric data
(i.e. not a normal distribution) to correlate drilling year to Drilling Cost, finding a
correlation of 0.27. This result indicates only a weak relationship between drilling
year and Drilling Cost.
Figure 6.11 shows the same wells plotted in Figure 6.9 and Figure 6.10, but wells are
distinguished by drilling period - either 1996-1999 or 2000-2004. Regression analysis
suggests no discernable difference between the two drilling periods down to 2,000m.
The divergence of the two regression lines at Drilled Intervals greater than 2,000m
may not be significant as the 2000-2004 period contains more technically complex
horizontal or deviated wells. Thus there is unlikely to be significant differences in
Drilling Cost between the two drilling periods.

3.0
2000-2004
2000-2004
1996-1999 y = 0.0530e1.1814x
2.5 Expon. (2000-2004) R2 = 0.81
Expon. (1996-1999) 48 wells
2.0
1.5
1996-1999
1.0 y = 0.1232e0.701x
R2 = 0.79
18 wells
0.5
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.11 – Drilling Cost versus Drilled Interval by drilling period.
35
Perth Basin All wells
0.49x
Cooper Basin y = 4.6046e
30 Otway Basin 2
R = 0.52
Surat/Bowen Conventional 66 wells
Drilling Days (spud to TD).
25 Expon. (All wells)

Expon. (Technical Limit)
20
15
10 2004 Technical Limit

0.767x
y = 1.342e
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.12 – Drilling Days versus Drilled Interval by basin.

6.4.3.4 Drilling Days
Drilling time is a key measure of technical performance in the petroleum industry.

Figure 6.12 presents the same well data as plotted in Figures 6.9 to 6.11. It is, in
part, a subset of the data presented in Figure 6.1. However, unlike Figure 6.1, it
also includes 25 CSG wells with corrected well times. The 2004 Technical Limit line
from Figure 6.1 is also plotted on Figure 6.12, defining the lower limit for Drilling
Days as a function of Drilled Interval.
The coefficient of determination (R2) between Drilling Days and Drilled Interval for
the 66 wells in Figure 6.12 is 0.52. This indicates a substantial relationship between
the variables. The relationship is stronger than that shown in Figure 6.1 for the
larger data set (R2 = 0.42 to 0.44) and only slightly higher than the R2 of 0.47
between Well Days (spud to rig release) and Drilled Interval for all 82 wells plotted in
Figure 6.5. Drilling Cost exhibits a stronger relationship with Drilled Interval (R2 =
0.78, Figure 6.10) than does Drilling Days with Drilled Interval (R2 = 0.52, Figure
6.12). Figure 12 shows substantially more variability in Drilling Days for CSG wells
than for conventional oil or gas wells.
Figure 6.13 compares number of Drilling Days between two periods 1996-1999 and
2000-2004 for the same data set presented in Figures 6.9 to 6.12. There are
similarities between Figures 6.13 and Figure 6.11 showing Drilling Cost as a function
of Drilled Interval. Regression lines for the two periods are very close in both
figures. There appears to be little change in expected drilling time or Drilling Cost
from 1996-1999 to 2000-2004.
To confirm the regression results I use a Spearman’s Rho correlation for non-
parametric data to correlate Drilling Cost to drilling year. The correlation is rs = 0.27
(R2 = 0.07), which indicates a negligible relationship between Drilling Cost and the
year that the well was drilled. The Spearman’s Rho correlation between drilling time
and drilling year is rs = 0.17. Thus, the vast majority of the variance in Drilling Cost
and drilling time to a given depth can be attributed to factors other than the year in
which the well was drilled. Over the longer term, however, as Figure 6.1 shows,
drilling times have decreased, particularly at depths below 2,000m, while Drilling
Costs have increased.

35
2000-2004 2000-2004
1996-1999 y = 4.531e0.511x
30 R2 = 0.52
Expon. (2000-2004)
48 wells
Expon. (1996-1999)
Drilling Days (spud to TD).
25
20 1996-1999
y = 4.9111e0.4373x
R2 = 0.5249
15
18 wells
10
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.13 – Drilling Days by drilling period.

6.4.4 Completion Costs
I define completion period as the time from well TD to rig release. Completion Costs
are all costs incurred during the completion period. Petroleum wells may be
completed as injector wells, cased and suspended for oil or gas production,
suspended pending later completion or plugged and abandoned. Completion Costs
are influenced by –
a) Type of completion.
b) Rig Rate and other Daily Costs.
c) Fixed costs, such as length of tubulars, cement, well head etc.
d) Completion time.
e) Non productive time (NPT).
For valid correlations between Completion Cost and Drilled Interval, a range of
reservoir depths from a number of drilling regions need to be incorporated in the
analysis.
An oil or gas discovery invariably leads to a longer completion phase than a P&A
completion. Additional time based charges are incurred. Depth related fixed costs
increase to cover casing and production tubing. If it is a new field development,
testing may be required. We would expect therefore, that oil or gas completions
exhibit more variability in costs than P&A completions. This can be seen in Figure
6.14 which shows the Total Well Costs for the same 82 wells plotted in Figure 6.2 for
Total Well Cost as a function of Drilled Interval. Wells in Figure 6.14 are separated
into two groups – ‘P&A completions’ and ‘oil or gas completions’.
Figure 6.14 shows –

a) Two regression lines for well costs as a function of Drilled Interval. The blue
line represents wells that are plugged and abandoned (P&A) and the red line
represents wells with an oil or gas completion. The separation between the two
lines is the incremental cost for completing an oil or gas discovery well over a
well that is plugged and abandoned.
b) The correlation between and Well Cost and Drilled Interval is higher for P&A
completions (R2 = 0.88) than it is for oil or gas completions (R2 = 0.66).
c) Well costs vary more for oil or gas completions than P&A completions.

5.0
P&A wells Oil or Gas
4.5
y = 0.1714e0.911x
Oil & Gas wells
R2 = 0.66
4.0
49 wells
3.5
3.0
2.5 P&A
y = 0.1113e0.982x
2.0 R2 = 0.88
33 wells
1.5
1.0
0.5
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.14 – Total Well Cost by completion type, 1996-2004.
6.4.4.1 Well cost by completion type
The separation between the two regression lines in Figure 6.14 increases with depth.
Table 6.2 shows that at a depth of one kilometre the difference between a P&A
completion and an oil or gas completion is A$129,091. At a depth of three
kilometres, the incremental cost for an oil or gas discovery is A$517,950. The
incremental cost to case and suspend a well for oil or gas production approximately
doubles with each 1,000m increase in depth.
Table 6.2 – Total Well Cost by completion type
Depth P&A Oil or Gas Difference
500m 181,859 270,291 88,412
1,000m 297,148 426,239 129,091
2,000m 793,322 1,059,974 266,652
3,000m 2,118,003 2,6635,953 517,950

6.4.4.2 Completion time
Figure 6.15 shows a scatter plot of completion days from well TD to rig release as a
function of Drilled Interval for 47 wells drilled between 2000 and 2004. Wells are
differentiated by type of completion. The Fairview CSG development wells, from the
Bowen Basin, show sufficient difference compared to other oil or gas completions to
warrant separate analysis. ‘Hovea 10’, a water injection well sidetracked from a
depth of 1,005 metres below the Rotary Table, is plotted for reference, but was not
included in the regression analysis. The bulk of the wells with oil or gas completions
were drilled between 2000 and 2004.
22
Fairview CSG Development P&A
20 y = 0.3026e4.5193x
CSG discovery - Hunt 2 rig
R2 = 0.33 Oil or Gas Discovery
18 7 wells
16
Completion Days
14
Oil or Gas
12
y = 2.2606e0.4812x
10 Hovea 10 R2 = 0.50
23 wells
8
2 y = 3.5568e-0.0002x
P&A 17 wells
R2 = 1E-07
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.15 – Completion times, 2000-2004.
In Figure 6.15, the correlation between Completion Days and Drilled interval is -
x Nil for P&A wells.
x Moderate (R2 = 0.33, r = 0.57) for Fairview CSG development wells.
x Moderate to high (R2 = 0.50, r = 0.71) for other oil or gas development wells,
although the data is not normally distributed.
Completion Days show clustering and substantial scatter.

6.4.4.3 Completion Cost
Figure 6.16 presents Completion Costs for the same 47 onshore wells as in Figure
6.15. There is a high correlation between Completion Cost and Drilled Interval for
P&A wells (R2 = 0.73, r = 0.85), although, there is no correlation between Completion
Days and Drilled Interval for the same data set. This paradox can be explained by a
combination of increasing Daily Costs with increasing Drilled Interval, and differences
in Daily Costs between basins. The shallow section (zero to 1,000m) is represented
predominantly by small truck mounted CSG rigs from the Surat/Bowen Basins. Wells
at intermediate depths are represented by Cooper/Eromanga Basin and Otway Basin
wells, while the deeper wells were drilled within the Perth Basin. Figure 6.18 shows
the differences in Daily Costs between basins.
CSG discovery - Hunt 2 rig

1.0 Hovea 10 Cooper Basin- Oil or Gas
Otway Basin- Gas- Gas

Oil or Gas
Completion Cost (A$ million).
Fairview CSG Development 1.312x Perth Basin- Oil or Gas

0.8 y = 0.0217e
3.9769x
y = 0.0163e 2
R = 0.82
2
Surat/Bowen Basin Gas
R = 0.34
23 wells
7 wells Cooper Basin P&A
0.6 Otway P&A
Perth P&A
Surat/Bowen Basin P&A

0.4
0.2 P&A wells

0.7905x
y = 0.0239e
2
R = 0.73
17 wells
0.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.16 – Completion Costs, 2000-2004.
Collectively, oil or gas completions from the four basins studied show a very high
correlation (R2 = 0.82, r = 0.91) between Completion Cost and Drilled Interval.
Drilled Interval is a better predictor of Completion Cost than Completion Days.
However, there are regional anomalies and correlations need to be treated with
caution. Completion Cost estimates from the regression analysis of Fairview CSG

wells (1999 to 2002) range from A$100,000 to A$640,000 over a small range of Drilled
Intervals. The regression analysis suggests that 34% of the variation in Fairview CSG
Completion Costs can be attributed to changes in Drilled Interval. However, AFEs for
two of Origin’s CSG wells, both drilled to 1,550m in the Bowen Basin, 2001, estimate
only a A$85,000 increase in costs to ‘Case and Suspend’ the wells (Brekkie Creek-1
and Maid of Auckland-1). The higher Fairview CSG Completion Costs appear to be
anomalous and largely unrelated to changes in well depth.
The regression analysis estimates for Perth Basin oil or gas Completion Costs range
from A$340,000 to A$1,000,000 between Drilled Intervals of 2,100m to 2,900m.
These are in broad agreement with AFE estimates for supplemental Completion Costs
for oil or gas completions in the Perth Basin, which range from A$219,000 to
A$1,075,000 (4 wells, 2001 to 2004). However, correlation between AFE well
Completion Cost estimates and Drilled Interval is very weak.
Table 6.3 – Completion Costs
Depth P&A Oil or Gas Difference Table 6.2
500m 35,486 41,817 6,331 88,412
1,000m 52,688 80,585 27,897 129,091
2,000m 116,150 299,260 183,110 266,652
3,000m 256,051 1,111,329 855,278 517,950
Table 6.3 shows estimates of Completion Costs from the regression analysis in Figure
6.16. Completion Costs can be seen to increase exponentially with increasing depth.
The difference in cost between P&A completions and oil or gas completions increases
exponentially with depth. A comparison of incremental cost for an oil or gas
completion with the results from Table 6.2 shows very substantial differences in
absolute values at both the shallow and deep ends of the range. The two methods
are in closest agreement at a depth of just over 2,000m. Fairview Development
wells, which are included in Table 6.2 but excluded from Table 6.3, substantially
increase estimates for shallow gas completions. The ‘Total Well Cost method’ of
estimating incremental costs for an oil or gas completion as shown in Figure 6.14 and
Table 6.2 may attribute some Pre-spud charges related to type of completion to the
completion phase. The ‘Phase Cost Method’ of estimating Completion Costs shown in
Figure 6.16 estimates Daily Cost, Drilling Cost and Completion Cost by averaging all

costs including production casing, well head and other production equipment over
both the drilling and completion phases. Thus, Completion Costs for oil or gas
completions will be underestimated while Drilling Costs for the same wells will be
overestimated. Both approaches have their shortcomings, but are in closest
agreement at Drilled Intervals of around 2,000m to 2,500m.
0.7
1996-1997
1998-1999
0.6
2000-2001
2002-2003
Completion Cost (A$ million).
2004 All P&A wells

0.5
0.7395x
y = 0.0271e
2
R = 0.66
26 wells
0.4
0.3
0.2
0.1
0.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 6.17 – P&A Completion Cost by year drilled, 1996-2004.
Figure 6.17 shows a scatter plot of P&A Completion Costs as a function of Drilled
Interval for wells drilled between 1996 and 2004, with wells differentiated by two-
year drilling periods. There is a significant relationship between Completion Cost
Drilled Interval (R2 = 0.66). The small data sets for each two-year period are not
adequate for statistically significant analysis of chronological differences. However,
the scatter plot shows considerable overlap of costs between drilling periods and no
obvious differences between one drilling period and another.

6.5.5 Daily Costs
Figure 6.18 shows a scatter plot of Drilling Cost as a function of Drilling Days for wells
drilled between 2000 and 2004, across four onshore regions of Australia - the Perth
Basin, Cooper/Eromanga Basins, Otway Basin and the Surat/Bowen Basins. The Daily
Cost is determined by dividing Drilling Cost by Drilling Days. A linear alignment of
data points on the scatter plot indicates a constant Daily Cost. However, over a
broad range of Drilled Intervals the relationship may not always be linear as deeper
wells require more expensive rigs and services (see Appendix C, Figure C.3). In
Figure 6.18 coefficient of determinations for regression correlations between Drilling
Days and Drilling Cost are high for each basin. Daily Cost estimates range from
A$13,400 per day for CSG truck rigs in the Surat/Bowen Basins to A$83,900 per day
for larger rigs in the Perth Basin.
2.4
Perth Basin
Perth Basin Perth Basin
2.2 y = 0.0839x
Cooper Basin 2
R = 0.75
2.0 Otway Basin
17 wells
Surat Bowen other CSG
1.8 Surat Bowen Truck
Cooper & Otway

1.6 y = 0.0528x
2
R = 0.79
1.4 25 wells
Cooper & Otway
1.2 Surat/Bowen
Basins
Other CSG
1.0
y = 0.0369x
0.8 Surat/Bowen 2
R = 0.91
Other CSG rigs 10 wells
0.6
Surat/Bowen
0.4 Truck rig
Surat/Bowen y = 0.0134x
0.2 2
Truck rigs R = 0.86
0.0 19 wells
0 5 10 15 20 25 30 35
Drilling Days
Figure 6.18 – Daily Costs for onshore basins, 1996-2004.
Higher Daily Costs correlate with longer Drilled Intervals in the Cooper/Eromanga
Basins (see Appendix C Figure C.3). However, higher Daily Costs may not result in
substantially higher well costs if they are rewarded with higher rates of drilling

penetration and shorter well durations. In the Surat/Bowen Basins where CSG wells
have been drilled with small truck mounted drilling rigs, longer drilling times are
more than compensated for by lower Daily Costs, resulting in substantially lower
Total Well Costs.
6.5 Cost models
6.5.1 Onshore Australia
For most well types, a substantial proportion of the variation in onshore well costs
can be attributed to changes in Drilled Interval. I have derived two models for Total
Well Cost based on an analysis of historical well costs, well depths and types of
completion. Cost models A and B represent Australian onshore wells drilled during
the period 1996 to 2004. The equations are derived from the regression analysis of
data in Figure 6.14.
C1 = 0.1113 × e(0.982×DI) (A) C2 = 0.1714 × e(0.911×DI) (B)
where,
C1 = Total Well Cost for P&A exploration wells in units of A$ million.
C2 = Total Well Cost for oil & gas completions in units of A$ million.
DI = Drilled Interval is total depth in units of one thousand metres
Based on equations (A) and (B), Table 6.4 shows expected costs at Drilled Intervals of
500m. The costs for P&A wells are lower, and less variable, than wells with oil or gas
completions.
More information is publicly available for final well costs than for intermediate phase
costs. Therefore, cost models derived only from final well cost should represent
more wells and have a stronger statistical basis. Accuracy can be improved with
models for specific regions and well types, as the following examples show.

Table 6.4 – Total Well Costs for onshore P&A & oil or gas wells, 1996-2004.
Total depth P&A Oil or gas
500m A$182,000 A$270,000
1,000m A$297,000 A$426,000
1,500m A$486,000 A$672,000
2,000m A$793,000 A$1,060,000
2,500m A$1,296,000 A$1,672,000
3,000m A$2,118,000 A$2,636,000
3,500m A$3,461,000 A$4,157,000

6.5.2 Cooper/Eromanga Basins
Cooper/Eromanga Basins well cost model

C = PC + DC x (DT + CT)
Where -
C = Total Well Cost.
PC = Pre-Spud Cost.
DC = Daily Costs at well site.
DT = Drilling Time.
CT = Completion Time.
Unit costs are in A$ million.
Time units are days.
Table 6.5 shows expected well times and costs for the Cooper/Eromanga Basins
based on an analysis of well data from the period 1995 to 2004. Assumptions for the
results in Table 6.5 are -
PC1 = 0.1207 × e(0.3214×DI) (reference Figure 6.19)
DC1 = 0.1859 × e(0.0772×T1) (reference Appendix C, Figure C.3)
DT1 = 1.2129 × e(0.984×DI) (reference Appendix C, Figure C.1)
CT1 = 0.707 × e(0.6845×DI) (reference Figure 6.20)

DI = Drilled Interval
T1 = Days from spud to rig release.
P&A = Plugged and abandoned, logs run and cement plugs set.
C&S = Additional cost to case and suspend well for oil or gas production. Cost
estimates are modified from Table 6.2.
‘Total’ in Table 6.5 refers to the total cost for a C&S production well.
Table 6.5 – Cooper/Eromanga Basin well cost model (A$), 1995-2004.

Depth PC1 DC1 DT1 CT1 P&A C&S Total
1,000 $0.166 $0.057 3.2 1.4 $ 433,00 $ 100,000 $ 533,000
1,500 $0.195 $0.045 5.3 2.0 $ 522,000 $ 150,000 $ 672,000
2,000 $0.230 $0.039 8.7 2.8 $ 680,000 $ 200,000 $ 880,000
2,500 $0.270 $0.042 14.2 3.9 $1,022,000 $ 300,000 $1,322,000
3,000 $0.317 $0.059 23.2 5.5 $2,025,000 $ 400,000 $2,425,000

0.6
0.5
Pre-spud cost (A$ million)

19 wells
0.4 y = 0.1207e0.3214x
R2 = 0.11
0.3
0.2
0.1
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Figure 6.19 – Cooper/Eromanga Basin Pre-Spud Costs,

1996-2002
12
P&A wells
Discovery wells
10
Expon. (All wells)
Completion Days.
8 All 87 wells
y = 0.707e0.6845x
6 R2 = 0.46
0
0 1 2 3 4
Drilled Interval (thousand metres).
Figure 6.20 – Cooper/Eromanga Basin completion time,

1995-2004

Figure 6.19 shows that Cooper/Eromanga Basins Pre-Spud Costs were highly variable
between 1996 and 2002. Variability in Pre-Spud Costs can have a significant
influence on Total Well Cost. Regression analysis indicates that only 11% of the
variability in Pre-Spud Costs was related to changes in the Drilled Interval. Other
significant influences are likely to be differences in mobilisation distances and times,
and differences in operator overheads.
Figure 6.20 shows a scatter plot of completion times for 87 Cooper/Eromanga Basin
wells drilled between 1995 and 2004. There is considerable overlap and no
significant difference in completion times for P&A completions and for oil or gas
discovery wells. This is despite the expectation that oil or gas completions should
normally take longer to complete than P&A completions. I therefore use a single
regression correlation to estimate completion times. I estimate the incremental cost
to case and suspend (C&S) the wells for an oil or gas completion from the costs in
Table 6.2. However, Figure C.2 indicates that C&S costs could be substantially
higher than the costs shown in Table 6.5. There is obviously uncertainty in these
values. Cooper/Eromanga Basins AFE estimates for the incremental cost of C&S
completions for seven wells drilled between 1998 and 2002 varied between
A$213,000 and A$600,000 over a narrow range of depths 2,350m to 3,070m.
The Cooper/Eromanga Basins well cost model is applicable for Drilled Intervals in the
range of 1,000m to 3,500m.

6.5.3 Perth Basin
I use the same cost model for the Perth Basin as for the Cooper/Eromanga Basin –
Perth Basin well cost model

C1 = PC1 + DC1 x (DT1 + CT1)
Where -
C1 = Total Well Cost.
PC1 = Pre-Spud Cost.
DC1 = Daily Costs at well site.
DT1 = Drilling Time.
CT1 = Completion Time.
Unit costs are in A$ million.
Time units are days.
Suffix ‘1’ denotes historical data
Table 6.6 shows expected well times and costs for the Perth Basin based on an
analysis of well data for the period 2001-2004. Assumptions derived from Figure 6.21
are -
PC1 = 0.561
DC1 = 0.0841
DT1 = 4.8 × e(0.49×DI)

CT1 = 6 days for P&A completion.
DI = Drilled Interval.
T1 = Days from spud to rig release.
P&A = Plugged and Abandoned, logs run and cement plugs set.
C&S = Additional cost to case and suspend well for oil or gas production. Cost
estimates modified from Table 6.2.
‘Total C&S’ in Table 6.6 refers to total cost for a C&S production well.
Table 6.6 – Perth Basin well cost model (A$), 2001-2004.

