TIGHT GAS SANDS STUDY BREAKS DOWN DRILLING AND COMPLETION COSTS

Barry Brunsman
Gas Research Institute
Chicago

Bryan Saunders
S.A. Holditch & Associates Inc.
College Station, Tex.

Given the high cost to drill and complete tight gas sand wells, advances in drilling and completion technology that result in even modest cost savings to the producer have the potential to generate tremendous savings for the natural gas industry.

A Gas Research Institute (GRI) study identified individual drilling and completion costs that account for more than 5% of the total well cost for the Cotton Valley, Frontier, and Wilcox formations. Stimulation, casing, and drilling rig costs are consistently a high percentage of total well costs for these tight gas sands.

Considering the level of tight gas activity over the past 10 years and the projected level in the near future, there is a potential for cost savings through technology that lowers the drilling and completion costs.

For several years GRI has sponsored research to improve the economics of developing tight gas sands. Historically, this research has been concerned with improvements in hydraulic fracturing and formation evaluation techniques.

GRI has recognized, however, that other elements of development cost (drilling costs, for example) are significant and may determine the economic attractiveness of developing tight gas sands. Thus, GRI sponsored a study to evaluate drilling and completion costs in selected tight gas sands. The objective of the study was to identify major expenditures associated with tight gas sand development and determine their relative significance.

A substantial sample of well cost data was collected for the study. Individual well cost data were collected from nearly 300 wells in three major tight gas sand formations: the Cotton Valley sand in East Texas, the Frontier sand in Wyoming, and the Wilcox sand in South Texas. Table 1 lists the number of wells analyzed and the period when these wells were drilled for each formation.

Data collection was fairly straightforward. Cost data were requested from operators in each area of interest, and a number of companies provided cost summaries for recently drilled wells.

A master list of cost categories was developed to make data analysis easier (Table 2). Because of differences in reporting formats and discrepancies in the raw data, some data were traced back to drilling and completion reports. Guidance from the operating companies and careful scrutiny of well records helped resolve most of the concerns with the data.

The data were collected and organized by cost category for each formation. After the information was input into a data base, a simple statistical analysis was performed. The statistical analysis identified data discrepancies that were then resolved, and it helped allow conclusions to be drawn regarding drilling and completion costs in these tight sand formations.

COTTON VALLEY

Operators in East Texas provided cost data from 168 wells drilled in the Cotton Valley between January 1991 and March 1993. Data from only 146 wells were used for the evaluation because of minor discrepancies in costs on some wells. Both single and dual completions were included in the data set. The median depth of the wells was 10,276 ft. The median well cost was $941,713.

Table 3 lists the most significant cost categories in the Cotton Valley wells. Stimulation costs accounted for 29% of the total well costs. Although stimulation includes acidizing, most of the stimulation charges for the tight sands regions described in this article were for hydraulic fracturing. Drilling rigs and casing accounted for 23% and 17% of the total well cost, respectively. Predrilling costs (administration, surveys, and other prespud costs) were 7% of the total, and cementing costs were 5% of the total. These major cost items constitute 81% of the total cost to drill and complete the Cotton Valley wells in the data base. Fig. 1 graphically depicts all nonzero cost categories and their magnitude as a percentage of the median well cost.

Although the cost to drill and complete dual completion wells is greater than that for single completions, the drilling and completion costs as a percent of total cost remain essentially the same. Drilling costs for dual completion wells exceeded those for single completions wells by an average of $99,000. The completions in dual wells cost $94,000 more than single completions.

Stimulation costs are obviously a major cost item in tight gas sands development projects. Thus, a closer look at Cotton Valley stimulation costs is warranted. Table 4 lists subcategories of stimulation costs for each formation studied. In the Cotton Valley, the relatively high cost of polymer is significant. This high cost is primarily because of the large volumes of gelled fluid that are pumped in this region.

FRONTIER

The available data set of wells in Wyoming's Frontier formation included 72 wells drilled between April 1990 and December 1992. This data set included wells at two different depths. Most of the wells were drilled to approximately 8,000 ft; but, a small group of wells was drilled to 12,000 ft.

The two distinct data subsets affected the cost analysis, but the impact of the data set was minimized by normalizing costs on a total well or cost-per-foot basis. The median cost for the total data set was $621,492.

Table 3 lists the major cost items for the Frontier wells. As with the Cotton Valley wells, the stimulation, drilling rig, and casing categories were significant. Lease equipment, location/roads, and workover rig costs were also significant in the Frontier. These major cost items account for 73% of the total well cost. Fig. 2 shows the itemized well costs as a percentage of the total well cost.

Some interesting trends in the major cost items were evident in the analysis. Specifically, the average hydraulic fracturing treatment costs for the Frontier declined as a percentage of total well costs during the study period. As illustrated in Fig. 3, the data are somewhat scattered but still show a trend of decreasing costs, especially when one considers that the highest values shown about 1992 are for the deepest (12,000 ft) wells.

