Study benchmarks 2001 drilling, completion cost for 400 South Texas gas wells

A group of operating companies with gas well completions in South Texas participated in a 400-well drilling costs and practices benchmarking study conducted by Houston-based Ziff Energy Group.

By OGJ editors

HOUSTON, Nov. 13 -- A group of operating companies with gas well completions in South Texas participated in a 400-well drilling costs and practices benchmarking study conducted by Houston-based Ziff Energy Group. The 12 companies—ranging in sizes from independents to majors—drilled the wells in Texas Railroad Commission Districts 1, 2, 3, and 4 during 2001.

The study assessed more than $1 billion of capital spending, of which the operators spent $685 million for drilling costs and $360 million for total completion costs.

Categorizing the wells into seven asset class groups, Ziff found that average drilling costs for the groups varied widely—from a low of $71/ft to more than $200/ft.

Project design
South Texas is one of the most active US onshore gas exploration and production areas, and 2001 was a period of strong gas drilling activity, Ziff said.

The company said that the operators with active drilling operations in the area strongly supported the project's best-practices investigation by providing study design input for peer well groupings, cost classifications, cost drivers, and drilling practices.

The operators agreed to peer groups based on factors related to type and difficulty of drilling, such as well depth, pressure conditions of the zones encountered, and whether the well is vertical or directional.

The study's key measures included drilling costs in $/ft, average drilling rate in ft/day, and the unit cost of initial production in $/Mcfd equivalent.

The study presented the findings in blind or confidential well-level comparisons of the costs within each peer group of similar wells.

Ziff said participating operators received a detailed diagnostic report on each well, comparing it on a like-kind basis with peer wells, which identified potential savings in each cost category.

Asset peer groups
The study grouped the wells into seven categories with increasing levels of drilling and completion severity or difficulty. Depth was a main subdivision with shallow wells defined as less than 10,000 ft and deep wells greater than 10,000 ft.

The study categorized shallow wells encountering zones that were either normal or overpressured, with normal pressure referring to zones with saltwater hydrostatic gradient to surface or less. Overpressured referred to zones with greater than saltwater gradient to surface.

The remaining five categories were for deep wells or wells deeper than 10,000 ft, as follows:

-- Wells with normal pressure or formation pore pressures existing at a saltwater gradient or less.

-- Overpressured wells or those with formation pore pressures greater than saltwater gradient.

-- Under- and overpressured wells encountering pore pressures either significantly less than saltwater gradient or greater than saltwater gradient.

-- Directional, overpressured wells that encounter greater than saltwater gradient.

-- Directional, under- and overpressured wells encountering pore pressures significantly less than saltwater gradient or greater than saltwater gradient.

The shallow, normal-pressure well group's profile showed that the average group drilling cost was $95/ft and a best-in-class well cost $53/ft on average.

Ziff said rig and tubular costs accounted for almost half of the shallow, normal-pressure well costs. Completion costs for that well group varied significantly, with an average cost of about $365/Mcfd equivalent.

Benchmarking
In addition to the peer-group comparisons, the study provided comparisons more specific to the needs of individual participants, benchmarking several factors:

-- By hole or casing size.

-- By target formation.

-- By size of the drilling program.

Data collected for trouble incidents, geographic objective, well depth, whether the wells were located in environmentally sensitive areas, and detailed drilling time breakdown provided drilling cost data for cost-driver analysis.

From information supplied through questionnaires and personal wellsite visits, the operators highlighted three leading drilling practice areas that drive lower drilling costs. Three practice areas were of particular interest:

-- Drilling procedures to avoid difficulties.

-- Directional drilling planning and execution.

-- Practices to maximize drilling rate of penetration.

Based on discussions at the design advisory meeting regarding theme topicson avoiding and quantifying trouble time, operators highlighted a number of key practices:

-- Contracting practices.

-- Mud and chemicals utilization.

-- Compensation issues or incentive bonuses.

-- Training.

-- Organizational learning.

-- Inspections of the drill strings and blowout preventer.

More in Drilling & Production