Depth PC1 DC1 DT1 CT1 P&A/C&S
1,500 $0.561 $0.084 10.0 6 $1,906,000
2,000 $0.561 $0.084 12.8 6 $2,139,000
2,500 $0.561 $0.084 16.3 6 $2,438,000
3,000 $0.561 $0.084 20.9 6 $2,819,000

All wells were drilled by one contractor, Century, using two rigs, Century 11 and
Century 24. Rig Rate to drill Eclipse-1 in 2003, using the Century 21 rig was around
A$31,000/day, so the Rig Ratio should be around 0.37 (i.e. 31,000/84,000)
Figure 6.21 shows that –

x Pre-Spud Days are independent of Drilled Interval.
x Drilling time is variable but has a moderate correlation with Drilled Interval.
Directional wells have similar drilling times to vertical wells.
x Completion days are highly variable and do not correlate with Drilled Interval.
Averaging completion time for P&A completions is 6 days. C&S completions
average an extra day or two.
x There is little difference in Daily Costs for vertical or directional wells.
1.6 35
Pre-spud Cost (A$ million)
Average Pre-spud Vertical

1.4 30
Cost $561,000 Directional
1.2 Expon. (Vertical)
25
Drilling Days.
1.0
12 wells 20
0.8 6 vertical wells
0.108x
y = 0.38e 15
0.6 y = 4.8e0.49x
R2 = 0.02
10 R2 = 0.58
0.4
0.2 5
- -
0 1 2 3 4 0 1 2 3 4
Drilled Interval (thousand metres) Drilled Interval (thousand metres)
16 4.0
P&A
Vertical
Onsite Cost (A$ million).
14 3.5
C&S
Directional
Completion Days.
12 3.0
Linear (All wells)
10 2.5
12 wells
8 2.0
y = 0.084x
6 1.5
R2 = 0.30
4 1.0
P&A average 6 days
2 0.5 Estimated Daily Cost $84,000
C&S average 7 to 8
0 -
0 1 2 3 4 0 5 10 15 20 25 30 35 40
Drilled Interval (thousand metres) Onsite Days
Figure 6.21 – Perth Basin well costs 2001-2004

The Perth Basin cost model is applicable for wells with Drilled Intervals in the range
of 2,000m to 3,500m. There is no clear difference in costs for P&A or C&S
completions. This may result from the complexity of the wells and the mixed success
rate for directionally drilled wells. Six of the twelve wells analysed were
directionally drilled and three of the four P&A wells were directionally drilled. I
therefore could not determine the incremental cost for C&S completions over P&A
from the available data. AFEs for four of the wells state an incremental costs to C&S
the wells
At 2,000m, well costs for the Perth Basin have been more than twice the well costs
for the Cooper/Eromanga Basin. The difference increases at shallower depths and
decreases at deeper depths. There are two primary causes for the cost differential.
Since 2000, Daily Costs have been 40% to 100% higher in the Perth Basin. At depths
less than 1,500m, drilling times in the Perth Basin have been more than double that
in the Cooper/Eromanga Basin. Perth Basin drilling times increase with depth at a
slower rate than in the Cooper/Eromanga Basins so that by 3,000m drilling times are
similar in both basins.
6.5.4 CSG wells
Before 2000, Surat, Bowen and Sydney Basins CSG wells were usually drilled, with
small conventional oil & gas rigs. Since 2000, the majority of CSG wells have been
drilled with modified water drilling rigs, or mineral rigs, mounted on the back of
trucks. Appendix B presents my analyses of CSG well costs for the period 2000 to
2004.
A different approach needs to be taken for estimating CSG well costs drilled with
truck rigs over conventional oil or gas wells. Truck rigs have varying maximum depth
capabilities but mostly less 900m. CSG operating hours vary between 12 and 24 hours
per day. Consequently, CSG drilling rigs are contracted on an hourly rate rather than
a day rate and cost analyses based on the number of CSG well days are inaccurate.
CSG Drilling contracts are usually either on a turnkey basis or cost per metre.
Typically substantial sections of exploration P&A bore-holes are continuously cored,
whereas development wells are not cored. Thus, although development wells
include additional fixed costs such as production casing and tubing, the average

development well costs less than an exploration well. Figure 6.22 shows Total Well
Costs for 8 P&A exploration wells and 8 development wells drilled between 2000 and
2004 by OCA in the Surat Basin.
250
CSG P&A
225
CSG development
Total Cost (A$ thousand).
200
Expon. (CSG P&A)
175 Expon. (CSG development)
150 8 P&A wells
125 y = 80.417e1.1088x
R2 = 0.43
100
75
8 development wells
50
y = 54.878e1.1273x
25 R2 = 0.39
-
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Figure 6.22 – Surat Basin CSG well costs, 2000-2004.
From the regression analysis shown in Figure 6.22, I propose two cost models for
Surat Basin CSG wells drilled with truck rigs during the period 2000 to 2004.
C1 = 80.417 × e(1.1088×DI) (C) C2 = 54.878 × e(1.1273×DI) (D)

where,
C1 = Total Well Cost for P&A exploration wells in units of A$ thousand.
C2 = Total Well Cost for development wells in units of A$ thousand.

DI = Drilled Interval is total depth in units of one thousand metres
Table 6.7 shows the expected costs at Drilled Intervals of 200m for the period 2000
to 2004. Costs are applicable for Drilled Intervals of between 200m and 1,000m.
Costs for P&A wells are influenced by the length of cored interval.

x The mean ‘cost per metre’ for all wells was A$143 (P10 = A$89, P90 = A$211).
x Daily Costs for all wells averaged A$13,400 per day.
x Rig Rates ranged from A$180 to A200 per hour.
x The mean cored interval for P&A wells was 183 metres. CSG development
wells were not cored.
Table 6.7 – CSG truck well costs 2000-2004
Depth (m) Exploration P&A Development
200 A$100,000 A$69,000
400 A$125,000 A$86,000
600 A$156,000 A$108,000
800 A$195,000 A$135,000
1,000 A$244,000 A$169,000
Narrow well bores may be cheaper to drill using truck rigs. However, as QLD Gas
found with their Berwyndale South CSG field development, income per well can be
substantially less for a narrow bore than a full size bore, for two reasons. Firstly, it
takes longer to dewater a CSG field using narrow bore wells, unless substantially
more wells are employed. Secondly, gas production rates are lower with narrow well
bores unless productions rates are restricted in the larger bore-hole. Consequently,
while CSG exploration wells are drilled with half the bore-hole diameter of
conventional wells, CSG development wells are drilled with well-bore diameters
closer to that of conventional gas developments.

6.6 Indexing
6.6.1 Rig Rate
Table 6.8 compares Rig Rates and Daily Costs for wells operated by two exploration
companies, Santos and Tri-Star. The Santos wells were drilled within the
Cooper/Eromanga and Otway basins with conventional drilling rigs. The Tri-Star
wells were part of the Fairview CSG development in the Bowen Basin using the Hunt-
2 drilling rig. All wells were drilled within the six year period of 1997 to 2002.
In Table 6.8, ‘SD/Mean’ is the ‘Standard deviation divided by the Mean’. SD/Mean
indicates the degree of deviation of data from the mean. P90 is a percentile value
meaning that ninety percent of wells have values less than or equal to the P90 value.
The average drilling depth was 692m for the Tri-Star wells and 2,641m for the Santos
wells. Although the drilling operations conducted by the two companies differ in
many ways, their cost structures show some similarities.
Table 6.8 – Rig Rates (A$) and Daily Costs (A$) for Santos and Tri-Star operations.
Rig Rate Rig Ratio Daily Cost
Operator Tri-Star Santos Tri-Star Santos Tri-Star Santos
Period 1999-2002 1997-2001 1999-2002 1997-2001 1999-2002 1997-2001
Wells = 7 8 7 8 7 8
Mean = $ 11,083 $ 19,456 0.31 0.34 $ 36,834 $ 58,878
Median = $ 11,004 $ 18,650 0.32 0.34 $ 34,621 $ 56,828
Stan Dev = $ 600 $ 2,139 0.04 0.06 $ 6,533 $ 8,906
SD/Mean = 5.4% 11.0% 17.7% 15.1%
P10 = $ 10,464 $ 18,268 0.26 0.26 $ 31,911 $ 50,303
P50 = $ 11,004 $ 18,650 0.32 0.34 $ 34,621 $ 56,828
P90 = $ 11,688 $ 21,431 0.34 0.39 $ 45,307 $ 70,661
Table 6.8 shows –

a) Rig Rates and Daily Costs for the Tri-Star CSG wells are 57% and 64% respectively
of the costs for Santos’ wells.
b) The Rig Ratio (Rig Rate/Daily Costs) for Santos wells is slightly higher than for
Tri-Star wells (0.34 versus 0.31).

c) Rig Rates for both operators are remarkably uniform and exhibit less variability
than Daily Costs.
6.6.2 Rig Ratio
The Rig Ratio is the Rig Rate divided by Daily Costs. Rig Rates and Daily Costs will
differ from one drilling operation to another. If the Rig Ratio is consistent for a
group of wells, and therefore predictable, then the Rig Ratio can be used in
conjunction with a known Rig Rate to estimate an unknown Daily Cost. For example,
from the Santos data in Table 6.8, dividing the mean Rig Rate (A$19,456) by the Rig
Ratio (0.337), gives an ‘estimated’ Daily Cost of A$57,773. This estimate is within 2%
of the statistical mean Daily Cost for the data (A$58,878). Similarly, for the Tri-Star
CSG wells the ‘estimated’ Daily Cost is A$36,183, which is within 2% of the statistical
mean Daily Cost of A$36,834 for this set of data. A range of likely Daily costs can be
estimated from the results of the analysis in Table 6.3, by using the ‘SD/Mean’ ratio
and the ‘P10’ and ‘P90’ values for Rig Ratio.
Figure 6.23 shows the Daily Cost as a function of Rig Rate for 17 wells from three
basins. The Daily Costs are for the drilling and completion phases of the well. If we
invert the function in Figure 6.23 we get the Rig Ratio. All Rig Rates fall between
25% and 40% of Daily Costs, with a regression estimate of 32%. The coefficient of
determination (R2) indicates that 62% of the variability in Daily Costs can be
attributed to changes in the Rig Rate. Table 6.8 shows that Daily Costs vary more
than the Rig Rate. Oil or gas completions have more fixed costs so average Daily
Costs should be higher and the Rig Ratio lower than wells that are plugged and
abandoned.
There may be regional differences in the Rig Ratio. Figure 6.23 shows that in the
Bowen Basin and Otway Basin, the Rig Ratio tends to be lower, while
Cooper/Eromanga Basin wells tend to have a higher Rig Ratio. The one Cooper Basin
well lying on the 0.25 line is a horizontal development well, Ponderine-15.
Differences in Rig Ratios may result from different rigs and Rig Rates, and differences
in well construction methods (for example, air drilling in the Bowen Basin).

100
90 Predicted cost
Rig Ratio y 2= 3.12x
80 R = 0.62
0.32
17 wells
Daily Cost (A$ thousand).
Rig Ratio 0.25
70
y = 4x
60
50 Rig Ratio 0.40

y = 2.5x
40
Cooper Basin
Otway Basin
30
Bowen Basin
20 Linear (25%)
Linear (40%)
10 Linear (All wells)
0
0 5 10 15 20 25 30
Rig Rate (A$ thousand)
Figure 6.23 - Rig Ratio for onshore wells.
6.6.3 Indexing Daily Costs
The regression equation in Figure 6.23 can be used to estimate a Daily Cost from a
new Rig Rate in the range of $10,000/day to $25,000/day. If all components of Daily
Costs were to change in the same proportion, then an alternative approach would be
to use the Rig Ratios in Table 6.8 and Figure 6.23, to estimate Daily Costs for new
wells from Rig Rates using the equation proposed in the Method section 5.5.8.
If the Rig Rate increases at a different rate to non-rig well costs then the Rig Ratio
will also change. A new Rig Ratio can be estimated using the procedures presented
in Method section 5.6.3 and Table 5.4. The range of possible Rig Ratio outcomes can
be easily defined mathematically. Method section 5.6.4.1 shows how to calculate
the maximum possible Rig Ratio for any increase in the Rig Rate. Rig Ratios are
useful for quickly estimating a range of possible Daily Cost outcomes when there isn’t
sufficient data or time for a statistical analysis.

6.6.3.1 Indexing Cooper/Eromanga Basins well costs
My analysis of Santos Cooper/Eromanga Basins wells for 1997 to 2001 shows Rig Rates
averaged around A$19,000 for that period, with 90% of outcomes falling within a
range of only A$3,000. This was a very stable period for Rig Rates. In 2004, Great
Artesian’s management reported Rig Rates for their Cooper/Eromanga Basin wells to
be A$30,000 to A$32,000 per day plus consumables. This increase in Rig Rates over
previous years reflects increased demand for drilling rigs within the
Cooper/Eromanga Basin. This was because a number of new operators entered the
market with substantial drilling programmes.
In 2005, oil prices increased substantially and crew working hours were reduced, thus
requiring more staff to man the rigs. This resulted in higher operating costs. By
2006 there was a considerable range in the Rig Rates on offer. Rig Rates for Great
Artesian’s Cooper/Eromanga Basin wells ranged from A$25,000 to A$40,000 per day
in the first half of 2006, constituting up to 40% of Great Artesian’s Daily Costs.
Table 6.9 – Daily Cost estimates for Cooper/Eromanga Basins wells

Year Rig Rate Rig Ratio Daily Cost Increase***
1997-2001 A$19,500 0.34 A$ 58,900 0%
2004 A$31,000 0.36* A$ 86,100** 46%**
2005 A$25,000 0.34* A$ 74,184** 26%**
2005 A$40,000 0.40 A$100,000** 79%**
Future? A$50,000* 0.40* A$125,000** 112%**
* Assumption
** Estimate
*** Increase in Daily Cost with reference to 1997-2001
Table 6.9 shows estimates for Daily Costs for the Cooper/Eromanga Basins based on
my analysis of historical data for the period 1997 to 2001, on recent Rig Rates
provided by Great Artesian and others, and on my estimates for the Rig Ratio. I also
assume that the Rig Rate has increased at a faster rate than non-rig costs so the Rig
Ratio has also increased.
In late 2005, one small operating company reported that rig contractors quoted up to
A$50,000 per day to drill one well in the Cooper/Eromanga Basin. Market resistance

to these higher rates may have been the reason for Santos to drop two Century rigs
from their portfolio of rig contracts. These rigs have been replaced with three rigs
imported from Canada by Precision Drilling International (PDI) during the first half of
2006 on five year contracts. The modular design rigs feature automated levelling,
top drive and pipe handling. The PDI rigs are highly automated and are operated by
only two men using low cost artificial lift systems.
By July 2006, Santos’ PDI rigs had drilled 32 wells on the Mulberry oil field in ATP-
299-P South-West Queensland with 27 cased and suspended for production. Well
depths average 1,350m. Well times averaged six days from spud to spud, comprising
8 hours to move the rig, 3 to 4 days to drill, and two days to complete including logs
and casing. No DSTs are conducted. The average well cost has been around
A$800,000 cased and completed (Kelso, 2006). Santos’ move to adopt the new PDI
drilling technology should help to stabilise Rig Rates in the Cooper/Eromanga Basins.
Rising daily costs have been offset by improved operating efficiencies, reducing
drilling times, particularly at deeper depths. Thus, indexing needs to consider
changes in well times as well as costs. The Cooper/Eromanga Basins well cost model
is most accurate at depths around 2,000m. Indexing the model to costs but not times
may lead to inaccuracies in cost predictions for some depths. For example cost
estimates for deep wells may be overestimated if the model is indexed to shallower
costs and continued reductions in drilling times at deeper depths are not also
indexed.
6.6.3.2 Perth Basin
Over the past decade Daily Costs have been higher in the Perth Basin than the
Cooper/Eromanga Basins. However, Eric Streitberg, the managing director of Arc
Energy, which is currently the main drilling operator in the Perth Basin, commented
at an investor presentation in Sydney (August, 2006) that Arc have just contracted
another Century rig to drill in the Perth and Canning Basins next year (2007) on a day
rate lower than the previous year (2005). Perth has become a hub for the Australian
petroleum industry and larger drilling programs are being conducted in the Perth
Basin. These factors may be causing well costs within the Perth Basin to become
more competitive with more traditional exploration regions of Australia such as the
Cooper/Eromanga Basins.

6.6.3.3 Current costs for Surat Basin CSG wells
In 2003, hourly rates for truck rigs ranged between A$180 and A$200 per hour. By
2006, hourly rates for the same CSG truck rigs had increased to between A$250 and
A$350 per hour (personal communiqué, May 2006, with Peter O’Neill, operations
manager Bow Energy, formerly with OCA). This is an increase in hourly rates of 58%
(from A$190 to A$300). Typical coring costs for CSG wells are now in the order of
A$100/metre (2006).
My analysis of CSG wells from 2000-2004, estimates a 400m development well cost of
A$86,000. By 2005, Arrow estimated their CSG development well costs for wells
drilled to between 200m and 400m to be A$135,000 (Day et al. 2006). This is an
increase of 57%, the same as the rig hourly rate. CSG Rig Rates thus appear to be a
good method to index well costs.
There are CSG well costs not considered in my analysis so far. Pumping equipment
adds another A$90,000 to development well costs. A surface gathering system and
water disposal on a per well basis averages A$150,000 per well for a total
development cost of A$375,000 (Day et al. 2006)
A civil engineering rig from Ancon Drilling is now being contracted to drill CSG wells
in the Surat Basin at a day rate of around A$8,000 (2006). This is substantially higher
than contemporary truck rigs. However, the Ancon rig recycles its mud and captures
all of its cuttings. These features are advantageous for environmentally sensitive
exploration regions.
Tight CSG reservoirs are often fractured to enhance flow rates. In the past, CSG
reservoir fracturing was done with foam. However, a foam fracture is expensive. In
the Sydney Basin a foam/N2 fracture costs around A$300,000 per well while a water
fracture cost is around A$100,000 per well (Sydney Gas, 2006 costs). In the Surat
Basin, there is usually no need to fracture CSG reservoirs. In the Bowen Basin, well
fractures are now carried out with water at a cost of A$150,000 to A$250,000 per
well (personal communiqué, May 2006, with Peter O’Neill, Bow Energy).
From 2000 to the middle of 2006, Queensland Gas Company’s (‘QGC’) drilled over
100 CSG wells. Steven Scott, Exploration and Technical Manager for QGC, told me in

July 2006, that QGC have halved the time to drill and complete their CSG wells. QGC
are currently (mid 2006) developing the Berwyndale South CSG field in the north
eastern Surat Basin. Wells are drilled to around 700 metres for an average
development well cost of A$500,000 including pumps. It takes 5 to 6 days to drill and
complete the wells, of which drilling time is about 36 hours. A small truck rig drills
the surface bore-hole conductor and a small conventional rig drills the main hole and
partly completes the well. A work-over rig installs the pump. Drilling is done with a
compressed air or a water mist, to reduce mud induced formation damage that can
substantially reduce production. The advantage of a larger rig is that a larger well
bore can be drilled. A larger bore-hole enables faster dewatering and higher gas
flow rates.
6.7 Discussion – Onshore wells
6.7.1 Drilling time
For onshore wells drilling times, and variability in drilling times, are primarily
functions of well depth. During the early 1990s there were substantial reductions in
average drilling times for Drilled Intervals greater than 2,000 m. Coincidently,
drilling times became less variable and therefore more predictable. These
performance improvements followed the widespread adoption of PDC drill bit
technology and improved rig hydraulics. Reductions in drilling times at shallower
depths have been less significant.
6.7.2 Correlations
Total Well Cost and Drilling Cost are strongly correlated with Drilled Interval.
Moderate to high correlations exist between Drilled Interval and Well Time (from
spud to rig release) and Drilling Time. Moderate correlations exist between Pre-Spud
Costs or Completion Costs and Drilled Interval when wells are analysed from a range
of basins across Australia, but correlations breakdown at the local regional level
where wells are drilled over a narrow range of depths.
Overall, the Drilled Interval is a better predictor of well costs than it is of well times.
This is consistent with the fact that well contractors are employed based on their
efficiency and cost, and not necessarily on how quickly they can complete their job.
The implication is that cost data should be used in preference to time data for cost
modelling if adequate costs are available for analysis.

6.7.3 Technical Limit
Woodside introduced the concept of a Technical Limit to describe minimum drilling

time as a function of well depth for offshore wells on the North West Shelf (Bond et
al., 1996). My analysis of drilling times for the period 1980 to 2005 shows that a
clearly defined Technical Limit also exists for Australian onshore exploration wells.
Wells have been drilled to the current Technical Limit from as early as 1985 to1989,
for depths of less than 2,000 m. Only recently do some deeper wells approach the
current Technical Limit.
As depth increases, the dispersion of well times increases and fewer wells are drilled
close to the current Technical Limit. This suggests that there is still considerable
room for improvement in drilling performance at deeper depths.
6.7.4 Well Completion
Completion Costs are a combination of time-based costs and fixed costs. The type of
well completion has an important influence on well cost. Completion Costs increase
with increases in well depth, Rig Rates, and the complexity of the completion (e.g.
horizontal completions are more complex).
There is considerable variability from one well to another in the additional cost to
C&S a well for an oil or gas completion over a P&A completion. I could not
satisfactorily explain this variability from the data available to me or from the
statistical methods I employed.
6.7.5 Uncertainty
As is typical with exponential relationships, there is more relative scatter as the

gradient of the exponential curve increases. In principle, the deeper the well the
more uncertainty there is in well times and costs. If the exponential curve can be
flattened through an overall reduction in costs for deeper wells, the range of possible
cost outcomes should be also be reduced. In other words, decreasing the average
cost of deeper wells should also increase the probability of achieving that cost.
Innovative drilling operators try to reduce the cost of their overall drilling
programme by fast tracking the application of lessons learned from their first few
wells, even if that means spending more time and cost planning their first wells.

