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600 500 400 15000-17499 Drilling Technology and Costs 300 17500-19999 MIT Composite Index 1250-2499 2500-3749 3750-4999 5000-7499 7500-9999 10000-12499 12500-14999 200 100 MITDD Drilling Cost Index 1977 = 100 Chapter 6 1975 1980 1985 1990 1995 2000 2005 Year Figure 6.2 MITDD drilling cost index made using average cost per well for each depth interval from Joint Association Survey on Drilling Costs (19762004), with data smoothed using a threeyear moving average 613 (1977 = 100 for all depth intervals). Note: 1 ft = 0.3048 m. Although the drilling cost index correlates how drilling costs vary with depth and time, it does not provide any insights into the root causes for these variations. An effort was made to determine what factors influence the drilling cost index and to explain the sometimes erratic changes that occurred in the index. The large spikes in the drilling index appearing in 1982 can be explained by reviewing the price of crude oil imports to the United States and wellhead natural gas prices compared to the drilling cost index, as shown in Figures 6.3 and 6.4. The MIT Composite drilling index was used for simplicity. Figures 6.3 and 6.4 show a strong correlation between crude oil prices and drilling costs. This correlation is likely due to the effect of crude oil prices on the average number of rotary drilling rigs in operation in the United States and worldwide each year, shown in Figure 6.5. Therefore, the drilling cost index maximum in 1982 was in response to the drastic increase in the price of crude oil, which resulted in increased oil and gas exploration and drilling activity, and a decrease in drilling rig availability. By simple supplyanddemand arguments, this led to an increase in the costs of rig rental and drilling equipment. The increase in drilling costs in recent years, especially for shallow wells, is also due to decreases in rig availability. This effect is not apparent in Figure 6.5, however, because very few new drilling rigs have been built since the mid 1980s. Instead, rig availability is dependent, in part, on the ability to salvage parts from older rigs to keep working rigs operational. As the supply of salvageable parts has decreased, drilling rig rental rates have increased. Because most new rigs are constructed for intermediate or deep wells, shallow well costs have increased the most. This line of reasoning is supported by Bloomfield and Laney (2005), who used similar arguments to relate rig availability to drilling costs. Rig availability, along with the nonlinearity of well costs with depth, can account for most of the differences between the previous MIT index and the new depthdependent indices. Drilling Cost Index Depth Intervals (Feet)PDF Image | Drilling Technology and Costs
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