The World According to Wayne: A Drill Isn't the Only Moving Part When it Comes to Oil Exploration
April 22, 2013
Editor’s note: This is the first in a two-part series where Wayne Nash is exploring Oil Wells 101.
Drilling an oil well is a complex process that requires several steps beyond just rigging up a rig and turning to the right. I’ll try to outline what it takes, in broad terms, to go from a gleam in someone’s eye to a check in the bank.
The first thing any drilling project needs is money. Large amounts of it. At first glance, it seems like an exorbitant amount. If you go through a drilling project line by line, you will find that each amount is necessary and justified, but it all adds up. This is true whether you are one of the major oil companies or a small independent oil company. Even at the majors, a young engineer with a gleam in his eye must convince management to commit funds to his project. With an independent, the money usually comes from a number of outside investors interested in getting involved.
After funds are assured, the search begins in earnest. The first step is to identify a likely prospect. Since we can’t see under the ground any better than Ray Charles, other clues must be used. Is the location in a known field, and are there wells close by? If so, a good idea of depths and production can be had from the logs. If not, does the geology hold promise for a good reservoir, or source rock? To find this out, sometimes seismic searches can be made to determine the “lay of the land” underground. With new technologies, this can be very accurate. The success rate of a wildcat well has gone from one in 10 a few years ago to four or five in 10 today. It’s a significant increase, but success is never completely assured until oil is flowing.
After a suitable location is found, then come the land-men. These guys haunt the courthouse to determine who, if anyone, owns the mineral rights to the location. If the prospective lease is on federal land, the acreage may come up for auction and can be bid on. Once that is determined, the land-man will visit the land owner and try to buy a lease to explore for oil on their property. Lease prices vary all over the map. In known producing areas, lease prices can be quite high. In areas with no known production, lease prices can be very reasonable because the chances of success are sometimes lower. The land-man negotiates with the tenacity of a used car salesman. The per-acre price, the length of the lease, the royalty, the surface infrastructure and many other things are up for negotiation.
Once a location is staked, the management team must design the well based on the expected geology and pressures involved, plus contingencies for the unexpected. Murphy-and his famous law-lives in the oilfield. Indeed, it seems that is where most of his laws were created. Beyond engineering, budgeting is part of this process. Ideally a project will budget for several wells. Then the money is there to be sure to complete the first one. If they come in under budget, they can drill more wells. If they go over, they learn from their mistakes and streamline operations. Typically, the first well is the most expensive because conditions that may not be there must be planned for and unplanned conditions, such as high pressure or lost circulation, may arise. After the conditions are known on subsequent wells, the budget can be adjusted accordingly. Take out the thing you don’t need and anticipate the problems. Prevention is much cheaper than cure.
During the engineering and budgeting process, rig selection takes place. This is done by a rig appraiser or auditor. A rig must be found that is available, and has the right capabilities. A huge, powerful rig will be able to handle most anything that comes its way, but may be too expensive. A smaller rig may be cheaper but not able to handle the job. Crew experience plays a role, especially in boom times, when the crews might be lacking in key experience. Another factor in rig selection is down time. You might think that a brand new rig is best. Not necessarily. New rigs usually have some bugs that must be worked out, and this is usually done on location. This may not cost the operator money, but it costs time, which is money. The other side of the coin is an old junk rig that is cheap to hire, but broken half the time. A compromise must be made. No rig runs 100 percent of the time. A good choice is a rig in good shape, regardless of age, an experienced crew and the capability to do the job.
During this time, site preparation takes place. This may be nothing more than a little land clearing, but it will usually entail sophisticated pad building, roads, bridges, cattle guards and the like. Beyond the physical requirements of the well, there may be agreements with the land owner for things like fences, continuing maintenance, cattle guards, site restoration and other factors.
Be sure to read the next installment in May’s National Driller, where we finish up the site preparation and get to drilling.