Drilling operators should select the most efficient available drilling rig and
contractors for each well with reservoir depth and rig cost being the primary rig
selection criteria. However, it is unlikely that this always occurs. Consequently
some variability in well costs is due to rig inefficiencies.
6.7.6 Time or cost?
In recent years, Oil Company of Australia (OCA) and other operators have been
drilling CSG wells in the Surat/Bowen basins with small truck mounted drilling rigs.
These rigs may take longer to drill and complete a well than with traditional drilling
rigs. However, truck mounted drilling rigs have substantially lower daily operating
costs. Consequently, individual well costs are substantially lower using truck
mounted rigs. Drilling time is therefore not an accurate indicator of CSG drilling
performance. Cooper/Eromanga Basin and Otway Basin wells, on the other hand,
show comparable correlations between either Drilling Time or Drilling Cost with
Drilled Interval. In practice, substantially more historical time data is likely to be
available than for cost data, and both time and cost data will need to be analysed.
6.7.7 Regional well costs
Regression analyses indicate that 88% of the overall variability in Total Well Costs for
onshore exploration wells with P&A completions can be attributed to changes in the
Drilled Interval. Figure 6.24 compares the P&A Well Cost models for the
Cooper/Eromanga Basins, the Perth Basin and the Surat/Bowen Basin CSG wells
presented in Tables 6.5, 6.6 and 6.7 respectively. Well costs in the Perth Basin have
been substantially higher than in the Cooper/Eromanga Basin. This differential is
caused by higher operating costs in the Perth Basin, slower drilling times at shallow
and intermediate depths and the drilling of technically more complex directional and
deviated wells. Arc Energy, the main drilling operator in the Perth Basin, has
indicated that it expects operating costs for the next year (2007) to be similar or
lower than 2005 (Streitberg, 2006) so the cost differential with the Cooper/Eromanga
Basin may be reducing.

3.0
Cooper Basin
Perth Basin
Perth Basin 2001-2004
2.5
CSG truck rig y = 1.2789e0.261x
Expon. (Perth Basin)
P&A Well Cost (A$ million) .
2.0 Expon. (Cooper Basin)

Expon. (CSG truck rig)
1.5
Cooper/Eromanga Basins
1995-2004
0.7514x
y = 0.1769e
1.0
CSG truck wells

0.5 2000-2004
1.1143x
y = 0.08e
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Figure 6.24 - Basin models for onshore well costs
Recent large scale oil and gas fields are being developed with consistent and
predicable unit well costs. In the first half of 2006 Santos drilled and completed over
30 wells to 1,350m on the Mulberry oil field in the Cooper/Eromanga Basin for around
A$800,000 per well. In late 2005 Arrow were drilling and casing a similar number of
shallow (200m to 400m) development wells on the Kogan North CSG field in the Surat
Basin for A$135,000 per well. However, there are substantial additional costs to
bring the CSG wells to production including pumping equipment (A$90,000) and
surface equipment (A$150,000). Drilling operators vary in their policy as to what
Pre-Spud Costs they charge to the well. The same may be true of Completion Costs
to bring a well on-stream.

6.7.8 Indexing well costs
In the context of historical patterns of petroleum exploration in Australia, my

analysis shows that 1996 to 2004 was a period of relative stability for Australian
onshore well costs. Long term increases in daily Drilling Costs are negated, to some
extent, by modest reductions in drilling times. Historical drilling time data
presented in this study should stay relevant for predicting future well times until
some substantial innovation is introduced to reduce future drilling times.
Historical well costs will need to be indexed if they are to be used to predict future
well costs. Inflation has a far smaller influence on well costs than industry factors
such as the expected future price of oil. In 2004 oil prices began to rise. Within one
year, exploration activity began to increase, resulting in a shortage of drilling rigs
and a rise in Drilling Costs. The drilling rig is the highest single well cost item. In a
tight market, contracts for drilling rigs are entered into many months, or even years,
in advance. My analysis of rig costs for the Cooper/Eromanga Basin and the Bowen
Basin indicates that ratios of rig cost to Total Well Cost lie within a narrow band.
This ratio can be used in conjunction with knowledge of future Rig Rates to index
historical well costs or to index Daily Costs.

Chapter 7 Offshore wells
7.1 Introduction
My analysis of offshore wells has similar objectives and addresses similar issues to
those listed in the previous chapter for onshore wells. I analyse drilling times for
Australian offshore wells spudded between 1980 and 2004, and costs for wells
spudded between 1998 and 2004. In addition, I look at the influence of water depth
on well costs. I also examine offshore Rig Rates and their influence on well costs.
I sourced well times and costs from government databases and over 200 recent well
completion reports (WCRs) for wells drilled within the Carnarvon Basin, Timor Sea
and offshore Victoria, supplemented by WCRs for the Perth Basin and offshore South
Australia.
This chapter on offshore wells is presented in the following sequence –
1. A brief History of offshore drilling in Australia.

2. Technical Performance. I study offshore drilling times for the period 1980 to
2005. Well costs, Pre-Spud and Completion times and costs are reviewed for the
period 1997 to 2004.
3. Offshore Construction costs. I determine the main well construction cost
categories and then examine costs for three well phases, Pre-Spud, Drilling and
Completion, for four regions, Carnarvon Basin, Timor Sea, Victorian Basins and
the Deepwater from 1997 to 2004. I then look for regional variations in Daily
Costs.
4. Rig Rate. I examine the relationship between Rig Rate and Daily Costs, and
variations in the Rig Rate.
5. Discussion

7.2 History of offshore drilling
The move from onshore to offshore petroleum exploration had to wait for advances
to be made in both seismic and drilling technology. Seismic surveys are a necessary
precursor to offshore drilling. Seismic data enables subsurface structures and strata
to be mapped and drilling objectives to be defined. Frome Broken Hill contracted
Geophysical Services International to conduct Australia’s first offshore seismic
survey, an unsophisticated gas gun survey in the Otway Basin, offshore Warrnambool
in 1959.
Woodside (Lakes Entrance) Oil took out Australia’s first offshore licence in the
Gippsland Basin in 1959. However, it was Haematite Explorations Pty Ltd who
contracted Western Geophysical to conduct the first seismic survey in the Gippsland
Basin in 1962-1963. Using state of the art methods, this survey enabled Australia’s
first offshore drilling prospects to be mapped. A joint venture between Esso and
BHP, drilled Australia’s first offshore well in the Gippsland Basin in 1964 using the
drillship Glomar III. That well, Barracouta-1, spudded on 24th December 1964. Two
months later, gas flowed from the well, but it was to be over five months before the
rig was release on 5th June 1965. Two years later in 1967, giant oil fields were
discovered with the same rig on the Kingfish and Halibut structures. A series of
smaller oil or gas discoveries followed for the Esso BHP joint venture in the late
1960s and late 1970s, at Bream, Perch, Dolphin, Mackerel, Tuna, Snapper, Flounder,
Cobia, Fortescue, Cobia, Fortescue, and Seahorse (Wilkinson, 1988). Operators in
Bass Strait had to be innovative to cope with the extreme weather conditions they
encountered.
Meanwhile, explorers were also testing the waters on the North West Shelf.
Woodside was granted Western Australia’s first offshore licence in 1963, but their
first well, Ashmore Reef-1, was not drilled until 1967. The well took five months to
drill using a converted barge. It was dry, but their next well, Legendre-1 (1968),
found non-commercial oil in 42 metres of water with the drill ship Glomar Tasman.
In 1971, the large Scott Reef gas/condensate discovery was made. Despite its size it
was, and still is, non-commercial because of its remote location. In May 1971, the
drilling ship Ocean Digger discovered the North Rankin gas/condensate much closer
to shore, followed by the Goodwyn field a few months later. Arco found gas in the
Bonaparte Basin with their first offshore well, Petrel-1, drilled with the

semisubmersible Sedco E310 in 1969, but this well and Aquitaine’s Tern-1, discovery
in 1971, were not commercial at the time.
Australian offshore exploration has focussed its attention on the shallower waters of
the continental shelf, although along the way, wells have been drilled in deeper
waters with some success. Shell drilled the first well beyond the continental shelf in
256 m of water in the Arafura Basin with Money Shoal-1 in 1971 using the drill ship
Global Marine. They followed this up in 1973 with East Mermaid-1 in 388 m of water
in the Carnarvon Basin using the Sedco 445 drill rig. Both wells were plugged and
abandoned.
A series of deep water wells were drilled in 1979 and 1980 by Esso, Woodside and
Phillips using various Sedco rigs in the Carnarvon and Browse basins. The first,
Zeewulf-1 in 1,194 m of water was a duster. No oil was found in subsequent deep
water wells, but large gas accumulations were encountered in Scarborough-1 (913m
BMSL), North Scott Reef-1 (442m) and Gorgon (259 m). The remote location has
delayed development of these deep water gas discoveries. As a result of this phase
of exploration, the deep water was regarded as a gas province. Woodside’s
Laminaria-1 (1994) in the Browse Basin was the first commercial oil discovery off the
continental shelf (365m).
Oil discoveries at South Pepper-1 (1982), North Herald-1 (1983) and Chevril-1 (1983)
revived interest in the Barrow Sub-Basin in the 1980s. In recent years Apache has
been undertaking Australia’s most intensive exploration and development drilling
programme in the same region. Meanwhile, the Timor Sea has also been receiving a
lot of drilling attention, while exploration has continues at lower levels offshore
Victoria in the Gippsland, Otway and Bass basins.
In 2003, Woodside drilled Gnarylknots-1 & -1A in the Great Australian Bight in 1,316
m of water. The well was abandoned before reaching its objective. High
mobilisation costs, high Rig Rates, weather delays and borehole problems contributed
to the WCR final cost of over A$50 million. The most expensive exploration well
drilled in Australia at the time.

7.3 Technical Performance
7.3.1 Time performance
7.3.1.1 Factors influencing drilling time
Drilling time to a given depth has been the conventional benchmark for measuring
well performance throughout the petroleum industry. Drilling time for petroleum
wells is influenced by many factors, including -
1. Well depth.
2. Geology - the physical properties of the rock being drilled.
3. The drilling equipment.
4. Borehole diameter.
5. The number of casing changes
6. Testing or coring before total depth is reached.
7. Non-productive time.
8. Learning from previous wells.
7.3.1.2 Drilling times offshore Western Australia
In recent years more offshore wells have been drilled off the coast of Western
Australia than any other state. Moreover, the Western Australian government
maintains Australia’s largest and most publicly accessible database of WCRs and well
listings. Figure 7.1 shows a scatter plot of Drilling Days as a function of Drilled
Interval for 392 vertical exploration wells drilled offshore Western Australia between
1980 and 2005. Well times are accurate to the nearest whole day. The most
recently drilled well plotted in Figure 7.1 was completed in April 2005. Regression
lines represent 5 year periods. All of the wells (except one) with low drilling times
during the period 2000-2005 were drilled by Jackup rigs in shallow water. Directional
exploration wells are excluded from the analysis to avoid distorting the relationship
between drilling time and depth.
Figure 7.1 shows that over the past 25 years –

1. There has been a high correlation between Drilling Days and Drilled Interval for
each five year period.
2. There have been substantial reductions in drilling time, most notably for well
depths greater than 2,500m. The largest reductions in drilling times occurred
during the 1990s.

3. The gradient of the exponential regression lines representing Drilling Days as a

function of Drilled Interval become flatter with each successive five year period.
4. Although there is general trend for variability in drilling times to increase
exponentially with depth, the amount of variability has been reducing with each
successive five year period.
175
1980-1984
1980-1984
1985-1989 67 wells
1990-1994 y = 5.660e0.680x
1995-1999
150 2000-2005 R2 = 0.79
Expon. (1980-1984)
Expon. (1985-1989)
1985-1989
Expon. (1990-1994)
Expon. (1995-1999) 38 wells
125 Expon. (2000-2005) 0.843x
y = 3.315e
2
R = 0.76
Drilling Days
100 1990-1994
75 wells
0.7035x
y = 4.1833e
2
R = 0.72
75
1995-1999
123 wells
50 0.6503x
y = 2.6907e
2
R = 0.61
25 2000-2005
89 wells
0.6896x
y = 1.8684e
2
R = 0.66
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
Figure 7.1 - Drilling Time for 392 exploration wells, offshore W.A, 1980 to 2005.
The relative significance of many technical problems associated with drilling at

deeper depths has decreased over time. However, the relative influence of ‘other
factors’ on drilling time has probably increased. Other factors may include an
unfamiliar geological section or Non Productive Time influences such as cyclones,
stuck drill pipe, equipment failure or crew inexperience. It only takes a few ‘train
wreck’ drilling scenarios to significantly increase average drilling times. However,
long duration wells are a low risk. For drilling programmes with large numbers of

wells, risks are spread across a programme and the medium well time should be
significantly less than the average.
Figure 7.2 shows a scatter plot of Drilling Days as a function of Drilled Interval for
vertical exploration wells drilled offshore Australia across three regions - the
Carnarvon Basin, Timor Sea and Victorian basins. Wells were spudded between 1998
and 2003 in water less than 200 metres deep. The well data comes directly from
WCRs. I conducted a regression analysis of the data. Table 7.1 shows the tabulated
results.
There are upper and lower boundaries to the number of Drilling Days with few
outliers. The lower boundary is the Technical Limit, defined by the best performed
wells for a given depth. The Technical Limit sets the benchmark against which other
wells can be judged. The Technical Limit is defined almost exclusively by wells
drilled by Apache within the Carnarvon Basin using Jackup rigs.
From 1998 to 2003 expected Drilling Days for Carnarvon Basin wells were significantly
less than for wells from the Timor Sea or Victorian Basins. The regression curve for
Carnarvon Basin wells has a relatively high correlation of determination (R2) of 0.74
between Drilling Days and Drilled Interval. However, visually, the regression line
does not appear to represent accurately the data over the range of depths displayed.
For Drilled Intervals less than 2,600m the regression line overestimates the number
of drilling days for the majority of wells. For Drilled Intervals greater than 3,500m
the regression line underestimates the well data.
The Technical Limit time to drill to 2,000m is 3.5 days. Table 7.1 shows estimated
drilling times of 5.3 days to drill to 2,000m for the Carnarvon Basin - 11.4 days for
the Timor Sea and 11.9 days for offshore Victoria. A substantial proportion of the
lower well costs we shown in Figure 7.6 for the Carnarvon Basin can be attributed to
shorter drilling times.
Figure 7.3 shows a scatter plot of Drilling Days for wells drilled in intermediate water
depths of 201 to 500 metres and in deepwater greater than 500 metres deep. Timor
Sea wells, drilled in water depths less than 200m are included for reference. The
Drilled Interval excludes the water column.

45
Timor Sea
Timor Sea
40 Victorian Basins 22 wells
Carnarvon Basin 0.7826x
y = 2.3786e
Expon. (Timor Sea) 2
35 R = 0.82
Expon. (Victorian Basins)
Expon. (Carnarvon Basin)
30
Drilling Days
25 Victorian Basins
13 wells
0.7327x
y = 2.7514e
20 2
R = 0.81
15
10 Carnarvon Basin
59 wells
Technical limit
0.7021x
5 0.4658x y = 1.2914e
y = 1.3903e 2
R = 0.74
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Figure 7.2 - Drilling Days for 94 exploration wells by region, 1998-2003.
45
WD > 500m
40 WD 200-500m WD > 500m
25 wells
Timor Sea
35 Expon. (Timor Sea) y = 4.3577e
0.4891x
Expon. (WD > 500m) R2 = 0.44

30 Expon. (WD 200-500m)
Drilling Days.
25 WD 201-500m
20 wells
20 y = 2.6486e0.5856x
2
R = 0.59
15
10 Timor Sea <200m

22 wells
5 y = 2.3786e
0.783x
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Figure 7.3 - Deepwater Drilling Days, 1999-2003

Deep water does not appear to be an impediment to drilling performance. Table 7.2
shows the results of the regression analyses from Figure 7.3. The Drilling Days for
shallow water Timor Sea wells are substantially higher than for intermediate depth
(201-500m) wells and also higher than for the deeper water wells (>500m) with
deeper Total Depths (>2,000m). However, there is more variability in drilling times
for the deeper wells in shown in Figure 7.3 than the shallow water wells shown in
Figure 7.2.
Table 7.1 – Drilling Days for vertical exploration wells by region, 1998-2003
Total Depth Carnarvon Basin Timor Sea Victorian Basins
500m 1.83 3.52 3.97
1,000m 2.61 5.20 5.72
1,500m 3.70 7.69 8.26
2,000m 5.26 11.38 11.91
2,500m 7.47 16.83 17.18
3,000m 10.61 24.89 24.78
3,500m 15.08 36.80 35.75
Wells 59 22 13
Table 7.2 – Deepwater Drilling Days, 1999-2003
Total WD = 200-500m WD > 500m Timor Sea
1,000m 4.8 7.1 5.20
1,500m 6.4 9.1 7.69
2,000m 8.5 11.6 11.38
2,500m 11.5 14.8 16.83
3,000m 15.3 18.9 24.89
3,500m 20.6 24.1 36.80
Wells 20 25 22

7.3.2 Cost performance
Offshore well costs reported in WCRs usually include rig mobilisation, but may or may
not include site investigations or allocations for shore based operator overheads,
planning costs and office supervision. However, well costs do include non-productive
time due to weather or equipment failure. If the well is a discovery there are
additional Completion Costs to case and suspend (C&S) the well. Otherwise
Completion Costs usually only include the cost to log and P&A the well.
50
Carnarvon Shelf
45 Timor Shelf
Victorian Shelf
40 Carnarvon Slope
Timor Slope
35 Southern Australia
Expon. (All wells)
30
All 192 wells
y = 2.7463e0.4006x
25
R2 = 0.21
20
15
10
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
Figure 7.4 - Total Well Cost for 192 offshore wells, 1998-2004.
Figure 7.4 shows a scatter plot of Total Well Cost as a function of Drilled Interval for
192 Australian offshore wells drilled between 1998 and 2004. It includes both
vertical and directional wells, development, appraisal, exploration wells, discovery
wells and dry holes. The scatter plot differentiates wells according to basin and
water depth. ‘Shelf’ wells were drilled on the continental shelf in water depths of

200m or less. ‘Slope’ refers to wells on the continental slope in water depths greater
than 200m. The Carnarvon Basin shelf wells were drilled predominantly by jackup
rigs, while most other wells were drilled with semisubmersibles.
7.3.2.1 Grouping well costs
The regression analysis of the entire data set reveals only a very weak relationship
between well cost and Drilled Interval (R2 = 0.21). The most striking feature of
Figure 7.4 is the separation of Carnarvon Basin shelf wells from most other wells.
Clearly, wells cost less in the Carnarvon Basin than in the other regions. Costs for
Timor Sea and Victorian wells overlap, while deepwater well costs are highly
variable. This plot indicates that for some wells factors such as basin and water
depth may have a more important influence on well costs than does well depth.
Two Victorian wells plot amongst the Carnarvon Basin shelf wells. These are both
platform development wells. All other Victorian wells analysed were drilled with
semisubmersibles and plot with the Timor Sea wells. A Timor Sea well with a Drilled
Interval of 3,730m also plots with the Carnarvon Basin wells and was one of the few
Timor Sea wells drilled with a jackup.
In the Carnarvon Basin, the costs for wells drilled in water depths greater than 200m
show a high degree of variability. As a group, their costs do not have a significant
correlation with Drilled Interval. The majority of Carnarvon deep water well costs
were comparable to Timor Sea well costs.
In summary, offshore well costs can be separated into two groups. One group
includes low cost Carnarvon Basin shelf wells drilled mainly with Jackups on the inner
shelf and a few wells drilled on the outer shelf by semi-submersibles. The other
group includes deepwater wells and shelf wells drilled outside of the Carnarvon Basin
using semisubmersibles across a broad range of water depths, with jackups only
employed for the shallowest of water depths. Exceptions are Victorian platform
wells, which have similar costs to Carnarvon Basin jackup wells.

7.3.2.2 Regression analyses
Following this initial data screening I separated the wells into groups, firstly by
geological region, then by water depth, by well direction, by well objective and by
well completion. I then conducted regression analyses for each group containing ten
or more wells. Figure 7.5 shows results for Total Well Costs as functions of Drilled
Interval for Carnarvon Basin wells. Results are presented in the form of a branching
tree. Appendix D shows additional results for the Carnarvon Basin, the Timor Sea and
Victorian Basins. Total Well Cost, Drilling Days and Drilling Cost are analysed for
each basin.
The results tree starts with a single node on the left representing all wells drilled
within the basin. The tree progressively branches out into a series of sub-trees.
Each branch is a subset of a node. The coefficient of determination is stated at each
node together with the A and B values for the exponential equation, y = AeBx where
y = well cost and x = Drilled Interval.
Each sub-tree represents an added level of detail with which to analyse well costs.
For water depths less than 200m the coefficient of determination increases with each
node and branch towards exploration wells with P&A completions. For wells drilled
in water depths greater than 200m, there is no significant relationship between Total
Well Cost and Drilled Interval for the Carnarvon Basin. Differences in costs for wells
drilled ‘on’ or ‘off’ the continental shelf are less evident for the Timor Sea.
General conclusions from Figure 7.5 are that well costs correlate more closely with
Drilled Interval for –
1. Wells drilled on the continental shelf in water depths less than 200m.
2. Vertical wells than for directional or horizontal wells.
3. Exploration wells than for development wells
4. Wells that are plugged and abandoned over those that are completed for
production.

