Ever wonder how costs break down for drilling and completing an unconventional oil or gas well?
The U.S. Energy Information Administration recently answered that question in its Trends in U.S. Oil and Natural Gas Upstream Costs study, which found that 77 per cent of a typical unconventional well’s total cost is comprised of just five key cost categories:
- Rig related costs Rig related costs are dependent on drilling efficiency, well depths, rig day rates, mud use and diesel fuel rates. Rig day rates and diesel costs are related to larger market conditions and overall drilling activity rather than well design. Rig related costs can range from $0.9 million to $1.3 million making up 12–19 per cent of a well’s total cost.
- Casing costsCasing costs are driven by the casing markets, often related to steel prices, the dimensions of the well,and by the formations or pressures that affect the number of casing strings. Within a play, well depths are often the most variable characteristic for casing with ranges of up to 5,000 feet. Operators may also choose to run several casing strings to total depth or run a liner in lieu of the final casing string. Casing costs can range from $0.6 million to $1.2 million, making up 9–15 per cent of a well’s total cost.
- Frack pumping costsFrack pumping costs can be highly variable, but are dependent on horsepower needed and number of frack stages. The amount of horsepower is determined by combining formation pressure, rock hardness or brittleness and the maximum injection rate. Pumping pressure, which includes a safety factor, must be higher than the formation pressure to fracture the rock. Higher pressure increases the cost. The number of stages, which often correlates with lateral length, is important since this fracturing process, with its associated horsepower and costs, must be repeated for each stage. The total costs for all stages can range from $1.0 million to $2.0 million, making up 14–41 per cent of a well’s total cost.
- Completion fluid costs Completion fluid costs are driven by water amounts, chemicals used and frack fluid type, such as gel, cross-linked gel or slick water. The selection of fracking fluid type is mostly determined by play production type, with oil plays primarily using gel and natural gas plays primarily using slick water. Water sourcing costs are a function of regional conditions relating to surface access, aquifer resources and climate conditions. Water disposal will normally be done by re-injection, evaporation from disposal tanks, recycling or removal by truck or pipeline, each with an associated cost. Typically, about 20–30 per cent of the fluids flow back from the frack and require disposal. Operators typically include the first 30–60 days of flow back disposal in their capital costs. These costs can range from $0.3 million to $1.2 million making up 5–19 per cent of well’s total cost.
- Proppant costsProppant costs are determined by market rates for proppant, the relative mix of natural, coated and artificial proppant and the total amount of proppant. Proppant transport from the sand mine or factory to the well site and staging make up a large portion of the total proppant costs. Operators use more proppant when selecting less costly proppant mixes, which are comprised of mostly natural sand as opposed to artificial proppants. A higher mix of artificial proppants has often been used for very deep wells experiencing high formation pressures. Overall, the amount of proppant used per well is increasing in every play. These costs can range from $0.8 million to $1.8 million making up 6–25 per cent of well’s total cost.
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