Operators in the Frontier revealed that the cost decline can be attributed to a return to standard gelled water treatments instead of the more exotic foams or gas-assisted treatments. This design change reduced stimulation costs while apparently not affecting production performance. A longer-term study will be required, however, to fully evaluate the change in gas production because of potentially slower fracture fluid clean up.

Table 4 further breaks down the Frontier stimulation costs; of significance here is the relative importance of pumping services (pumps/equipment). The cost to perform treatments on wells in the Frontier was approximately $0.50 per pound of proppant pumped. The Cotton Valley average was $0.15 per pound proppant pumped. These costs differ considerably even though sand is used primarily as a proppant in both of these formations. The pumping service costs are a greater percentage of the total stimulation cost in the Frontier, thus explaining the substantial variance in stimulation costs on a per pound basis.

WILCOX

The data set for the Wilcox formation in South Texas included 31 wells drilled between December 1991 and April 1993. The median depth for these wells was 10,000 ft. The Wilcox is a geopressured formation with reservoir pressures and fracture gradients substantially greater than those in either the Cotton Valley or Frontier. The median cost of the wells in this data set was $891,559.

Table 3 lists the major cost elements from the Wilcox data set. As expected, casing, stimulation, and rig time were major cost elements. Additionally, drilling fluids, labor, location/roads, and rental costs were significant. These figures constitute 88% of the total well cost. Fig. 4 shows all cost categories for the Wilcox data set.

Two of the Wilcox cost items warrant further discussion. Table 3 shows that casing is a more significant cost in the Wilcox than in either the Frontier or Cotton Valley. Because the Wilcox formation is geopressured, an intermediate casing string is normally required. Also, higher strength production casing is needed because most of these wells are fracture treated down the casing.

Drilling fluid costs are also relatively higher in the Wilcox. Borehole instability problems have led to the use of oil-based fluid in this formation. The resulting increase in rate of penetration, however, warrants the use of the more costly drilling fluid. The average cost per foot for drilling rigs is lower in the Wilcox than in the Cotton Valley or Frontier.

GRI PROGRAM

GRI is a nonprofit research organization that manages a contractor-performed research and development program for the natural gas industry. A portion of GRI's total research budget is spent developing and transferring natural gas supply technologies. In the past, this natural gas supply research has included areas such as hydraulic fracturing, coal bed methane, shales technology, and formation evaluation. This study is a first step towards the development and implementation of a cohesive drilling research effort at GRI.

The cost analysis shows the magnitude of drilling and completion costs for these tight gas sand regions. When the drilling and completion activity in these regions alone is considered - thousands of wells have been drilled in these formations during the past decade - it is clear that there is an enormous potential for cost savings through an investment in technologies that lower the cost to drill and complete tight gas sands wells. This cost savings is the basis for GRI's research.

The analysis also identifies major cost categories on which GRI can focus research. Hydraulic fracturing clearly represents an opportunity for further technical improvements. Additionally, drilling rig and casing costs are major expenditures that could benefit from technical advancements.

Although GRI is just beginning its drilling research program, this research will likely be focused on three broad technical needs: improvements in penetration rate, reductions in materials, and improvements in operational efficiencies. Research in these areas should ultimately reduce the cost of some of the major items identified in this study.

RESULTS

The study identified the drilling and completions individual cost categories accounting for 5% or more of the total well cost for the Cotton Valley, Frontier, and Wilcox formations (Table 3).
Drill bits, open hole logging, and drilling fluids account for approximately 2% of total well costs in the Cotton Valley and Frontier formations. In the Wilcox, drilling fluids account for about 10% of the total well cost.
Drilling rig costs are a function of time that a rig is on the well. Thus, any technology that improves penetration rates and reduces drilling time will significantly reduce total well costs.
Stimulation costs are consistently a high percentage of total well cost for the tight gas sand formations studied (Table 4).
Formation evaluation performed prior to the setting of production casing is a small percentage (approximately 3%) of the total well costs. Nevertheless, when advanced formation evaluation technologies are applied on a regular but selective basis, fracture stimulation treatments can be optimized. Hydraulic fracturing is a significant cost, and a properly designed treatment can cut costs substantially. Hence, even though the cost of formation evaluation is relatively small, the resulting information can significantly affect the overall cost to complete a well.

ACKNOWLEDGMENT

The authors thank Enron Oil & Gas Co., Sonat Exploration, Amoco Production Co., and Conoco Inc. for data used in this study.

BIBLIOGRAPHY

Voneiff, G.W., and Holditch, S.A., "An Economic Assessment of Applying Recent Advances in Fracturing Technology to Six Tight Gas Formations," SPE paper 24888, presented at the Society of Petroleum Engineers Annual Technical Conference & Exhibition, Washington, D.C., Oct. 4-7, 1992.

Energy and Environmental Analysis Inc., "Tight Gas Field, Reservoir, and Completion Analysis of the United States-1993 Update, Vol. 1: Project Summary," topical report prepared under Gas Research Institute contract No. 5092-222-2373, September 1993.

Robinson, B.M., Saunders, B.F., and Voneiff, G.W., "Evaluation of Drilling and Completion Costs in Various Tight Gas Sands," topical report, GRI contract 5091-221-2129, December 1993.