Total Well Costs as functions of Drilled Interval Completion

Cases for analysis = 18 Well type
P&A R2 = 0.62
Exploration (10 wells) A = 0.771
(12 wells) B = 0.621
R2 = 0.53 Discovery
Direction A = 0.9454 (2 wells)
B = 0.5635
Directional Discovery
(35 wells) Appraisal (1 well)
R2 = 0.30 (1 well)
A = 1.5827 P&A
B = 0.4375 Development (2 wells)
(22 wells)
Water Depth R2 = 0.21 Discovery R2 = 0.33
A = 2.275 (20 wells) A = 1.93
0-200m B = 0.3531 B = 0.4368
(100 wells)
R2 = 0.57 P&A R2 = 0.75
A = 0.994 Exploration (36 wells) A = 0.7034
B = 0.613 (51 wells) B = 0.721
R2 = 0.69
A = 0.8115 Discovery R2 = 0.59
Vertical B = 0.6857 (15 wells) A = 1.0967
(65 wells) B = 0.5919
R2 = 0.68 Appraisal P&A
Carnarvon A = 0.8449 (14 wells) (8 wells)
(132 wells) B = 0.6846 R2 = 0.65
R2 = 0.22 A = 1.188 Discovery
A = 1.9387 B = 0.634 (6 wells)
B = 0.4576
Exploration P&A
(1 well) (1 well)
Directional
(2 wells) Appraisal Discovery
(1 well) (1 well)
> 200m
(32 wells) P&A R2 = .03
R2 = 0.07 Exploration (13 wells) A = 7.3955
A = 8.785 (19 wells) B = 0.1419
B = 0.1823 Vertical R2 = 0.03 Discovery
(30 wells) A = 8.5404 (6 wells)
R2 = 0.001 B = 0.1387
A = 11.713 P&A
B = 0.0265 Appraisal (1 well)
(11 wells)
R2 = 0.002 Discovery R2 = 0.003
A = 12.721 (10 wells) A = 12.836
B = 0.0366 B = 0.0514
Figure 7.5 – Well cost regression correlation tree for the Carnarvon Basin.

7.3.2.3 Well costs by basin
Figure 7.6 shows a scatter plot of Total Well Costs for vertical exploration wells
drilled on the continental shelf (water depths less than 200m). This is a subset of the
wells from Figure 7.4. There is clear separation of wells by basin. The lowest cost
wells are from the Carnarvon Basin. Victorian well costs vary but on the whole are
more costly than Timor Sea wells. The dashed regression line is for all Carnarvon
Basin wells. The line has a relatively high coefficient of determination (R2) of 0.69,
yet there are a significant numbers of wells offset from the regression line. Two
separate regression lines, joining at around 2,500m, give a better visual match with
data. However, the coefficient of determination (R2) for the line representing
depths less than 2,500m is only 0.14. This is mainly because there is little variation
Carnarvon Basin Total Well Costs for Drilled Intervals between 500m to 2,500m. For
Drilled Intervals longer than 2,500m well costs rise sharply in response to increasing
well depth. The coefficient of determination (R2) increases to 0.74. However,
variability in well costs also rises significantly for longer Drilled Intervals.
The regression analysis in Table 7.3 estimates that the cost to drill a vertical
exploration well to 2,000m on the continental shelf of the Carnarvon Basin during the
period 1998 to 2003 to be around A$2,421,000. A 2,000m well in the Timor Sea has a
minimum cost of A$6,000,000 and a likely cost of A$8,848,000. Offshore Victoria, a
2,000m well costs around A$12,683,000, some A$10,000,000 more than in the
Carnarvon Basin. However, Gippsland Basin development wells cost substantially less
when drilled from a fixed platform. Obviously, a platform is required to achieve
these cost savings and a substantial drilling programme is required to justify the cost
of the platform.
Figure 7.6 shows less variability in well costs for the Carnarvon Basin than for wells
from the Timor Sea or offshore Victoria.

26
Timor Sea Timor Sea
24 Victorian Basins 20 wells
0.6988x
Carnarvon Shelf y = 2.1871e
22 2
Expon. (Carnarvon < 2,500m) R = 0.8127
Expon. (Carnarvon > 2,500m)
20
Expon. (Carnarvon Shelf) Victorian Basins
18 Expon. (Timor Sea) 12 wells
Well Cost (A$ million).
Expon. (Victorian Basins) y = 4.7599e

0.49x
16 2
R = 0.4741
14
Carnarvon Shelf
12 51 wells
0.6763x
y = 0.8115e
10 2
R = 0.6857
8 2,500m
0.1737x
6 y = 1.7104e
2
R = 0.1392
4
> 2,500m
1.1596x
2 y = 0.1988e
2
R = 0.7345
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Figure 7.6 – Total Well Cost for 86 exploration wells by region, 1998-2003
Table 7.3 – Total Well Costs for vertical exploration wells by region, 1998-2003.
500m A$ 1,866,000 A$ 3,102,000 A$ 6,081,000
1,000m A$ 2,035,000 A$ 4,399,000 A$ 7,770,000
1,500m A$ 2,219,000 A$ 6,239,000 A$ 9,927,000
2,000m A$ 2,421,000 A$ 8,848,000 A$12,683,000
2,500m A$ 2,641,000 A$12,548,000 A$16,203,000
3,000m A$ 6,445,000 A$17,796,000 A$20,702,000
3,500m A$11,509,000 A$25,239,000 A$26,449,000
Wells 51 20 12
Rig Rate A$ 110,000 A$ 173,000 A$ 164,000

7.4 Offshore construction costs
7.4.1 Cost breakdowns
Drilling operators break their well construction costs down into categories for
budgeting and cost accounting purposes. Primary groups include logistics, rig
charges, professional services, consumables and tangible or fixed costs. The
majority of these cost categories are functions of well times, for example, the rig
day rate and professional services. Non-time based variable costs include
consumables such as casing, cement, mud chemicals, fuel, drill bits and office
overheads. Fixed costs include the well head, pumps and initial mobilisation.
If ratios of cost categories to Total Well Costs are consistent from well to well, and
therefore predictable, then those ratios can be used to index Total Well Cost to
those cost categories and to changes in market rates for those cost categories.
I analysed detailed final cost breakdowns for 27 offshore wells drilled by semi-
submersible and drill ship rigs between 1997 and 2003. The wells were drilled by
eleven different operators. Unfortunately, each operator grouped their costs
differently, even between their own wells. I regrouped each operator’s well costs
into common categories in order to compare wells. I then separated the wells into
two groups, deep-water wells and shelf wells, to see how water depth influenced
well costs. The deep water wells were drilled in water depths greater than 700m
over the Exmouth Plateau. The shelf wells were drilled in water depths less than
172m. Fourteen of the shelf wells were drilled in the Timor Sea, two on the
continental shelf of the Carnarvon Basin and one in the Bass Basin. The deepwater
wells were all drilled with specialist deepwater rigs - the Marine 500 semisubmersible
(9 wells) and the Jack Ryan drillship (2 wells). The shallow water wells were drilled
with seven different semisubmersibles.
Figure 7.7 shows bar graphs of category costs as percentages of total cost for shelf
wells and for deepwater wells. Table 7.4 profiles the well data analysed. A category
percentage is the sum of the category costs for a group of wells divided by the sum
of the total costs for that group of wells. This approach tends to bias higher cost
wells. The well cost reports from which category costs were sourced did not
differentiate Pre-Spud Costs from onsite well costs. Thus the analyses are on a
whole-of-well basis.

Figure 7.7 shows that the relative ranking of each cost category as a percentage of
Total Well Cost is similar for both deepwater and shallow water shelf wells. The top
three categories, total rig, logistics and fuel, constitute over two thirds of well costs
in both shallow water and deepwater.
Total Rig costs ranged from 32.3% to 53.6% of shallow water well costs and from
45.6% to 72.6% of deepwater well costs. The ‘72.6%’ figure resulted from the
combination of a very high mobilisation cost (A$8,500,000), very high rig day rate of
US$208,000 (A$315,000) and an unfavourable exchange rate (A$1 = US$0.66) for the
drilling of Jansz-3 in 2003 using the drillship Jack Ryan.
The average well depth for the deep water wells was 1.3 times higher than the
shallow wells but well costs were 2.2 times higher. Much of the higher cost for
deepwater wells can be attributed to –
1. Higher Rig Rates for deepwater wells -1.64 times higher in A$ and 1.8 times
higher in US$.
2. Rig costs making up a higher proportion of deepwater well costs than shallow
water well costs – 54.1% (deepwater) versus 41.5% (shallow water).
Deepwater well costs were also substantially higher for some other categories -
mobilisation (8 times), site supervision (3.2 times), cement (2.75 times), fuel (2.4
times), logistics (1.85 times), mud (1.8 times) and electric logs (1.5 times).
Other cost categories constituted a much lower proportion of deepwater costs than
for shallow water wells, although the costs differ little in absolute terms. This is
true of costs for office supervision, well head, casing, rig tools and MWD, which did
not increase as water depth increased.
In summary -
1. Deepwater wells cost twice that of shallow water wells to similar depths.
2. Deepwater wells have substantially higher costs for the drilling rig, logistics,
fuel, site supervision, electric logs, mud and cement materials and services.
3. Deepwater wells should be costed as a separate group from shallow water wells.
4. Over two thirds of well costs can be confidently indexed to the Rig Rate and the
price of fuel.

Category groupings for Figure 7.6 –

Total Rig includes daily rig costs, mobilisation & demobilisation and ‘other rig costs’.
Logistics includes marine vessels, fixed wing aircraft and helicopters.
Site supervision includes geologists, engineers and other professionals.
Mud and Cement covers both services materials.
Casing covers casing, tubulars and support for installation.
MWD – 17 of 27 wells undertook Measurement While Drilling
Office includes well planning, supervision, analyses and report writing.
Site prep 0.3% - 1.4%
Other 1.2% - 0.8%
Tests 0.6% - 1.9%

Deepwater
MWD 0.8% - 1.9%
Shallow water
Well Head 1.0% - 2.1%
Cement 2.0% - 1.6% Each bar represents a % of total well cost

Rig tools 1.6% - 3.0%
Casing 1.7% - 3.7%

Office 1.4% - 4.2%
Mud 3.3% - 4.0%
Site supervision 4.9% - 3.3%
Fuel & water 5.3% - 4.9%

Electric logs 4.2% - 6.1%
Logistics 17.5% - 19.7% 54.1% - 41.5%
Total Rig
0% 10% 20% 30% 40% 50% 60%
Figure 7.7 – Cost categories for semi-submersible drilled wells.
Table 7.4 – Statistics for analysis in Figure 7.6
Shallow water (16 wells) Deepwater (11 wells)

Wells 16 11
Average Water Depth (m) 100 1,170
Average TD (m) 1,845 2,354
Average Total Well Cost A$ A$9,123,155 A$19,765,961
Average daily Rig Rate A$ A$172,611 A$283,279
Average daily Rig Rate US$ US$96,229 US$173,218

Pre-Spud time is measured from the start of the drilling rig contract to the time the
well is spudded. From information given in the Daily Operations Reports contained in
WCRs, I estimate Pre-Spud Costs by subtracting the cumulative well costs at spud
from the final well cost. Pre-Spud Cost may include an allocation for rig mobilisation
to the basin, well planning costs and site surveying and sea bottom surveys. Pre-
Spud Costs are strongly influenced by the location of the drilling rig at the end of the
previous drilling contract. A long mobilisation into the basin for the first well in a
drilling campaign invariably incurs a large Pre-Spud expense. This one-off cost may
be borne by the first well in the drilling campaign or, more usually, it is shared
amongst a number of operators and wells. Once the initial mobilisation cost is
accounted for, Pre-Spud Costs for subsequent wells are substantially less. For
mature exploration basins such as the Carnarvon, Pre-Spud Costs for most wells are
commonly only the cost to move the rig from its previous location, position the rig on
the new well site and to rig up. The lowest Pre-Spud Costs being for back to back
development wells. For these wells, and others, offshore Pre-Spud Costs can be less
than for many onshore wells.
Table 7.5 shows the results of a statistical analysis of Pre-Spud days for three
offshore drilling regions. The Pre-Spud time averages 2 days for Carnarvon Basin
wells, 3 days for Timor Sea wells and 6 days for Victorian wells. The standard
deviation is either equal to, or greater than the mean, while the P50 times are
around half of the average times. The strong positive skew in the time distribution is
illustrated by the histogram in Figure 7.8.
The mobilisation time can be separated into three groups based on the mobilisation
distance from the previous well contract.
1. Local mobilisation from a location within a field, an exploration licence, or

adjoining exploration licence. Most wells fall into this category.
2. Intra-Regional mobilisation - from within a basin or adjoining basin.
3. Long distance mobilisation from another basin or country.
The three groups can be represented by three overlapping frequency distributions.

Long distance migration applies to initial entry of a rig to a region. The new rig is

likely to remain within the basin to drill many more wells so subsequent mobilisations
will take less time. Most wildcat well programs start with a regional mobilisation.
Local mobilisation commonly applies to the second and subsequent exploration wells
in a mature drilling region, to appraisal wells, and to development wells.
Table 7.5 – Analysis of Pre-Spud Days, 1998-2003.
All wells Carnarvon Timor Sea Victoria
Wells = 185 128 43 14
Mean = 2.62 2.10 2.99 6.17
P10 = 0.65 0.62 0.79 0.89
P50 = 1.25 1.02 1.54 1.99
P90 = 5.10 3.61 7.21 22.59
Stan Dev = 4.29 3.50 2.97 9.85
Skewness = 4.97 6.26 1.83 2.22
Kurtosis = 28.51 48.33 2.87 3.57
70
Pre-Spud Days for 185 offshore wells, 1998-2003
60 Victorian Basins
50 Timor Sea
40 Carnarvon Basin
Wells
30
20
10
0
0-1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 9-10 10-20 20-40
Days
Figure 7.8 - Histogram of offshore Pre-Spud Days by basin, 1998-2003.

Table 7.6 shows the results of a statistical analysis of offshore Pre-Spud Costs by
basin and rig type. The analysis covers the period 1998 to 2003. Figure 7.9 shows a
histogram of Pre-Spud Costs for the 149 wells analysed in Table 7.6. These wells are
subsets of the data shown in Figure 7.8 and Table 7.5. The data shows that half of
the Carnarvon wells had an average Pre-Spud Cost of less than A$583,000 but the
mean was around A$1,000,000. Pre-Spud Days were 50% higher in the Timor Sea, but
Pre-Spud Costs were double due to higher Rig Rates in the Timor Sea. Pre-Spud Days
and Costs in Victorian Basins were triple that in the Carnarvon Basin.
Table 7.6 – Pre-Spud Costs (A$) by basin and rig type, 1998-2003.
Cost by Region Cost by rig type
Carnarvon Timor Sea Victoria Jackup Semisub
Wells = 104 38 7 72 77
Mean = $1,062,000 $2,067,000 $2,932,000 $793,000 $1,980,000
P10 = $299,000 $408,000 $1,515,000 $276,000 $483,000
P50 = $583,000 $1,545,000 $2,236,000 $453,000 $1,591,000
P90 = $2,471,000 $4,433,000 $5,296,000 $1,315,000 $4,190,000
Stan Dev = $1,151,000 $2,020,000 $1,888,000 $1,163,000 $1,749,000
Skewness = 3.2 1.9 1.4 5.2 1.8
Kurtosis = 13.8 3.4 1.3 34.1 3.5
Unlike the onshore, where rigs tend to be contracted based on their drilling depth
capability at a particular bore-hole size, offshore drilling rigs operating in Australia
are capable of drilling over a broad range of well depths. Thus, no correlation was
expected, nor found, between Pre-Spud time or cost and Drilled Interval for offshore
wells. However, Pre-Spud Costs do differ according to the capability of the drilling
rig. Table 7.6 and Figure 7.10 show that Pre-Spud Costs for semisubmersible rigs
were two and a half times higher than for Jackup rigs. Jackup rigs operate only
within the shallow waters of the inner continental shelf. In the Carnarvon Basin,
large numbers of development wells were drilled with Jackup rigs. The distance
between wells using semisubmersible rigs tends to be much greater and the Rig Rate
higher than for wells drilled with jackup rigs. Pre-Spud Costs were highest for
deepwater wells which required mobilisation of specialist rigs on high day rates.

50
Pre-Spud Costs for 149 offshore wells (1998-2003)
45
40
Victorian Basins
35
Timor Sea
Number of wells
30 Carnarvon Basin
25
20
15
10
0
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0
Pre-Spud Cost (A$ million)
Figure 7.9 - Histogram of offshore Pre-Spud Costs by basin.
Figure 7.10 tracks average Pre-Spud Costs for 153 offshore wells over a six year
period. No significant chronological trend is evident from the data analysed.
3.5
Average offshore Pre-Spud Costs 1998-2003
3.0
Semisubs
Pre-Spud Cost (A$ million).
All rigs
2.5 Jackups
2.0
1.5
1.0
0.5
0.0
1998 1999 2000 2001 2002 2003
Year
Figure 7.10 - Pre-Spud Costs by year and rig type.

The Drilling Cost is calculated by multiplying the well time from spud to TD by the
average onsite Daily Costs. Figure 7.11 shows offshore Drilling Costs for three regions
– Timor Sea, Victorian Basins and the Carnarvon Basin, as functions of Drilled Interval
for the period 1998 to 2003. The wells were all drilled as vertical exploration wells
in water depths of less than 200m. The data are a substantial subset of the wells
plotted in Figure 7.2 showing Drilling Days. The scatter of points for both figures is
similar.
The coefficients of determination for Timor Sea and Victorian Basin wells are high for
both Drilling Cost and Drilled Interval, and Drilling Days and Drilled Interval. The
regression correlations for Carnarvon Basin wells are presented in two parts. From
1,000m and 2,500m there is little increase in Carnarvon Basin Drilling Costs. This
contrasts with substantial increases in Drilling Costs for Timor Sea and Victorian Basin
wells across the same depth range. For Drilled Intervals greater than 2,500m,
Drilling Costs for Carnarvon Basin wells increase with depth at a similar rate to Timor
Sea and Victorian Basin wells. However, the Drilling Costs for deeper Carnarvon
Basin wells start at a lower base and thus always cost substantially less than the
other basins.
Table 7.7 shows the Drilling Costs for each of the three regions based on the
regression analyses from Figure 7.11. The maximum regional difference in Drilling
Costs occurred at a Drilled Interval of around 2,500 metres. At this depth, the
expected Drilling Costs within the Carnarvon Basin for the period 1998 to 2003 were
A$1,382,000. This Drilling Cost is less than 18% of the cost to drill to the same depth
within the Timor Sea or Victorian Basins. At a Drilled Interval of 3,500 metres, the
Drilling Costs for Carnarvon Basin wells (A$7,533,000) were substantially more than
at 2,000 metres, but still less than half that of Timor Sea and Victorian Basin wells.
Victorian Basin wells were relatively more expensive at shallow and intermediate
depths while Timor Sea wells were most expensive at the deepest depths.
I separated wells drilled in water depths greater than 200m into two groups. One
group included wells capable of being drilled with a conventional semisubmersible at
‘intermediate water depths’ of between 201m and 500m. The other group included
wells drilled in ‘deepwater’ greater than 500m, which required specialist deepwater

semisubmersibles or drillships, usually on substantially higher Rig Rates. Table 7.8

and Figure 7.12 show that Drilling Costs for the deepwater wells and intermediate
water depths became more competitive with Timor Sea shelf wells as the Drilled
Interval increased. Although Rig Rates were substantially higher for deepwater
wells, drilling times were lower for longer Drilled Intervals (Figure 7.3 and Table
7.2).

Table 7.7 – Drilling Costs for vertical exploration wells by region, 1998-2003.
500m A$ 786,000 A$ 1,624,000 A$ 2,087,000
1,000m A$ 905,000 A$ 2,397,000 A$ 2,924,000
1,500m A$ 1,042,000 A$ 3,539,000 A$ 4,098,000
2,000m A$ 1,200,000 A$ 5,224,000 A$ 5,744,000
2,500m A$ 1,382,000 A$ 7,710,000 A$ 8,049,000
3,000m A$ 3,902,000 A$11,381,000 A$11,281,000
3,500m A$ 7,533,000 A$16,800,000 A$15,809,000
Wells 49 20 8
Rig Rate A$113,750 A$175,500 A$162,500
16
Timor Sea
Timor Sea
20 wells
Victorian Basins
14 y = 1.1003e
0.7788x
Carnarvon Basin 2
R = 0.83
Expon. (Carnarvon < 2,500m)
12
Expon. (Carnarvon > 2,500m)

Expon. (Timor Sea) Victorian Basins
8 wells
10 Expon. (Victorian Basins)
0.675x
y = 1.489e
2
R = 0.85
8
Carnarvon Basin
6 49 wells
2,500m
4 0.2824x
y = 0.6823e
2
R = 0.25
2 > 2,500
1.3155x
y = 0.0754e
2
R = 0.71
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Figure 7.11 – Drilling Costs for 77 exploration wells, 1998-2003.

Table 7.8 – Deepwater Drilling Costs, 1999-2003.
Total Depth WD = 201–500m WD > 500m Timor Sea < 200m
500m A$ 1,144,000 A$ 2,805,000 A$ 1,624,000
1,000m A$ 1,619,000 A$ 3,671,000 A$ 2,397,000
1,500m A$ 2,291,000 A$ 4,806,000 A$ 3,539,000
2,000m A$ 3,242,000 A$ 6,292,000 A$ 5,224,000
2,500m A$ 4,589,000 A$ 8,237,000 A$ 7,710,000
3,000m A$ 6,494,000 A$10,783,000 A$11,381,000
3,500m A$ 9,190,000 A$14,116,000 A$16,800,000
Wells 16 26 20
Rig Rate A$164,250 A$252,500 A$175,500
35
WD > 500m WD > 500m
25 wells
30 WD 200-500m
Timor Sea < 200m y = 2.1423e0.5387x
R2 = 0.48
Expon. (Timor Sea < 200m)

25
Expon. (WD > 500m)
Expon. (WD 200-500m)
20 WD 201-500m
16 wells
15 y = 0.8082e0.6946x
R2 = 0.63
10
Timor Sea
< 200m
5 21 wells
y = 1.1003e0.7788x
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Figure 7.12 – Deepwater Drilling Costs, 1999-2003.

Completion Days and Completion Cost covers the period from TD to rig release.
Table 7.9 compares P&A Completion Days and P&A Completion Costs for vertical
exploration wells drilled within the Carnarvon Basin with wells drilled within the
Timor Sea between 1998 and 2003. Figures 7.13 and 7.14 shows scatter plots of the
same time and cost data together with regression analyses. Carnarvon Basin wells
have a similarly high correlation between both P&A Completion Days and P&A
Completion Cost with Drilled Interval. Correlations between either P&A Completion
Cost or P&A Completion Days with Drilled Interval for Timor Sea wells are less
significant. Moreover, Timor Sea wells exhibit significantly more data scatter.
Although Rig Rates and Completion Days are much higher for Timor Sea wells, these
factors alone can not fully explain substantially differences of A$700,000 to
A$1,200,000 in P&A Completion Costs between the two regions.
The Carnarvon Basin was the only region containing sufficient wells for statistical
comparisons of oil or gas completion times and costs with P&A completion time and
costs. Table 7.10 compares Completion Costs at 500m intervals based on the
regression analyses for the wells plotted in Figure 7.15. Appraisal wells were
excluded because they tend to include long periods of testing. Deviated wells are
included in the analyses.
Table 7.9 – P&A completion days & cost for vertical exploration wells
Carnarvon Basin Timor Sea
Rig Rate A$113,500 A$177,500
Total Depth Days Cost Days Cost
500m 1.09 A$ 298,000 2.37 A$1,072,000
1,000m 1.41 A$ 410,000 2.81 A$1,291,000
1,500m 1.84 A$ 566,000 3.32 A$1,555,000
2,000m 2.38 A$ 781,000 3.93 A$1,873,000
2,500m 3.09 A$1,077,000 4.65 A$2,256,000
3,000m 4.02 A$1,485,000 5.50 A$2,718,000
3,500m 5.22 A$2,048,000 6.51 A$3,274,000

14
0.3368x
Victorian Basins Timor Sea y = 2.0034e
19 wells 2
R = 0.33
Timor Sea
12
Carnarvon Basin
0.5221x
Carnarvon Basin y = 0.8389e
Expon. (Timor Sea) 2
P&A Completion Days. 10 34 wells R = 0.69
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 7.13 – P&A completion time for vertical exploration wells.
5.0
Timor Sea y = 0.8898e
0.3722x
Victorian Basins
4.5 19 wells 2
R = 0.40
Timor Sea
P&A Completion Cost (A$ million)
0.6431x
4.0 Carnarvon Basin Carnarvon Basin y = 0.2157e
2
34 wells R = 0.71
Expon. (Timor Sea)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure 7.14 – P&A Completion Costs for vertical exploration wells.

Figure 7.15 and Table 7.10 show a consistent incremental cost for oil or gas
completions, increasing with well depth. Around 60% of changes in P&A Completion
Costs and 42% of changes in oil or gas costs Completion Cost can be attributed to
Drilled Interval.
Table 7.10 – Carnarvon Basin Completion Costs, 1998-2003.
Total Depth P&A Oil or Gas Difference
500m A$ 308,500 A$ 663,250 A$ 354,500
1,000m A$ 413,750 A$ 832,500 A$ 418,750
1,500m A$ 554,750 A$ 1,045,000 A$ 490,250
2,000m A$ 743,500 A$ 1,311,750 A$ 568,000
2,500m A$ 997,000 A$ 1,646,500 A$ 649,500
3,000m A$ 1,336,500 A$ 2,066,750 A$ 730,250
3,500m A$ 1,791,750 A$ 2,594,500 A$ 802,500
Rig Rate A$ 111,250 A$ 107,750
4.5
Oil or Gas
4.0 P&A
Expon. (Oil or Gas)
3.5 Expon. (P&A)
Completion Cost (A$ million)
y = 0.5283e0.4547x
32 Oil or Gas wells
3.0 R2 = 0.42
44 P&A wells y = 0.2302e0.5863x

2.5
R2 = 0.60
2.0
1.5
1.0
0.5
0.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Figure 7.15 – Carnarvon Basin Completion Costs, 1998-2003.

7.4.5 Daily Costs
I estimated Daily Costs by dividing Onsite Costs from spud to rig release by the
number of days for the same period. Figure 7.16 compares Daily Costs for four
drilling regions over the period 1998 to 2004. The term Deepwater includes all wells
drilled in water depths greater than 500 metres. The other three groups only include
wells drilled within water depths less than 500 metres. The coefficients of
determination (R2) from the linear regression analyses indicate that 91% of the Onsite
Costs for the Carnarvon Basin, Timor Sea and Victorian Basins are influenced by well
time. For wells drilled in water greater than 500 metres, 81% of Onsite Costs are
influenced by well time.
There is a significant difference between the Daily Costs ‘best estimates’ from the
regression analyses and the mean Daily Costs for each basin. In the Carnarvon Basin
the regression best estimate is A$396,800 while the mean is A$350,400. For the
Timor Sea the regression best estimate for Daily Cost is A$413,200 while the mean
Daily Cost is A$453,000. For Victorian Basins the regression best estimate for Daily
Cost is A$427,100 but the mean value is A$447,000 per day. For water depths
greater than 500m the differences are less significant. The regression estimate for
Daily Costs is A$566,100 and the mean Daily Cost is A$560,000. Differences in mean
Rig Rates between basins agree more closely with differences in mean Daily Costs
than with regression estimates for Daily Costs.
Figure 7.17 compares Daily Costs based on three rig types - jackup, semisubmersible
or deepwater. Coefficients of determination (R2) between Onsite Cost and Onsite
Days for each type of rig are as high as they are for the regional well groups in Figure
7.16. Daily Costs for wells drilled with Jackup rigs were A$362,300 (mean =
A$324,300), which is significantly lower than Daily Costs for wells drilled with
semisubmersibles, A$423,500 (mean = A$453,900), or deepwater rigs, A$566,100
(mean = A$559,900). Absolute differences in Daily Costs between the different rig
types were only slightly greater than differences in the Rig Rate.
Significant differences between the expected Daily Cost derived from regression
analyses and the statistical mean if well costs are not analysed for a broad range of
well times. The mean is representative of the data being analysed but the regression
result is more representative of the range of the data being modelled.

45
Deepwater
Deepwater
WD > 500m
40 Victorian Basins
25 wells
Timor Sea
y = 0.5661x
35 Carnarvon Basin 2
R = 0.81
Onsite Cost (A$ million)
Linear (Deepwater)
30 Linear (Victorian Basins) Victorian Basins
Linear (Timor Sea) 10 wells
25 Linear (Carnarvon Basin) y = 0.4271x
2
R = 0.91
20
Timor Sea
38 wells
15
y = 0.4132x
2
R = 0.91
10
Carnarvon Basin
5 100 wells
y = 0.3968x
- R2 = 0.91
0 5 10 15 20 25 30 35 40 45 50 55 60 65
Onsite Days
Figure 7.16 – Daily Costs for 173 offshore wells by basin, 1998-2004.
45
Deepwater Deepwater
40 Semisubmersibles WD > 500m
Jackups 25 wells
Linear (Deepwater) y = 0.5661x
35
Linear (Semisubmersibles)
Onsite Cost (A$ million)
R2 = 0.81
Linear (Jackups)
30
Semisubs
25
68 wells
y = 0.4235x
20
R2 = 0.91
15
Jackups
10
81 wells
y = 0.3623x
5
R2 = 0.92
-
0 5 10 15 20 25 30 35 40 45 50 55 60 65
Onsite Days
Figure 7.17 – Daily Costs for 174 offshore wells by rig type, 1998-2004.

7.6 Indexing offshore costs
7.6.1 Offshore Rig Ratios
Figure 7.18 shows a scatter plot of Daily Costs as a function of Rig Rate for 173 wells
drilled between 1998 and 2004. Daily Costs lie between maximum and minimum
linear boundaries. The maximum Daily Cost being A$180,000 above expected Daily
Cost and the minimum Daily Cost being A$120,000 below expected Daily Costs.
Around 63% of the normal variation in Daily Costs can be attributed to changes in the
Rig Rate. On average, a A$10,000 increase in the Rig Rate resulted in a A$15,000
increase in Daily Costs. In other words, a A$10,000 increase in the Rig Rate resulted
in a A$5,000 increase in non-rig costs. The association is mostly indirect. Factors
that influence Rig Rates, such as water depth, also influence non-rig costs.
10
Deepwater >500m
9 Timor Sea Oil or Gas Maximum Cost
Carnarvon Oil or Gas
Daily Cost (A$ hundred thousand).
y = 1.5x + 3.6
8 Victorian Basins
Linear (All wells)
7 Linear (Upper Limit)
Linear (Lower Limit)
6
4 Expected cost
1998-2004
3 173 wells
y = 1.5x + 1.8
2 2
Minimum Cost R = 0.63
1 y = 1.5x + 0.6
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Rig Rate (A$ hundred thousand)
Figure 7.18 – Daily Cost as a function of Rig Rate, 1998-2004.
Table 7.11 shows minimum, maximum and expected Daily Cost for a range of Rig
Rates for the wells plotted in Figure 7.18. Table 7.11 also shows the Rig Ratio (Rig
Rate divided by Daily Cost) which increases from 0.30 for a Rig Rate of A$100,000 to
0.50 for a Rig Rate of A$350,000. The higher the Rig Rate the higher the proportion
of Daily Costs attributed to the Rig Rate.

Table 7.11 – Estimates of Daily Costs from the Rig Rate, 1998–2004.
Daily Cost Expected
Rig Rate Minimum Expected Maximum Rig Ratio
A$ 50,000 A$135,000 A$255,000 A$435,000 0.20
A$ 75,000 A$173,000 A$293,000 A$473,000 0.26
A$100,000 A$210,000 A$330,000 A$510,000 0.30
A$125,000 A$248,000 A$368,000 A$548,000 0.34
A$150,000 A$285,000 A$405,000 A$585,000 0.37
A$175,000 A$323,000 A$443,000 A$623,000 0.40
A$200,000 A$360,000 A$480,000 A$660,000 0.42
A$225,000 A$398,000 A$518,000 A$698,000 0.43
A$250,000 A$435,000 A$555,000 A$735,000 0.45
A$275,000 A$473,000 A$593,000 A$773,000 0.46
A$300,000 A$510,000 A$630,000 A$810,000 0.48
A$325,000 A$548,000 A$668,000 A$848,000 0.49
A$350,000 A$585,000 A$705,000 A$885,000 0.50
These results indicate that if sufficient data is available for a statistical analysis, a
regression equation relating Daily Cost to Rig Rate may be a more direct method of
estimating Daily Costs than the Rig Ratio proposed in the Method and applied to the
onshore wells. The regression equation of expected cost in Figure 7.18 is robust over
a wide range of Rig Rates and varying Rig Ratios.

7.6.2 Rig Rates
7.6.2.1 Australian offshore Rig Rate trends
Drilling is invariably conducted by a team of specialist independent contractors who

bid on a competitive basis for each drilling project. It is thus a market commodity
and subject to market forces. The main external market driver is the price of oil.
During periods of high oil prices exploration activity increases while the supply of
drilling rigs and associated services will struggle to meet the demand if exploration
activity increases at too rapid a rate. Consequently, rig day rates increase.
However, since contracts may be negotiated months to years in advance there is a
lag between the rig day rates and the oil price at any particular point in time. Daily
Costs can thus be predicted from knowledge of future Rig Rate contracts.
Figure 7.19 shows the average offshore Australia Rig Rate at the start of each quarter
from January 1997 to January 2008 for three classes of offshore rig - jackups,
semisubmersibles and deepwater rigs. Deepwater rigs are those capable of drilling in
water depths greater than 600m. I sourced Rig Rates (rig day rates) from the
International Association of Drilling Contractors (IADC) database, from WCRs and
from monthly reports to the New York Stock Exchange by listed drilling contractors.
The currency for offshore rig contracts is US$. Rig day rate trends may differ if
graphed in Australian dollars because of major movements in US$ to A$ exchange
rates during the period 1998 to 2004.
Rig day rates peaked in US$ late 1998 before falling sharply in 1999. From 2000 to
early 2005, US$ rig day rates fluctuated within a narrow band. Semisubmersible day
rates were more variable than for jackups, but often there was little difference
between day rates for jackups and semisubs. This may reflect the greater
competition for drilling in shallow water and an oversupply of aging
semisubmersibles. Over the past decade deepwater rigs have operated within
Australian waters intermittently, commanding much higher day rates than the other
rig classes.

400
Deepwater rigs
Australian offshore
Semisubmersibles
350 Rig Day Rates
Jackups
300
Rig Rate (US$ thousand).
250
200
150
100
50
0
97
98
99
00
01
02
03
04
05
06
07
08
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Figure 7.19 – Average quarterly offshore Australia Rig Rates, 1997-2008
US$ Rigs
$90,000 500
$80,000
420
$70,000
$60,000 340
$50,000
$40,000 260
$30,000
180
$20,000
$10,000 100
74
76
78
80
82
84
86
88
92
94
96
98
00
02
06 04
90
E
20 D
YT
08
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20 20
19
WW Jackup Fleet WW Jackup Day Rates
Source – ENSCO presentation (August, 2006, from ODS-Petrodata and NYSE data).
Figure 7.20 – World Wide (WW) Jackup Rig Rates (US$) and Fleet Numbers.

Oil prices have risen steadily over the past four years from a low of US$20 a barrel in
January 2002. After some delay, industry has responded by expediting new field
developments requiring substantial drilling programmes. Figure 7.19 shows that it
was not until the second half of 2005 that Australian offshore rig day rates started to
rise sharply for all three classes of drilling rig.
Forward contracts indicate that semisubmersible day rates will exceed A$400,000 by
January 2008. This is a four fold increase on average semisubmersible day rates for
July 2005. Future day rate contracts for jackup rigs are also increasing, but not to
the same extent as for semisubmersibles.
7.6.2.2 World Wide jackup trends
Figure 7.20 shows a histogram of the World Wide (WW) jackup fleet numbers at
yearly intervals from 1974 to 2009 with the jackup day rate superimposed. I sourced
the data from ENSCO who in turn sourced the data from ODS-Petrodata and the New
York Stock Exchange.
The jackup day rate reached a peak in 1981 after increasing for five years from 1976.
The rig fleet increased over the same period, but, unlike the day rate, rig numbers
continued to increase sharply for another two years before reaching a plateau in
1983. Day rates stayed low and the rig fleet went into slow decline until 1995. From
1995 to 1997 jackup day rates increased again, more sharply than during the late
1970s, however this time its only impact on the rig fleet was to stop the decline in
numbers.
International jackup day rates began to increase sharply in 2004. As with previous
international increases in the rig day rates, it took another year or two for Australian
jackup day rates to follow a similar course.
7.6.2.3 Future rig contracts
More modern rigs and those on short contracts are first to adopt higher day rates.
Nearly all offshore rigs operating in Australian waters were constructed between
1973 and 1983. Some of these older rigs will remain contracted at lower day rates
into 2007. It is not unusual, however, to see rig day rates to then double or triple for
the next contract (2007).

Long term contracts attract lower daily rates than short term contracts. In response
to rising Rig Rates, companies have locked in rigs for long term contracts. Rig Rates
may fluctuate when an operator exercises options for additional wells. If the option
is from an old contract, the price may vary substantially from current rates.
Some semisubmersibles can operate in a very wide range of water depths. When
operating in water depths beyond the capability of other rigs, they may command a
higher day rate than when operating in shallower depths where they compete with
other semisubmersibles or even jackups.
Attracting additional rigs to Australia is difficult because of high world demand. In

fact, Australia has been losing rigs to other countries offering higher day rates.
7.6.2.4 New construction
In 2004, offshore rig utilisation was running at 60-70 per cent and there were spare
rigs. However, high demand has led to a shortage of drilling rigs, which is driving a
new wave of rig construction. Singapore shipyards are building the majority of new
rigs (Ball, 2005). A long roll-out of new jackups began in 2005. The replacement of
Australia’s ageing semisubmersible fleet will take longer as little new construction
had been planned before mid-2005. Given that it takes around three years to build a
new semisubmersible then the semisubmersible, the market will remain tight until at
least 2008.
The benefits of an early start to jackup rig construction are now being seen.
Although, jackup day rates have increased substantially since 2005, the increase has
been significantly less than for semisubmersibles.

7.7 Summary and conclusions - Offshore wells
7.7.1 Scope of the study
The primary objective of this study of offshore wells is to establish statistical

relationships that enable well costs to be estimated from a few key input variables
such as well depth, water depth, basin and Rig Rate. To do this I established a
database of well times and costs from over 200 well completion reports for the
period 1998 to 2004. I supplemented this data will drilling times from government
databases for the period 1980 to 2005. Regions studied include the Carnarvon Basin,
Timor Sea and Victorian Basin.
In order to achieve objectives outlined in Chapter 2, I analyse well costs as a function

of Drilled Interval. I breakdown offshore well costs into three phases – Pre-Spud,
Drilling and Completion. For each phase I study phase cost and phase days as
functions of Drilled Interval. I establish relationships between well Onsite Cost and
well Onsite Days to derive Daily Costs. I also establish relationships between Daily
Cost and Rig Rate so that Daily Cost may be estimated from changes in the Rig Rate.
A summary of key results and conclusions follow.
Pre-Spud Cost is largely a function of the Rig Rate and the distance from the previous
well site to the new well site. Frequency distributions of Pre-Spud times are
characterised by large numbers of wells with short Pre-Spud times and a few wells
with very long Pre-Spud times. For the period 1998 to 2004, Pre-Spud time averaged
2 days for Carnarvon Basin wells, 3 days for Timor Sea wells and 6 days for Victorian
wells. Median times were less than half the average for each region. Average Pre-
Spud Costs ranged from A$1.1 million in the Carnarvon Basin, to A$2.1 million in the
Timor Sea, to A$2.9 million offshore Victoria. Jackups cost A$0.8 million to mobilise
while semisubmersibles cost A$2.0. The distance between wells using
semisubmersible rigs tends to be much greater, and the Rig Rate higher, than for
wells drilled with jackup rigs. Pre-Spud Costs are highest for deepwater wells which
require mobilisation of specialist rigs on high day rates.

Times to drill to a given depth were similar for the Timor Sea and Victorian Basins.
However, Drilling Times for the Carnarvon Basin were less than half that in the other
basins. The data I analysed does not show a cause for this substantial difference.
However, the Carnarvon Basin is a mature drilling region. Factors such as geology,
the experience of the operators and contractors and the equipment employed must
be considered. Low Rig Rates and other Daily Costs combine with low drilling times
to cause substantially lower Drilling Costs in the Carnarvon Basin than other basins.
Regression analyses show 83% to 85% of variability in Drilling Costs for Timor Sea and
Victorian Basin wells can be attributed to changes in Drilled Interval. In the
Carnarvon Basin there is little change in Drilling Costs between 500m and 2,500m.
Below 2,500m Drilling Costs increase exponentially with depth at a similar rate to
that in other basins but Drilling Costs in the Carnarvon Basin start at a lower base and
are thus always substantially less than the other basins. Correlations between
Drilling Cost and Drilled Interval weaken as water depth increases.
Offshore Completion Costs increase with well depth. The cost to C&S a well includes
additional costs above the P&A well cost. The additional cost to C&S an offshore
well also increases with increasing well depth. For the Carnarvon Basin, changes in
the Drilled Interval accounted for 60% of the variability in Completion Costs for wells
with P&A completions but only 42% of variability in Completion Costs for wells that
were C&S. Less data was available for analysis from the other drilling regions to
establish statistically valid regression relationships between P&A wells and wells that
were C&S for oil or gas production.
7.7.5 Total Well Costs
For the shallow waters of the Carnarvon Basin there is little variation in Total Well
Cost between Drilled Intervals of 500m and 2,500m. This contrasts with the Timor
Sea and Victorian Basins where Total Well Costs increase exponentially over the same
range of depths. For wells drilled between 1998 and 2003, the largest regional
differences in Total Well Costs for vertical exploration wells occur for wells drilled in
the range of 2,000m to 2,500m. The Total Well Cost for wells drilled to 2,000m in
water depths less than 200m was A$2,410,000 in the Carnarvon Basin, A$8,848,000 in

the Timor Sea and A$12,683,000 in Victorian Basins. Lower well costs for Carnarvon
Basin wells resulted from lower Pre-Spud Costs, lower Completion Costs, lower Rig
Rates and substantially shorter drilling times.
Drilling Costs for deepwater wells (greater than 700m) are similar to Drilling Costs for
wells drilled with semisubmersibles in shallow water (less than 200m). However, the
Total Well Costs for deepwater wells are substantially higher than wells drilled in
shallower water. The difference is due to higher costs for non-drilling activities.
I found that Total Well Costs correlate more closely with Drilled Interval for –
1. Shallow water (<200m) wells than deepwater wells (>500m).
2. Vertical wells than directional or horizontal wells.
3. Wells that are P&A over wells that are C&S for production.
7.7.6 Daily Costs
For water depths less than 500m, over 90% of the variability in Onsite Well Costs can
be attributed to changes in the number of Onsite Well Days. For water depths
greater than 500m the coefficient of determination between Onsite Well Costs with
Onsite Well Days is only slightly weaker at 81%.
Estimating Daily Cost by linear regression analysis of Onsite Cost as a function of

Onsite Days may yield a significantly different result to the mean Daily Costs for the
same set of data. For the period 1998 to 2004, expected Daily Costs from regression
analysis ranged from A$396,800 for the Carnarvon Basin to A$413,200 for the Timor
Sea and A$566,100 for deepwater wells, while mean Daily Costs ranged from
A$350,400 for the Carnarvon Basin to A$453,000 for the Timor Sea and A$560,000 for
the Deepwater. Differences between regression estimates and the mean are greatest
when the data set includes large clusters of wells with similar well times and costs.
Regression and mean estimates converge when the cost data being analysed is
distributed in a statistically uniform manner over a broad range of well times.
Carnarvon Basin wells are an example of large differences between the regression
analysis estimates (A$396,800) of Daily Cost and the mean value (A$350,400).
Scatter plots indicate that Carnarvon Basin Daily Costs could be broken down into
subgroups for more accurate representations of the data.

Differences in Daily Costs between basins are very similar to differences in Daily
Costs for the dominant drilling rig employed in each basin. Mean Daily Costs for
jackup rigs (A$324,300) are similar to the mean Daily Costs for the Carnarvon Basin
(A$350,400), while mean Daily Costs for semisubmersibles (A$453,900) are similar to
mean Daily Costs for the Timor Sea (A$453,000) and Victorian Basins (A$447,000).
7.7.7 Rig Rate.
Over 60% of the variation in Daily Costs can be attributed to the Rig Rate. Regression
analyses for the period 1998 to 2004, shows that when the Rig Rate increases by
A$10,000 non-rig costs increase by A$5,000. There are factors that influence both
the Rig Rate and non-rig costs. For example, demand for services, contract duration,
location and fluctuations in the exchange rate.
7.7.8Future costs
Results from this study enable costs for some types of offshore wells to be estimated
several years into the future - for example, exploration wells drilled with
semisubmersibles in water depths less than 500m. Linear regression analysis of
semisubmersible wells drilled between 1998 to 2004 gives an expected Daily Cost of
A$423,500 for wells with an average Rig Rate of A$160,000 or US$90,000. The
exchange rate average of all semisubmersible wells for the period was A$1.00 =
US$0.56.
Future contracts for semi-submersibles for 2008 have Rig Rates of up to US$400,000.
Regression analysis for the period 1998 to 2004 shows that a A$10,000 increase in the
Rig Rate results in a A$15,000 increase in Daily Costs. Assuming this relationship
holds true into the future, then for a Rig Rate of US$350,000, and an exchange rate
of A$1.00 = US$0.75, the Rig Rate will increase by A$307,000 to over A$500,000 per
day. Non-rig costs will increase by A$153,000. Thus, Daily Costs for wells drilled
with semi-submersibles in 2008 can be expected to be around A$884,000, which is
more than double that for the period 1998 to 2004. Thus the Rig Rate will quadruple
in US$ compared with 1998-2004, but Daily Costs will only double in A$. The A$ to
US$ exchange rate will be significant in determining actual Daily Costs in A$ for 2008.
For 1998 to 2004 the Rig Rate comprised 38% of Daily Costs. In 2008, we can expect
the Rig Rate to increase to 57% of Daily Costs.

Similar increases in Daily Costs can be expected for deepwater wells (greater than
500m) but indications so far are that increases in Daily Costs for wells drilled in
shallow water with jackup rigs will be substantially less than that for wells drilled
with semisubmersibles.
7.7.9 Big bores
I recorded well bore diameters from all WCRs that I studied. Thompson et al. (2006)
define large-bore gas wells as wells equipped with production tubing and flow control
devices larger than 7” or 177mm. Originally developed for land-based operations,
this technology is being adopted for subsea systems. However, the vast majority of
the offshore wells analysed for this study were drilled with standard well bore
diameters. Thus I could not conduct a statistical analysis of the influence of well
bore diameter on well costs. Woodside have published several papers on the
advantages of big bores which I review in an earlier chapter (Dolan et al., 2003;
Dolan et al., 2001). Chevron is currently working on technical hurdles to the
adoption of big bores (Thompson et al. 2006).

Chapter 8 Discussion
8.1 Rationale for study
I studied Petroleum Well Costs for this thesis because –

1. Well costs are an important economic consideration for selecting geological sites
for CO2 injection.
2. Well costs are an important economic consideration for the evaluation of
petroleum exploration and development projects.
3. No substantive studies have been published on Australian well costs.
My studies were sponsored and supported by the CO2CRC and its predecessor APCRC
project GEODISC (Geological Disposal of Carbon Dioxide) to assist in the development
of economic models for the transport and disposal of CO2 into geological reservoirs.
Appendix E lists the reports and publications resulting from my research for the
CO2CRC and contains copies of selected publications. Although not directly related
to this thesis, these studies required information on well costs for economic
evaluations of CO2 injection sites.
8.2 CO2 storage
Geological storage of CO2 from a 1,000 megawatt coal power plant may require the
drilling of tens to hundreds of wells to inject the volumes of CO2 generated
(Friedman, 2006). CO2 storage optimisation involves finding the lowest cost
combination of pipeline costs and well costs to store a given volume of CO2.
However, large scale CO2 storage solutions are unlikely to involve a one-on-one
match between an individual CO2 source and a geological storage site. One reason
being is that CO2 output from anthropogenic sources is likely to continue beyond the
storage capacity of most individual sites. In many cases, the optimal solution will be
when a group of CO2 emitters are linked to multiple storage sites. For this scenario,
supercritical CO2 will be transported from stationary emitters through networks of
pipelines to collection hubs. These hubs will feed major trunk lines which connect to
distribution hubs. CO2 is then diverted via a network of distribution pipelines to
multiple storage sites. Optimising CO2 storage costs involves generating and
comparing multiple network options. Being able to make quick and accurate well
cost estimates is an important part of the CO2 storage optimisation process.

CO2 injection wells have yet to be drilled in Australia so there are no historical costs
to analyse. However, the well construction for CO2 injection will be very similar to
that for petroleum wells. The cost to drill a CO2 injection well can be predicted
using the methods presented in this thesis.
Chevron proposes to inject the CO2 separated at the Gorgon Gas processing plant on
Barrow Island into the Dupuy Formation beneath Barrow Island. The top of the Dupuy
Formation lies at 2,300m (Malek, 2004), but initial plans are to inject CO2 at depths
of 2,700m to 3,000m into the gently sloping reservoir (Chevron Texaco Australia,
2003; Gosselink, 2003).
The major difference between petroleum wells and CO2 injection wells is in their
completion. Steve Walsh, the chief engineer at the Western Australian Department
of Industry and Resources, and the person assessing proposals to inject CO2 beneath
Barrow Island, regards CO2 injection as an ‘exotic completion’. As such, Completion
Costs are likely to be significantly higher than standard oil and gas completions. This
may be true for initial drilling projects. As more CO2 completions are undertaken,
costs should fall as the work becomes less ‘exotic’. However, until a track record is
established for CO2 injection well costs it would be appropriate to cost CO2 inject
wells at the high end of oil and gas development wells.
8.3 Petroleum exploration
Petroleum exploration acreage is available across Australia for either direct

application or farmin. It is normal business practice to asses the geological and
economic merits of an area before making an application. There is enormous
variation in costs to explore for and develop oil and gas resources across Australia.
Exploration areas vary a great deal in the financial risks and rewards they offer.
State and Federal Governments require applicants for new exploration acearage to
submit an exploration proposal and budget. Applicants must commit to the number
of wells they will drill and the year they will drill them. Exploration acearage will
usually be awarded to the applicant who promises to drill the most wells. Failure to
honour exploration commitments may result in loss of their licence. A defaulting
licensee is likely to have greater difficulty obtaining exploration acreage in the
future.

Commercial interest in exploration areas is strongly influenced by market conditions.

Exploration acreage perceived to be highly prospective will attract a higher
expenditure commitment than those perceived to be less prospective. A high
financial outlay needs to be matched with a higher likely reward. Perceived risks
and rewards are closely linked to perceived petroleum prospectivity, success in
surrounding exploration licences, to market costs and to the likely future cost of oil.
Exploration companies need to match their commitments with their resources.
Companies often find it prudent to spread their risk across many exploration areas
rather than committing all of the resources of their company into one well or
development. Despite this, smaller companies still often have to raise additional
capital to meet their drilling and development commitments. Thus, a thorough
knowledge of drilling costs, both now and in the future when expenditures will be
incurred, is critical for the financial planning of a petroleum exploration and
development company.
8.4 Well Database
No public database exists for Australian petroleum well costs. Although,

governments maintain rudimentary databases of well dates such as spud date and rig
release date, the data often has inaccuracies. Moreover, associated information such
as well direction, side-track depth and type of completion are not often recorded.
In order to conduct my study I established a database of petroleum well times and

costs for Australia. Enclosure A contains EXCEL spreadsheets of the tabulated raw
well times, costs and other data obtained from WCRs for onshore and offshore
Australia. I derived parameters for analysis from the raw data. This data is also
included on the CD. The database was used for all cost analyses in this thesis. I
supplemented WCR data with time data from government databases to study drilling
times.
8.2.1 Definitions
Standard definitions need to be adopted for statistical analysis of well times and
costs. Terms such as Drilled Interval, Total Well Cost, Pre-Spud Cost, Drilling Cost,
Completion Cost, Daily Cost and Rig Ratio are used within industry but definitions
may differ between companies. Drilled Interval should always exclude the water and
air columns when measuring drilling performance. Similarly, Drilling time should

exclude completion operations and testing if it is to be an accurate measure of

drilling performance. However, frequently companies have measured well depth
from Kelly Bushing and included operations such as logging or setting casing in their
Key Performance Indicators (KPIs) for drilling.
8.5 Regression analysis
Regionally, well costs and well times have high correlations with well depth.
Regression analyses can therefore be used to model costs as functions of well depth.
Regression equations need to be based on a broad range of depth data to establish
statistically valid relationships.
I separate well costs into three phases to analyse relationships between well costs
and well depth. The three phases are Pre-Spud, Drilling and Completion. I establish
relationships between Onsite Well Cost and Onsite Well Days to derive Daily Costs. I
also establish relationships between Daily Cost and Rig Rate so that Daily Costs can
be estimated from changes in the Rig Rate.
8.5.1 Pre-Spud phase
Pre-Spud Cost is largely a function of the Rig Rate and the distance from the previous
well site to the new well site. It may also include costs for operator overheads, and
road and site preparation.
Regression analysis of onshore wells indicates that 61% of the variance in Pre-Spud
Costs can be attributed to changes in the Drilled Interval. Deeper wells require more
powerful rigs than shallow wells. More powerful rigs are more expensive to mobilise.
Also, deeper wells take longer to drill, requiring movement of more equipment to the
well site, thus adding to Pre-Spud time and cost.
During the period 1998 to 2004, offshore Pre-Spud Costs for jackup rigs averaged
A$0.8 million while semisubmersibles averaged A$2.0 million. Pre-Spud Costs were
highest for deepwater wells which required mobilisation of specialist rigs with high
day rates.

8.5.1 Drilling
The Technical Limit is the minimum drilling time achieved to a given depth for a
particular period. I analysed changes in drilling time over a twenty five year period
from 1980 to 2004 and defined Technical Limits for both onshore and offshore wells.
In the early 1990s, the widespread adoption of PDC drilling bits and improved drilling
hydraulics virtually doubled rates of drilling penetration, particularly at deeper
depths. Over the past decade reductions in drilling time have been less significant.
For most sedimentary basins, both onshore and offshore, around 80% of the
variability in Drilling Costs can be attributed to changes in the Drilled Interval.
However, significant regional differences exist. For example, between 1998 and
2004, the time to drill a well on the continental shelf of the Carnarvon Basin was less
than half that for wells drilled in the Timor Sea or Victorian Basins for the same
Drilled Interval. For the Carnarvon Basin, Drilling Days and Drilling Costs were
relatively constant between 500m and 2,500m, but increased at similar rates to other
basins for depths below 2,500m.
Improvements in the efficiency of drilling directional and horizontal wells have

improved to the point where there is now little difference in drilling times for
vertical and horizontal wells with the same Drilled Interval.
Completion Costs are a combination of time-based costs and fixed costs. Completion
Costs increase with increasing well depth. For both onshore and offshore wells over
60% of the variability in P&A Completion Costs can be attributed to changes in the
Drilled Interval.
Costs to C&S a well for oil or gas production are highly variable. This is due in large
part to the uniqueness of each development. Requirements for fracturing,
perforations, production tubing, pumps and surface equipment varies from one
region and development to another. Learning and economies of scale are significant
influences on development costs. Unit Completion Costs for developments requiring
large numbers of wells are lower than for field developments requiring fewer wells.
More detailed data for oil and gas completions than was available for this study is
required to better characterise the costs.

8.6 Daily Costs and Rig Rate
Linear regression analysis of Onsite Well Costs as a function of Onsite Well Days
enables us to calculate the ‘Expected Daily Cost’ as a multiplier. If the well costs
are not analysed for a broad range of well days, there may be significant differences
between the ‘Expected Daily Cost’ derived from the regression analysis and the
statistical ‘mean’ of the Daily Costs.
For offshore wells drilled in water depths less than 500m, over 90% of the variability
in Onsite Well Costs can be attributed to changes in the number of Drilling Days.
Onshore, there is a range from 75% in the Perth Basin to 91% in the Surat/Bowens
Basins.
The rig day rate is the largest single component of Daily Costs. Regression analysis of
Daily Cost as a function of Rig Rate shows that for both onshore and offshore wells
over 60% of the variability in Daily Costs can be attributed to changes in the Rig Rate.
Thus there is strong statistical basis for linking Daily Costs to the Rig Rate.
If sufficient well data is available regression equations can be modelled with Daily
Cost a function of rig day rate. Regression analysis of offshore wells for the period
1998 to 2004 shows that when the Rig Rate increases by A$10,000, non-rig costs
increase by A$5,000. Alternatively, a ratio of Rig Rate to Daily Cost (Rig Ratio) can
be employed to convert a new Rig Rate to a new Daily Cost using the methods
described in this thesis.
8.7 Well Cost
Well times have traditionally been used to measure technical performance.

However, well cost is a better indicator of commercial performance. The final well
cost is the result of a complex mix of interacting elements, including geological,
environmental, technological, commercial, government and human. Well costs are
influenced by many factors including the well plan, rig type, market rates, rig
availability, rig demand, well location and drilling performance. The influence of
each factor on well cost varies from one well to another.
The complexity and high cost of drilling a well leads to innovation, but also to
conservative inertia in trialling and implementing that innovation. Thus there are

performance leaders and laggards. Performance leaders will drill similar wells at
lower costs than performance laggards to achieve the same objective.
Drilled Interval is a more reliable predictor of well costs for vertical exploration wells
drilled in water depths less than 200m than for wells drilled in deepwater water, for
appraisal wells or for production wells.
Table 8.1 compares average well costs and drilling times for exploration wells within
major Australian basins. The Drilled Interval is 2,000m and period is 1996 to 2004.
Onshore, longer drilling times and higher Daily Costs contribute to higher well costs
in the Perth Basin than the Cooper/Eromanga Basin. Offshore, shorter drilling times,
lower cost jackup rigs, experienced operators and simplified well operations combine
in the Carnarvon Basin to produce well costs less than one third of other major
offshore petroleum provinces.
Table 8.1 – Times and cost to drill exploration wells to 2,000m, 1996-2004.
Onshore Drilling Days Drilling Cost Well Cost Daily Cost
Cooper/Eromanga 8.7 A$512,400 A$680,000 A$58,900
Perth 12.8 A$1,073,900 ***A$2,139,000 A$83,900
Offshore
Carnarvon* 3.4 A$1,190,000 A$2,421,000 A$350,000
Timor Sea 11.4 A$5,224,000 A$8,848,000 A$458,000
Victorian Basins 11.9 A$5,744,000 A$12,683,000 A$483,000
Deepwater** 11.6 A$6,292,000 A$14,750,000 A$542,000
* water depth less than 200m
** water depth more than 500m
*** includes both P&A and C&S wells
8.8 CSM wells
The CSM industry has experienced spectacular growth over the past decade. CSG
field developments require tens to hundreds of wells. Central to this growth has
been the development of low cost drilling equipment. From 2000 to 2004, costs for
wells drilled with small truck mounted CSG rigs were approximately one third of
costs for wells drilled using larger conventional rigs and methods.

Truck mounted CSG wells operate between 12 hours and 24 hours per day, so it often
takes longer to drill a well with a truck rig. However, Daily Costs are substantially
lower than conventional rigs, resulting in lower well costs. Costs are a more direct
and far more accurate criteria for analysis of CSG well performance.
Arrow Energy NL is developing the Kogan North and the Tippon West CSG fields in the
Surat Basin near Dalby, South East Queensland. Arrow’s average 2004 CSG
exploration and appraisal costs for a shallow core hole with desorption data was
around A$120,000. In 2005, the costs to complete their shallow Kogan North CSG
wells for production averaged A$375,000 per well (Day et al, 2006). These costs
included $135,000 to drill and complete the well, $90,000 for pumping equipment
and an allocation of $150,000 per well for surface equipment. Thus 64% of the
production well costs were unrelated to drilling and well completion.
8.9 Industry overview
8.9.1 Learning
Successful oil and gas companies are developing an organisational learning culture.
This generally focuses on capturing lessons learnt at a particular well location and
incorporating those lessons into planning the next well. Effective learning requires
maximum useable drilling data on the first wells drilled to maximise the long term
rate of learning. Drilling programmes need to be designed for long term economic
objectives rather than the cheapest well each time. In a way, this approach ensures
that the first wells will always be more expensive. However, the trade-off is a
shorter learning curve and a lower total project cost.
8.9.2 Team work
The effectiveness of a well plan depends on the quality and competence of the
personnel. Major improvements in well performance can be attributed to better
management, harnessing collective experience through better planning and problem
solving. Team work, experience and contributions from everyone involved in the
drilling of a well are important for continuous improvement. Learning effects and
the effective transfer of knowledge to inexperienced personnel are also important.
Drilling contractors and service providers are increasingly publishing papers on

drilling performance. This may reflect a shift in responsibility for drilling

performance improvements from the operator to the contractor. This approach leads
to greater emphasis being put on past performance over price when awarding rig
contracts and services. Better performing rigs are likely to attract a market
premium. Operators sometimes refer to these rigs as a ‘fit for purpose rig’ and are
willing to wait for these rigs to become available or enter into long term contracts.
‘In the future drilling and service contractors will be exerting greater influence on
the way wells are drilled, ensuring experience gained on one well becomes a learning
point for a region as a whole. Industry will never drill better wells by having rigs
stacked and calling in drilling contractors for one or two well programmes.
Continuous drilling programmes are needed to drill cheaper wells’ (Snieckus, 2004).
A recent example of this has been Apache’s substantial drilling programme in the
Barrow Sub-basin of the Carnarvon Basin using Ensco jackup rigs which has produced
the lowest cost offshore wells in Australia.
8.9.3 Innovation
During the late 1990s Woodside led the international petroleum industry in
overhauling management procedures, drilling practices and corporate culture in
order to improve their historically poor drilling performances. The spectacular
growth in the Queensland’s CSG industry over the past decade can be attributed
directly to reductions in drilling costs through the collaborative efforts of operators
and drilling contractors to modify truck mounted water drilling rigs for shallow CSG
drilling operations.
Recently, junior explorers have enjoyed considerable success drilling wells in the
Cooper/Eromanga Basin within exploration licences relinquished by Santos only a few
years earlier. This encouraged Santos to respond with their own innovation. In early
2006, Santos teamed with Precision Drilling International (PDI) to import three semi-
automated drilling rigs (PDI 721, 724 & 735) into Australia to add support to an
ambitious program to drill 1,000 wells over a three year period in the Cooper
Eromanga Basins, targeting oil reservoirs in the 1,000m to 2,000m vertical depth
range.
The new PDI rigs feature sump-less drilling which contributes to a smaller footprint
and less site preparation. Cost saving features includes a low cost artificial lift

system, reduced water and fuel consumption. The PDI rigs have automated levelling,
top drive and pipe handling requiring only two men to operate. Its modular design
enables quicker rig moves. Thirty-two wells had been drilled to July 2006, giving
average turnarounds of six days from spud to spud, including one day each to
complete 27 of the wells as oil producers. Each rig is expected to drill 60 wells per
year. This operation is currently setting a new benchmark for onshore drilling of mid
range wells in much the same way that the CSG industry is setting benchmarks for
shallow drilling in the Surat/Bowen Basins and Apache is for shallow water wells in
the Barrow Sub-basin.
8.10 Future costs
Drilling rigs and other well construction services are market commodities and subject
to market forces. The main external driver is the expected future price of oil.
During periods of high oil prices, exploration activity increases, while supply of
drilling rigs and associated services will struggle to meet demand if exploration
increases too rapidly. Major increases in exploration activity have caused a current
shortage of some classes of drilling rig. It takes around three years to build a new
jackup or semisubmersible, so offshore rig markets will remain tight until additional
supply from new construction can meet demand. Until then Rig Rates and well costs
can be expected to rise.
The largest increases in well costs are occurring for wells drilled with
semisubmersibles. That is for wells drilled in water depths greater than 90m.
Contracts for semisubmersible day rates for 2008 are three to four times higher than
for 2005 or earlier. Daily Costs for wells using semisubmersible rigs in 2008 are
expected to be double the Daily Costs for 1998 to 2004. Well costs for onshore
regions are increasing but to a lesser degree.

8.12 Further work
My study has been relatively broad in its scope and could be taken forward in several
directions. The initial objective of this study was to provide well cost estimates for
the CO2CRC carbon capture and storage economic model. This has been done within
the constraints of the available data, and I have shown that reliable estimates of well
cost may be made from equations based primarily upon length of the Drilled Interval.
However, the accuracy and relevance of the equations relies upon a representative,
accurate and current database of well information. New wells need to be added to
the database to maintain its currency and to update the regression equations. More
cost data is required to expand the scope and relevancy of the database. In
particular, more AFE data, and more information on day rates for onshore rigs and
services, would be useful additions.
Detailed cost data is required to model Completion Costs for oil and gas
developments. Until a history of CO2 injection costs are established in this country,
CO2 Completion Costs will need to be estimated from detailed well plans and
quotations from industry.
In terms of analysis, a multi-factor regression analysis of factors that may affect well
costs would enable regression equations to be derived with higher correlations to
Drilled Interval. A detailed analysis of the cross correlation between key factors
influencing well costs would also benefit any future probability modelling.
8.13 And Finally
Last year a group from Anadarko Petroleum and CSIRO wrote, ‘to our knowledge,
drilling engineering has not formalised tools and processes that would unambiguously
constitute drilling analysis, despite the fact that drilling operations routinely
generate large amounts of data. While millions of dollars are spent on collecting and
storing daily drilling data, the industry continues to struggle to establish how best to
use the data. In some cases, the data are seldom revisited or are underused for
drilling cost control’ (Iyoho et al., 2005). I hope that this study has gone some way
to address this issue.

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Appendix A – Correlation of onshore well data

I conducted bivariate regression analyses to confirm and direct my regression analysis
of onshore well data. The number of wells sampled for each correlation ranged
between 30 and 186 wells. The Spiro-Wilk test shows that the well data in this study
violates normality. Therefore, Pearson’s method can not be used to analyse
correlations. The Spearman’s Rho correlation (rs) is an alternative test for non-
parametric data (Field, 2005). Figure A.1 presents a summary of the Spearman’s Rho
correlations for Drilling Costs (Figure A.1-A), for Total Well Costs with a P&A
completion (Figure A.1-B) and for Total Well Costs with an oil or gas completion
(Figure A.1-C). ‘Depth’ in all figures refers to Drilled Interval. ‘Time’ in Figure A.1-
A refers to the period from spud to TD. ‘Time’ in Figures A.1-B and A.1-C refers to
the period from spud to rig release. The correlations in Figure A.1 should be viewed
in conjunction with scatter plots to characterise the relationships.
The square of the correlation coefficient (r) gives the coefficient of determination
(R2), which is the proportion of the variance of the dependent variable that is
predictable from changes in the independent variable. Table A.1 provides a basis for
interpreting the correlations. The SPSS programme used for these correlations
assumes a linear relationship between the variables. Higher correlations should be
achieved if exponential relationships are correlated.
Figure A.1 shows that –

1. Depth usually correlates better with cost than with time.
2. Depth (Drilled Interval) correlates more closely with P&A completions than with
oil or gas completions (rs = 0.72 for P&A and rs = 0.54 for Oil or Gas). This differs
from the results of Figure 6.17. However, the correlation analysis of oil or gas
completions in Figure A.1 includes Fairview CSG wells and wells from the 1996 to
1999 period, which were not part of the correlations in Figure 6.17. Oil or gas
Completion Costs may vary from one region to another. The usefulness of the
correlation is reduced when we mix data with contrasting modes of completion.
3. There is a higher correlation between depth and Pre-spud Cost (rs = 0.83) than
between depth and Completion Cost (rs = 0.54 or 0.72)
4. There is a high correlation between Drilling Time and Drilling Cost (rs = 0.81),
and for total well time and Total Well Cost for wells with an oil or gas
completion (rs = 0.85). The lower correlation between total well time and cost

for wells with P&A completions (rs = 0.51) is because of the presence of CSG
wells in the analysis.
PRESPUD COST 0.89 ‘

0.83
DEPTH DRILLING COST

COMPLETION COST
0.54
OIL OR GAS
0.69 0.81
0.72 TIME
P&A
B C
0.94 ‘ 0.84 ‘
P&A Oil or Gas

Completion Completion
DEPTH WELL COST DEPTH COST
WELL
TOTAL TOTAL
0.57 0.51 0.65 0.85

TIME TIME
Figure A.1 – Spearman’s Rho correlations for onshore wells, 1996-2004.

Table A.1 –Interpretation of correlation co-efficient ‘r’.
Correlation Co-efficient Description
0.9 - 1.0 Very high correlation, strong relationship
0.7 – 0.9 High correlation, marked relationship
0.4 – 0.7 Moderate correlation, substantial relationship
0.2 – 0.4 Low correlation, weak relationship
Slight correlation, relationship so small as to be

0 - 0.2
negligible.
Reference Burns (2000)

Appendix B – Coal Seam Gas wells

Appendix B discusses operations and costs for drilling coal seam gas (CSG) wells in
the Surat and Bowen Basins of South East Queensland.
B.1 Drilling Time
Figure B.1 shows Drilling Days (spud to TD) as a function of Drilled Interval for 39 CSG
wells drilled within the Surat and Bowen Basins (Central Queensland) between 2000
and 2004. The type of drilling rig is distinguished by different symbols. The figure
shows the results of least squares regression analysis for two groups of drilling rig:
‘Truck’ rigs and ‘Other CSG rigs’. Truck rigs have a rotary table of one metre above
ground level. Other CSG rigs are larger units with a rotary table of four metres or
more above ground level. The high degree of scatter and relatively lower values for
the coefficient of determination (R2) for truck rigs indicates that while drilling time is
certainly influenced by the length of the Drilled Interval, there are other factors that
may be more influential.
30
Hunt 2 rig
Mitchell 150
25 Century 1
ODE rigs
Origin Truck rigs
Expon. (Origin Truck rigs)
20 Expon. (Other CSG wells)
Drilling Days.
15
Truck rigs
Other CSG rigs
y = 2.092e1.855x
2 y = 4.0684e0.870x
10 R = 0.25 R2 = 0.54
17 wells
22 wells
0
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0
Figure B.1 – Drilling Days for CSG wells by rig, 2000-2004.

There is considerable overlap of data points for the two rig types between 500m and
1,000m well depth. The regression equations predict that it takes 13.4 days to drill
to 1,000m using truck rigs and 9.7 days to drill to 1,000m using other larger CSG rigs.
Well times for truck rigs are highly variable, however, for Drilled Intervals less than
700 metres, truck rigs appear capable of similar drilling performances to the larger
rigs.
B.2 Rig operations
In Figure B.1, all wells drilled with truck mounted rigs were operated by Origin/OCA.
The other four types of rig distinguished in the plots (i.e. Hunt 2, Mitchell 150, ODE
and Century 1 rigs) were operated by four different companies (Origin, Santos,
Tipperary and Tri-Star). Operations for truck rigs ranged between 12 hours and 24
hours per day, while the larger rigs operated 24 hours per day. Many of the truck rigs
cored continuously while drilling, some up to 60% of the total length of the Drilled
Interval, while none of the wells drilled with ‘Other rigs’ were cored.
Shallower CSG wells are drilled with one mud pump. Deeper wells need additional
mud pumps to reduce stress on the drill pipe. Borehole diameters for the truck rigs
were generally smaller than for larger CSG rigs. Minimum borehole diameters for
truck drilled wells ranged from 96mm to 200mm, while minimum borehole diameters
for wells with larger rigs ranged from 156mm to 216mm.
B.3 Air drilling
Tri-Star used compressed air to drill their Fairview CSG development wells. Air
drilling can be much quicker than mud but may result in greater bore-hole instability.
Air drilling operations are also more expensive than mud drilling operations. Origin
has restricted use of compressed air to drill short intervals such as the surface hole
and reservoir formation if conditions allow. Drilling fluids employed by Origin to drill
the main CSG bore-hole have been either a freshwater KCl fluid, a polymer or gel
type of mud.
While developing the Tippon West CSG Field from 2003 to 2005, Arrow found that
their use of polymer drilling muds caused formation damage resulting in significantly
reduced water and gas production (Day et al., 2006). A different completion method
was then implemented involving air drilling of the producing section and installation

of gravel packed production casing. The new completion method significantly

increased gas production.
At Camden, Sydney Basin CSG operators drill with air, but elsewhere in the Sydney
Basin they drill with mud. They often employ one rig to drill the main bore-hole and
a work-over rig to complete the well with production casing. Due to proximity to
residential areas, and noise concerns, Sydney Basin rigs operate eleven hours a day,
five and a half days a week. They usually drill and case one 700m well per week.
B.4 Drilling Cost
Figure B.2 shows a scatter plot of Drilling Cost (spud to TD) as a function of Drilled
Interval for 23 of the 39 CSG wells plotted in Figure B.1. These are the wells for
which Daily Costs are included in WCRs. We can see a clear separation of the data
points for the two rig types. The regression equations predict the Drilling Cost to
1,000m for truck rigs to be approximately A$145,000, while for ‘Other CSG rigs’ the
cost is A$441,000.
1.0
Other CSG rigs
0.9 Other CSG rigs
Truck rigs 0.8345x
y = 0.188e
0.8 Expon. (Truck rigs) 2
R = 0.82
Expon. (Other CSG rigs) 7 wells

0.7
0.6
0.5
0.4
0.3
Truck rigs
0.2 1.6546x
y = 0.0277e
2
0.1 R = 0.43
16 wells
-
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0
Figure B.2 – Drilling Costs, Surat/Bowen CSG, 2000-2004.

A higher coefficient of determination for ‘Other CSG rigs’ (R2 = 0.82) than for truck
rigs (R2 = 0.43) indicates that changes in Drilled Interval have a stronger influence on
Drilling Costs for conventional rigs than they do for truck rigs. The low sample
numbers and the clustering of values around the main reservoir depths causes the R2
value to be greatly affected by the inclusion or exclusion of one or more deeper
wells. What is clear is that Drilling Costs using small truck mounted rigs are
approximately one third of that for larger CSG rigs, even though the average drilling
time is longer for the truck mounted rigs.
B.5 Development costs
Arrow Energy NL is developing the Kogan North and the Tippon West CSG fields in the
Surat Basin near Dalby, South East Queensland. Arrow’s 2004 CSG exploration and
appraisal costs for a shallow core hole with desorption data was around A$120,000.
In 2005, production well costs for their shallow Kogan North CSG wells averaged
A$375,000 per well (Day et al, 2006). Production well costs included $135,000 to
drill and complete the well, $90,000 for pumping equipment and an allocation of
$150,000 per well for surface equipment. Thus 64% of the production well costs
were unrelated to drilling and well completion.
B.6 Daily Costs
Figure B.3 shows a scatter plot of Well Cost as a function of Well Days for 26 of the
39 wells shown in Figure B.1. Both parameters cover the period from spud to rig
release. A similar separation of points by rig type is seen in Figure B.2 (Drilling Cost
as a function of Drilled Interval) and in Figure B.3 (Well Cost as a function of Well
Days). The data in Figure B.3 correlates well with both linear and exponential
equations. The regression equations predict the Daily Costs for truck rigs to be
approximately A$12,500 per day and for the larger rigs to be at least A$34,000 per
day. Wells using larger CSG rigs incur Daily Costs three times higher than those for
truck rigs.

1.8
Other CSG rigs
Other CSG rigs
y = 0.0342x + 0.038
1.6 Truck rigs 2
R = 0.98
Expon. (Other CSG rigs)
y = 0.2689e0.043x
1.4 Linear (Other CSG rigs) R2 = 0.97
Well Cost (A$ million).
Expon. (Truck rigs)

1.2 7 wells
Linear (Truck rigs)
1.0
0.8
0.6 Truck rigs

y = 0.0125x
2
0.4 R = 0.72
y = 0.0562e0.0644x
2
0.2 R = 0.74
19 wells
0.0
0 5 10 15 20 25 30 35 40 45
Well Days
Figure B.3 – Well Cost versus Well Days, Surat/Bowen CSG wells 2000-2004.
Table B.1 – Statistical analysis of CSG wells 2000-2004.

Days per Metre Cost per Metre Drilling Cost/Day
Other Truck Other Truck Other Truck
Wells = 22 17 7 17 7 19
Mean = 0.0109 0.0131 A$501 A$143 A$37,358 A$13,405
Stan Dev = 0.0038 0.0059 A$104 A$49 A$6,309 A$6,469
Skewness = 0.7 -0.3 0.8 0.6 1.2 1.4
P10 = 0.0063 0.0048 A$389 A$89 A$31,911 A$7,572
P50 = 0.0100 0.0145 A$492 A$140 A$34,886 A$12,402
P90 = 0.0158 0.0204 A$603 A$211 A$45,307 A$20,977
SD/Mean 35% 45% 21% 35% 17% 48%

B.7 Key Performance Indicators
Table B.1 presents a statistical analysis of the data presented in Figures B.1, B.2 and
B.3. The data is analysed in the form of ratios, commonly employed in the oil and
gas industry as measures of performance, called Key Performance Indicators (KPIs)
‘days per metre’, ‘cost per metre’, and ‘cost per day’. All ratios are measured from
spud to TD. These ratios are useful for analysing data where the relationships
between the variables are linear. If they are not linear, as is the case with most
ratios where well depth is the independent variable, then the analysis should be
restricted to a narrow range of Drilled Intervals, such as one reservoir. Comparing
ratios from different depths will give misleading results.
Data for ‘Other rigs’ analysed in Table B.1 differ by one well from the Tri-Star rigs in
Table 6.3. Table 6.3 presents Daily Costs from spud to rig release, while Table B.1
presents Daily Costs from spud to TD. However, the statistics for Drilling Cost per
day presented in the two tables are very similar.
In Table B.1, truck rigs show higher standard deviations as a percentage of the mean
for all three ratios, indicating greater variability in both time and cost for drilling
with truck rigs. This may be an indication that truck rig technology is still under
development and that operators are still learning how to optimise drilling operations.
Truck rig ratios that consider time (days per metre & cost per day) show more
uncertainty than those that consider cost (cost per metre). This may be a reflection
of variability in the operating day length for CSG wells, a high rate of NPT and the
high proportion of CSG well time devoted to testing and coring.

B.8 Conclusions
Drilling Costs for wells drilled with small truck mounted CSG rigs are approximately
one third of costs for wells drilled using larger conventional rigs and methods.
For truck mounted CSG wells, drilling time alone is not a reliable indicator of Drilling
Cost to a given depth. Costs are a more direct and far more accurate criteria for
analysis of CSG well costs and performance.
Advantages of developing a CSG field with a conventional rig and air drilling are –
x Fewer wells are required.
x Dewatering is substantially faster, enabling earlier gas production.
x Gas flow rates can be much higher per well.
The most significant disadvantage of using conventional rigs to drill CSG wells is that
individual wells cost can be substantially higher. QGC have employed both truck rigs
and conventional rigs. QGC consider it more economic to drill larger well bores to
develop their CSG field Berwyndale South.
Arrow’s Kogan North and Tippon West CSG fields are being developed more cheaply
using truck rigs than on QGC’s Berwyndale South field. However, Arrow’s wells are
shallower than the QGC wells and dewatering is less significant.

Appendix C – Cooper and Eromanga Basins

Over the past twenty years Santos has drilled more onshore petroleum wells than any
other company in Australia. The majority of their wells have been drilled in the
Cooper and Eromanga Basins, Australia’s most intensively drilled onshore region.
C.1 Drilling Time
Figure C.1 shows a scatter plot of drilling times for 339 Santos, Cooper/Eromanga
Basin wells drilled between 1988 and 2003. The correlation between Drilling Days
and Drilled Interval is high (R2 = 0.78, r = 0.88). The relationship is substantially
stronger than the correlations in Figure 6.1 for all Australian onshore wells (R2 = 0.40
to 0.44) of which the wells in Figure C.1 are a substantial subset (~40%). There are
no significant differences in correlations between Drilling Days and Drilled Interval
for exploration wells, appraisal wells or development wells when analysed
separately.
50
Exploration
45
Appraisal
40 Development
Technical Limit
35 Expon. (All wells)
Drilling Days
30
All wells
25 y = 1.2129e0.984x
R2 = 0.78
20 339 wells
15
Technical Limit
10 Exploration wells
y = 1.342e0.767x
5
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Figure C.1 – Drilling performance for the Cooper/Eromanga Basins, 1988-2003.

Figure C.1 also shows the Technical Limit line for exploration wells defined
previously in Figure 6.1. Down to 2,000m most wells lie close to the Technical Limit
line, with some appraisal and development wells outperforming the exploration
Technical Limit. Below 2,000m, drilling times increase sharply. Coincidently, there
is an increase in data scatter as drilling times deviate from the Technical Limit line.
I sourced the well data from both WCRs (for South Australian and Queensland wells)
and from the Queensland Government database (for additional Queensland wells).
The government database did not identify sidetracked wells nor the depth at which
drilling commenced. If any sidetracked wells were unknowingly included in this
analysis then these wells will appear on Figure C.1 with Drilled Intervals that are too
long for the number of drilling days. Such inaccuracies are likely to be insignificant.
C.2 Well Cost
Figure C.2 shows Cooper/Eromanga Basin Total Well Costs for the period 1996 to
2001 as functions of Drilled Interval. The wells were drilled by various operators,
including Santos. The data is grouped according to the drilling period, 1996-1998 or
1999-2001, and the type of completion. Regression analysis on 14 P&A wells shows a
substantial relationship between Total Well Cost and Drilled Interval (R2 = 0.65, r =
0.81). However, this result is somewhat weaker than that found for all Australian
P&A wells (R2 = 0.88, r = 0.94, Figure 6.14). The weaker correlation for the Cooper
Basin wells is likely to be artificial, the result of a narrower and smaller sample (14
wells in Figure C.2 versus 33 wells in Figure 6.14).

2.8
2.6 1996-1998 - P&A Oil or Gas

1999 to 2001
2.4 1999-2001 - P&A 0.2758x
y = 1.0111e
1996-1998 - Oil or Gas 2
R = 0.17
2.2
1999-2001 - Oil or Gas 7 wells

2.0
Expon. (1999-2001 - Oil or Gas)
1.8 Oil or Gas
Expon. (1996-1998 - Oil or Gas) 1996 to 1998
1.6
Expon. (1996-2001 exploration) 0.7331x
y = 0.1921e
1.4 2
R = 0.77
1.2 11 wells
P&A wells
1.0 1996 to 2001
0.4666x
0.8 y = 0.3461e
2
R = 0.65
0.6
14 wells
0.4
0.2
-
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Figure C.2 – Well Cost versus Drilled Interval for 32 Cooper/Eromanga Basin wells.
Observations from Figure C.2 showing Total Well Costs for Cooper/Eromanga Basin
wells -
1. Oil or gas discovery wells tend to be deeper than P&A wells. All oil or gas
completions were drilled below 2,300m.
2. Well Costs were substantially higher for most wells with an oil or gas completion
than wells that were plugged and abandoned.
3. Production depths ranged from 2,300m to 3,100m.
4. Costs for wells with oil or gas completions are clustered according to their
completion period.
5. Regression analysis indicates a significant increase in Completion Costs between
the two periods 1996-1998 and 1999-2001.
6. Costs for wells oil & gas Completion Costs are significantly more variable than
costs for wells with P&A completions.
In March 2006, Cooper Energy drilled and completed the Warrior-4 oil development
well (not plotted) to 1,840m for around A$1,500,000. This cost falls within the
extrapolated range of costs shown in Figure C.2.

C.3 Daily Costs
Figure C.3 is a scatter plot of Drilling Cost as a function of Drilling Days for 25 wells
drilled within the Cooper/Eromanga and Otway Basins between 1996 and 2002.
Onsite Cost divided by Onsite Days gives Daily Cost. Figure C.3 shows lines for
Maximum and Minimum Daily Cost which are intended to embrace all data points.
Linear regression for all wells predicts a Daily Cost of A$52,900. Despite the high
coefficient of determination (R2) between Onsite Cost and Onsite Days (R2 = 0.78),
Daily Costs still fall within a broad range of A$33,000 to A$68,000 per day.
2.0
P&A
Discovery
1.8 Linear (Max Daily Cost) y = 0.068x
Linear (Min Daily Cost)
Linear (All wells)
1.6 Expon. (All wells)
Onsite Cost (A$ million).
y = 0.0529x
2
1.4 All 19 wells R = 0.78
1.2 0.0772x
y = 0.1859e
2
R = 0.87
1.0
0.8
y = 0.033x
0.6
0.4
0.2
-
0 5 10 15 20 25 30 35
Onsite Days
Figure C.3 – Daily Costs for Cooper/Eromanga Basin wells.
Figure C.3 shows a stronger exponential regression correlation between Onsite Cost
and Onsite Days (R2 = 0.87). Daily Cost can be determined by dividing the regression
equation by the number of Onsite Days. Medium duration wells have low Daily Costs.
Daily Costs increase for well durations longer than 20 days. Deeper wells require
more powerful drilling rigs which are more expensive and require more services.

C.4 Changes in Drilling Costs
Figure C.4 shows average Daily Costs from 1996 to 2002 for the Cooper/Eromanga
Basin and from 2002 to 2004 for the Perth Basin. For 2002, Daily Costs were higher
within the Peth Basin. Daily Costs have fluctuated from year to year.
The sample sizes are small, so the results need to be treated with caution. The
Cooper/Eromanga/Otway Basin analysis is based on an average three wells per year,
while the Perth Basin data averages five wells per year.
Daily Costs may be influenced by factors other than market forces, such as the type
of well and the type of rig used. Daily Costs also differ between basins (Figure 6.19),
so any longitudinal analysis of Daily Costs over time (e.g. 1996 to 2004) should either
give equal weight to each basin or confine the analysis to individual basins.
Unfortunately, I did not have enough well data to do either.
$120,000
Cooper & Otway Basins Perth Basin
$100,000
$80,000
$60,000
$40,000
$20,000
$-
1996 1997 1998 1999 2000 2001 2002 2002 2003 2004
Figure C.4 – 6.28 Average Daily Costs for Cooper, Otway and Perth Basins.

C.5 Discussion and Conclusions
Drilled Interval is a reliable indicator of Drilling Time and well performance for
Santos’ Cooper/Eromanga Basin wells.
Santos’ drilling in the Cooper/Eromanga Basin has outperformed operators in other

basins in terms of both well times and costs. Regional differences may play a part in
this result but experience and lessons learned from previous wells are likely to be
more important.
Operating costs increased from 1996 to 2004, but variability in operating costs from
one year to another often exceeded long term increases.
Long term reductions in drilling times tended to offset long term increases in
operating costs, so costs for wells with P&A completions were relatively stable over
the period of the study (1996 to 2004).
Costs to complete a well as a producer were substantial and highly variable. There
were significant increases in Completion Costs for Cooper/Eromanga Basin oil or gas
wells between 1996 and 2001.
I was told by Santos management Santos’ turnaround for pre-2006, middle depth
(1,000 to 2,000m), Cooper/Eromanga Basin wells averaged 15 days from spud to
spud. In early 2006 Santos started drilling wells with semi-automated drilling rigs
contracted from Precision Drilling International (PDI). By July 2006, Santos’ PDI rigs
had drilled 32 wells on the Mulberry oil field in ATP-299-P South-West Queensland
with 27 cased and suspended for production. Well depths average 1,350m. Well
times averaged six days from spud to spud, comprising 8 hours to move the rig, 3 to 4
days to drill, and two days to complete including logs and casing. No DSTs are
conducted. The average well cost has been around A$800,000 cased and completed
(Kelso, 2006). Santos’ move to adopt the new PDI drilling technology should help to
stabilise Rig Rates in the Cooper/Eromanga Basins.

Appendix D – Offshore regression correlation trees
Drilling Days as functions of Drilled Interval Completion

P&A R2 = 0.66
(12 wells) B = 0.6913
R2 = 0.62 Discovery
B = 0.6459
R2 = 0.35 (1 well)
A = 2.5871 P&A
(22 wells)
Water Depth R2 = 0.29 2
Discovery R = 0.40
A = 2.8067 (20 wells) A = 2.5163
0-200m B = 0.3522 B = 0.4137
(110 wells)
R2 = 0.64 P&A R2 = 0.76
A = 1.5083 Exploration (42 wells) A = 1.2046
B = 0.6258 (59 wells) B = 0.7372
R2 = 0.74
2
A = 1.2914 Discovery R = 0.72
(75 wells) B = 0.6339
2
(142 wells) B = 0.7189 R = 0.71
R2 = 0.46 A = 1.1544 Discovery
A = 2.0694 B = 0.7649 (7 wells)
B = 0.5578
Exploration P&A
(1 well) (1 well)
Directional
Water Depth (1 well) (1 well)
> 200m
(32 wells) P&A R2 = 0.21
A = 4.4509 (19 wells) B = 0.4638
(30 wells) A = 3.8884 (6 wells)
R2 = 0.20 B = 0.4566
A = 5.4682 P&A
(11 wells)
R2 = 0.41 2
Discovery R = 0.42
A = 5.2746 (10 wells) A = 5.2417
B = 0.4528 B = 0.4424
Figure D.1 – Carnarvon Basin Drilling Days regression correlation tree.

Drilling costs as functions of Drilled Interval Completion

P&A R2 = 0.68
(12 wells) B = 0.7169
2
R = 0.59 Discovery
B = 0.6527
R2 = 0.14 (1 well)
A = 1.0572 P&A
(20 wells)
2 2
Water Depth R = 0.02 Discovery R = 0.101
A = 1.7268 (18 wells) A = 1.2477
0-200m B = 0.1242 B = 0.2777
(94 wells)
R2 = 0.57 P&A R2 = 0.80
A = .4067 Exploration (34 wells) A = 0.2391
B = .7023 (49 wells) B = 0.9462
R2 = 0.75
2
A = 0.2878 Discovery R = 0.66
(61 wells) B = 0.7081
2
(123 wells) B = 0.8258 R = 0.67
R2 = 0.32 A = 0.4613 Discovery
A = 0.6713 B = 0.6851 (6 wells)
B = 0.6045
Exploration P&A
(1 well) (1 well)
Directional
(1 well) (1 well)
> 200m
(29 wells) P&A R2 = 0.19
A = 2.1756 (19 wells) B = 0.4395
(27 wells) A = 2.1069 (6 wells)
R2 = 0.09 B = 0.4213
A = 3.2512 P&A
(8 wells)
Discovery
(7 wells)
Figure D.2 – Carnarvon Basin Drilling Costs regression correlation tree.

Total Well Costs as functions of Drilled Interval Well type Completion

Cases for analysis = 9
Appraisal P&A
(1 well) (1 well)
Direction
P&A
Directional Development (1 well)
(3 wells) (2 wells)
Discovery
Water Depth (1 well)
0-200m Exploration P&A R2 = 0.82

(31 wells) (20 wells) (19 wells) A = 2.1009
R2 = 0.57 R2 = 0.81 B = 0.7124
A = 3.30 A = 2.1871 Discovery
B = 0.523 Vertical B = 0.6988 (1 wells)
(28 wells)
Timor Sea A = 3.1311 (8 wells) (5 wells)
(42 wells) B = 0.567 R2 = 0.38
R2 = 0.60 A = 5.5654 Discovery
A = 3.5054 B = 0.4028 (3 wells)
B = 0.473
Development Discovery
Directional (1 well) (1 well)
(1 well)
> 200m Exploration P&A
(11 wells) (8 wells) (6 wells)
R2 = 0.45 Vertical R2 = 0.17
A = 4.092 (10 wells) A = 6.855 Discovery
B = 0.4032 R2 = 0.46 B = 0.1927 (2 wells)
A = 4.2266
B = 0.4007 Appraisal Discovery
(2 wells) (2 wells)
Figure D.3 – Timor Sea Total Well Costs regression correlation tree.

Drilling Days as functions of Drilled Interval Well type Completion

Appraisal P&A
(1 well) (1 well)
Direction
P&A
(3 wells) (2 wells)
Discovery

2 2
R = 0.62 R = 0.82 B = 0.7582
A = 3.6535 A = 2.4704 Discovery
B = 0.5554 Vertical B = 0.7429 (2 wells)
(30 wells)
(44 wells) B = 0.583 R2 = 0.23
R2 = 0.65 A = 6.3279 Discovery
A = 3.6768 B = 0.3124 (3 wells)
B = 0.5308
Development Discovery
Directional (1 well) (1 well)
> 200m Exploration P&A
R2 = 0.6112 Vertical R2 = 0.40
A = 2.5098 (10 wells) A = 4.7636 Discovery
B = 0.6197 R2 = 0.62 B = 0.3556 (2 wells)
A = 2.5901
B = 0.6172 Appraisal Discovery
(2 wells) (2 wells)
Figure D.4 – Timor Sea Drilling Days regression correlation tree.

Drilling Costs as functions of Drilled Interval Well type Completion

Appraisal P&A
(1 well) (1 well)
Direction
P&A
(3 wells) (2 wells)
Discovery

R2 = 0.72 R2 = 0.83 B = 0.794
A = 1.3454 A = 1.1003 Discovery
B = 0.6321 Vertical B = 0.7788 (1 well)
(26 wells)
(40 wells) B = 0.6928 R2 = 0.45
R2 = 0.72 A = 1.6326 Discovery
A = 1.4432 B = 0.4714 (2 wells)
B = 0.5828
Exploration P&A
(8 wells) (6 wells)
> 200m Vertical R2 = 0.23
(11 wells) (10 wells) A = 3.0604 Discovery
R2 = 0.49 R2 = 0.50 B = 0.2651 (2 wells)
A = 1.9165 A = 1.8465
B = 0.4795 B = 0.4823 Appraisal Discovery
(2 wells) (2 wells)
Figure D.5 – Timor Sea Drilling Costs regression correlation tree.

Total Well Costs as functions of Drilled Interval Completion

Direction Discovery
Water Depth Development (3 wells)
Directional (3 wells)
(3 wells)
Victorian Basins 0-200m

(15 wells) (15 wells) Exploration P&A
R2 = 0.54 (4 wells) (4 wells)
A = 5.942
B = 0.402 Vertical Appraisal Discovery
includes (12 wells) (5 wells) (5 wells)
2 platform rigs R2 = 0.50
A = 0.73465 Development Discovery
B = 0.3252 (3 wells) (3 wells)
Drilling Days as functions of Drilled Interval Completion

Direction Discovery
(3 wells)
Victorian Basins 0-200m P&A

R2 = 0.80 Exploration
A = 2.8237 (5 wells) Discovery
B = 0.7159 (1 well)
Vertical Appraisal Discovery

R2 = 0.81
B = 0.7327 (3 wells) (3 wells)
Drilling Costs as functions of Drilled Interval Completion

Direction Discovery
(2 wells)
Victorian Basins 0-200m

(10 wells) (10 wells) Exploration P&A
R2 = 0.87 (2 wells) (2 wells)
A = 1.4827
B = 0.6768 Vertical Appraisal Discovery
R2 = 0.85
B = 0.675 (2 wells) (2 wells)
Figure D.6 – Regression correlation trees for offshore Victoria.

Appendix E – Abbreviations and Definitions
AFE = Authorisation For Expenditure

ASX = Australian Stock Exchange
BHA = Bottom Hole Assembly
CSG = Coal Seam Gas
C&S Case and suspend the well for oil or gas production.
Drilled Interval= (TD from RT) minus (depth from RT to depth at commencement of
Drilling Time = Time from spud to TD
DST = Drill Stem Test
DT = down time (Woodside)
ILT = Invisible Lost Time (Woodside)
Intangible costs Goodwill
KB = Kelly Bushing
KPI Key Performance Indicator
LWD = Logging While Drilling
MODU = Mobile Offshore Drilling Unit
MWD = Measurement While Drilling
NOPE Notification Of Proposed Expenditure
NPT = Non-Productive Time
Offset wells The closest well data to a reference location
P&A = Plugged and abandoned
PDC Polycrystalline Diamond Compact drill bit
POOH = Pull Out of Hole
Rig Ratio Rig Rate divided by Daily Cost
RIH = Run in Hole
ROP = Rate of Penetration (Drilled Interval) / (Drilling Time)
RR = Rig day rate
RT = Rotary Table
Spud = Start of drilling
Tangible costs Assets that can be touched
TD = Total Depth
TL = Technical Limit (Woodside)
Tripping = The operation of hoisting the drill stem from the well-bore and

returning it.
Upstream = Exploration and development

UTC = Unit Technical Cost
WCR = Well completion report

Appendix F – Publications produced from my research

In addition to this thesis on Petroleum Well Costs I conducted research for the
CO2CRC. A number of reports, presentations, posters and journal papers resulted
from this work as listed below.
This appendix includes a scaled down poster I presented at the annual CO2CRC
conference at the Yarra Valley in Victoria in 2004. The presentation illustrates the
importance of well costs for assessing the economics of CO2 storage sites.
References and background reading can be found in papers by Allinson, Nguyen, &
Bradshaw (2003), Bradshaw et al.(2002) and Ennis-King & Paterson (2002).

Journal publication
Ho, M., Leamon, G., Allinson, G. and Wiley, D.E., (2006). Economics of CO2 and
Mixed Gas Geosequestration of Flue Gas Using Gas Separation Membranes. Ind. Eng.
Chem. Res. 45 (8), 2546-2552.
Conference paper
Ho, M., Leamon, G., Allinson, G. and Wiley, D.E., (2004). The economics of CO2 and
mixed gas geosequestration from stationary greenhouse emitters. In, M. Wilson, T.
Morris, J. Gale and K. Thambimuthu eds., proceedings of the 7th Greenhouse Gas
Control Technologies Conference, 5-9 September, Vancouver, Vol. 2(1), pp. 1267-
1273.
Conference presentation
Greg Leamon, (2004). Reservoir Constraints to CO2 storage.
Society of Petroleum Engineers International Asia Pacific Regional Student Paper
Contest, Perth.
Posters
Greg Leamon, (2004). Economics of CO2 injection into tight reservoirs.
CO2CRC Research Symposium, Yarra Valley, Victoria.
Minh Ho, Dianne Wiley, Greg Leamon and Guy Allinson, (2004). End-to-end economic
evaluation of membrane capture and geological storage of CO2 mixtures. Separation
Technologies VI Conference: New Perspectives on Very Large Scale Operations, 3-8
October, Fraser Island, Queensland.
Reports for the Petroleum CRC, GEODISC Project 8

UNSW, (2003). Barrow pilot study – economic analysis of CO2 storage, 33 pages.
UNSW, (2003). Gippsland pilot study – economic analysis of CO2 storage, 30 pages.
Greg Leamon, (2003). Adding value to CO2 – economics of CO2 for enhanced recovery
of oil and gas in Australia, 21 pages.
Greg Leamon, (2003). The economics of alternatives to geological storage of CO2 in
Australia, 32 pages.

Enclosure A – CD of Petroleum Well Costs

Economics of CO2 injection into tight reservoirs
View publication stats
Gregory Leamon
School of Petroleum Engineering, The University of New South Wales
SUMMARY 2 Geology and thermodynamics 4 How many wells? 6 More wells or longer pipelines?
700 0.06 250 $16
Lines of equal injection pressure
The economics of CO2 injection into ‘tight’ 600 Density
0.05 $14
Reservoir thickness (metres)

reservoirs is examined. Effective permeability and 200 Flow rate - 7.7 tonnes CO2/yr
Thickness – 50 metres
per tonne avoided (US$)

Density (kg/m3)
500
reservoir thickness are key factors. It may be more
Annualised cost of CO2

$12
Viscosity (cp)
0.04
Injectable region
economic to inject CO2 into thick but low 400
Viscosity
150 $10
permeability reservoirs close to a CO2 source than 0.03
300
to transport the CO2 a longer distance to higher Assumptions 100
$8
Permeability lines
0.02
permeability reservoirs. Low permeability reservoirs 200 Hydrostatic pressure gradient 1 well
1md
$6 100 wells
Temperature gradient 30ºC/km 48 wells 2md
2 wells
need to be large because they usually have a lower 100
0.01 19 wells 5md
50 5 wells 10 wells 10md
storage capacity per unit volume. When costs are $4
5 wells 20md
10 wells
similar, a lower permeability reservoir should be 0
0 1 2 3 4
0.00
$2
0
favoured. Containment of the gas is greater, with Depth (km) 0 10 20 30 40 50 60 70 80 90 100
0 100 200 300 400
Pipeline distance (km)
500 600 700 800
the low permeability reservoir potentially acting as a Temperature and pressure are a function of Permeability (millidarcies) The case above models transport of 7.7 million
trap as well as a reservoir. depth. Density and viscosity are a function of
With lower permeabilities, and thinner reservoirs, tonnes CO2/yr to an onshore storage site for
temperature and pressure. injection into a 50m reservoir at 2,000m.
more wells and/or higher pressures are required to
Under normal P & T conditions below 800m push the same quantity of CO2 into the reservoir. This graph compares the cost of different
1 Where are the CO2 storage sites? CO2 is in a dense supercritical state, showing
Lines on the graph represent the number of wells combinations of pipeline distance to reservoirs with
little change in density and viscosity with varying permeability but the same thickness.
required to inject CO2 at the same maximum
GEODISC identified potentially large geological increasing depth.
injection pressure for a given combination of The cost to transport CO2 100km to a site with a
storage sites for CO2 off the north-west coast of For purposes of economic analysis, at a permeability and reservoir thickness.. Combinations tight reservoir (1md) and 100 wells is the same as to
Australia. In the eastern states many of the given depth and geological setting, CO2 to the right of each line are suitable for injection for transport CO2 400km to a storage site with 5 wells
onshore geological reservoirs were considered to density and viscosity are constants. the number of wells indicated. (20mD, US$8/tonne CO2).
lack porosity, permeability or storage capacity.
When is a reservoir too tight?
The largest CO2 emitters are on the east coast.
3 Bottom hole injection pressure 5 $10
7 Main Points
Injection of CO2 into ‘tight’ reservoirs increases Effective permeability, reservoir thickness and
BHIP = CO2 flow rate x depth constant + reservoir pressure
the CO2 storage options for eastern Australia. number of wells x permeability x thickness the fracture pressure of the seal influence the cost
Lines of equal reservoir thickness
$9
of CO2 injection into a tight reservoir.
per tonne avoided (US$)

Annualised cost of CO2
The bottom hole injection pressure (BHIP) For thicker reservoirs permeabilities need to be
is the CO2 pressure required at the bottom of below 5 to 10md before a significant increase in
5metres
the well for CO2 to flow into the reservoir. $8 well numbers is required.
For a given CO2 flow rate BHIP determines 10m
High well costs may be offset by lower pipeline
the number of wells required for CO2 injection. 20m
costs than ‘good’ reservoirs with fewer wells.
BHIP also influences the size and cost of $7 100m
compressors and pipelines. Low permeability reservoirs offer better long
term containment of CO2.
The fracture pressures of the reservoir and
seal usually determines the maximum BHIP.
$6 Low permeability reservoirs increase the CO2
0 5 10 15 20 25 30 35 40 45 50
storage options for eastern Australia.
Permeability and reservoir thickness are Permeability (millidarcies)
the key geological unknowns in the equation. References
Ratio CO2 storage capacity The depth constant in the equation includes Thicker reservoirs allow CO2 to be injected into Allinson, G., Nguyen, V. (2003). The economics of geological storage of CO2 in
low permeability reservoirs for a lower cost. Australia. APPEA Journal 2003, 43(1), 623-636.
supply estimates for density, viscosity, and the log Bradshaw, J., Bradshaw, B.E., Allinson, W.G., Rigg, A.J., Nguyen, V. & Spencer,
0 - 0.01 Supply > > > Storage capacity ratio of reservoir radius to well radius. CO2 injection costs stabilise above 10 to 20md. L. (2002). The potential for geological sequestration of CO2 in Australia:
0.01 - 0.1 preliminary findings and implications for new gas field development.
0.1 - 0.2 Ratio < 1
The equation measures the instantaneous Reservoirs with permeabilities below 5md may APPEA Journal 2002, 42(1), 25-45.
0.2 – 1
1–5 injection pressure. A full reservoir simulation give a lower cost per tonne of CO2 avoided than Ennis-King, J. & Patterson, L (2002). Engineering aspects of geological
sequestration of carbon dioxide. SPE paper 77809.
5 - 10 Ratio > 1 would be required to study reservoir pressure more distant higher permeability storage sites.
10 - 100 Any Questions? contact
100 - 2000 Storage capacity > > > Supply changes over time.
Greg Leamon – gleamon@co2crc.com.au
Program 1 Storing CO2 – Project 1.7 - Economic modelling of CO2 storage systems

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A thesis submitted to the University of New South Wales

School of Petroleum Engineering

First name: Gregory Other name/s: Robert

Abbreviation for degree as given in the University calendar: ME

School: Petroleum Engineering Faculty: Engineering

Title: Petroleum Well Costs

Abstract 350 words maximum: (PLEASE TYPE)

Declaration relating to disposition of project thesis/dissertation

…………………………………………………………… ……………………………………..……………… ……….……………………...…….…

FOR OFFICE USE ONLY Date of completion of requirements for Award:

THIS SHEET IS TO BE GLUED TO THE INSIDE FRONT COVER OF THE THESIS

Gregory Leamon - The University of New South Wales - 2006

Gregory Leamon - The University of New South Wales - 2006

Gregory Leamon - The University of New South Wales - 2006

Gregory Leamon - The University of New South Wales - 2006

Chapter 2 Study objectives .............................................................. 17

Chapter 3 Background .................................................................... 18

Chapter 4 Previous studies............................................................... 32

Gregory Leamon - The University of New South Wales - 2006

4.11 Knowledge Management.............................................................54

Chapter 5 Method .......................................................................... 72

Gregory Leamon - The University of New South Wales - 2006

5.3.4 Total Well Cost...................................................................84

Chapter 6 Onshore wells ................................................................104

Gregory Leamon - The University of New South Wales - 2006

6.4.3 Drilling Costs ................................................................... 124

Chapter 7 Offshore wells ................................................................159

Chapter 8 Discussion .....................................................................200

Gregory Leamon - The University of New South Wales - 2006

8.5 Regression analysis .............................................................. 203

Gregory Leamon - The University of New South Wales - 2006

Table 5.1 – Government data sources. 75

Table 5.3 – Numbers of wells with cost data by well type. 77

Table 5.4 - Example - indexing cost categories 102

Table 6.2 – Total Well Cost by completion type 132

Table 6.3 – Completion Costs 135

Table 6.7 – CSG truck well costs 2000-2004 147

Table 7.2 – Deepwater Drilling Days, 1999-2003 166

Table 7.4 – Statistics for analysis in Figure 7.6 175

Table 7.5 – Analysis of Pre-Spud Days, 1998-2003. 177

Table 7.8 – Deepwater Drilling Costs, 1999-2003. 183

Table 7.10 – Carnarvon Basin Completion Costs, 1998-2003. 186

Table A.1 –Interpretation of correlation co-efficient ‘r’. 218

Table B.1 – Statistical analysis of CSG wells 2000-2004. 223

Gregory Leamon - The University of New South Wales - 2006

Figure 4.1 – Economic impact of learning. 36

Figure 4.2 – Woodside historical drilling performance, 1968 to 1992. 41

Figure 4.3 – The Technical Limit concept. 42

Figure 4.4 – The benchmarking process. 57

Figure 5.1 – Locations of wells with WCRs studied. 79

Figure 5.2 – Factors influencing well time and cost. 81

Figure 5.3 – Flowchart for an analysis of well phase times. 86

Figure 5.4 – Factors influencing phase costs. 89

Figure 5.5 - Well cost phases 91

Figure 6.3 – Well Cost versus Drilled Interval, 1996-2004. 112

Figure 6.8 – Pre-Spud Cost versus Drilled Interval by basin. 123

Figure 6.10 – Maximum and Minimum Drilling Cost, 1996-2004. 126

Figure 6.12 – Drilling Days versus Drilled Interval by basin. 128

Figure 6.13 – Drilling Days by drilling period. 130