Factbox: Oil and gas drilling demystified

HOUSTON/NEW ORLEANS (BestGrowthStock) – Offshore oil and gas drilling is a complicated, lengthy and expensive process. It can take a decade between initial planning, drilling, and actual production. Producers spend $500,000 or more per day for deepwater drilling rigs, and each well can cost $100 million or more, whether or not they tap into any resources.

It also is not unusual for platforms, deep-sea pumps, manifolds and pipes to take two years to build and cost up to $5 billion, depending on the size and scope.

Below are the major steps with comparative time lines based on Shell Oil Co’s Mars development in 3,000 feet of water in the 1980s and 1990s and the more recent Perdido project in 8,000 feet of water that started production in March.

LEASE DRILLING LOCATION (Mars 1985, Perdido 1996-97).

Companies typically take years to study seismic data, geologic concepts and basin analysis before deciding what to bid on. As projects move farther into deeper water, they also have to wait for technology to advance. Perdido, for example, was leased in the Gulf’s deepest waters long before technology existed that allowed drilling or production.

The U.S. government schedules prospects for lease based on company interest. Companies bid for what they think are the best prospects. Bids must meet a government minimum prospect value to win approval.

The government receives the initial bonus and a small annual rental whether or not a company drills. Royalties kick in at production time. (Mars $1.2 million bonus, $17,280 annual rental, 12.5 pct royalty; Perdido $3.5 million bonus, $43,200 annual rental, 12.5 pct royalty with deepwater incentives cutting early payments)

PERMIT AND DRILL DISCOVERY WELL (Mars 1989, Perdido 2002)

Plan, hire rig, get permit, drill discovery well. Wells typically take 60 to 90 days to drill.

PERMIT AND BEGIN DEVELOPMENT FOR PRODUCTION (Mars 1992-95, Perdido 2004-06)

Both prospects involved unitization of several leases for coordinated development.

Perdido is a hub for several fields. The main one is Great White, discovered in 2002, unitized for development with neighboring fields Tobago and Silvertip discovered in 2004. Plans were submitted in late 2006, calling for development drilling from 2007 through 2014. Platform installed in 2008 and 2009. Oil started flowing in March.

Mars’ development plan, including discoveries in neighboring blocks, was submitted in 1993 and expanded in 1995, covering wells between 1993 and 1996, installation of a platform and first production in October 1996. Oil started flowing in July 1996. Development continues.

OIL AND GAS DRILLING INVOLVES SEVERAL TYPES OF WELLS

WILDCAT is an exploratory well, which onshore originally amounted to a “wild guess” where oil might be. In deepwater, exploratory wells tend to involve a lot of research, analysis and planning. Guesses are more educated, but they still sometimes come up dry.

APPRAISAL OR DELINEATION wells follow a discovery well and are used to verify a discovery and determine how producible the formation is. Permeability and porosity of the hydrocarbon-bearing rock and whether a deposit is connected over a wide area are important.

DEVELOPMENT OR PRODUCTION wells follow a determination that a deposit is commercially worth producing. Some are not, at least not with current technology. This kind of drilling can go on for years as engineers try to maximize production from a field.

SHALLOW VERSUS DEEP DRILLING

DEFINING SHALLOW AND DEEP WATER has been a moving target as drilling and production has moved farther and farther offshore. The recent government moratorium draws the line at 500 feet. Earlier, regulators were drawing the line at 1,000 feet. With projects now well over a mile deep, the line seems likely to move again.

SHALLOW water drilling equipment stands on the sea bottom. From very shallow inland marshes to offshore waters up to about 450 feet deep, the rig, self-propelled or towed, floats into position and then lowers legs to stand on the bottom.

DEEP water drilling equipment has to float. There are drill ships and self-propelled platforms on pontoons. They tend to be dynamically positioned, meaning they are equipped with thrusters and use satellite data and computers to stay on location while drilling.

STAGES OF DRILLING A WELL

After a targeted location has been leased, placement of wells for permitting is very exact, stated in feet from a block boundary line or as a specific latitude and longitude down to degrees, minutes, seconds and fractions of seconds.

A rig positions itself over the spot, which in deepwater can be marked with a transponder on the bottom, in case the rig has to leave and return. A drilling guide pipe is driven a few feet into the bottom. Then the rig lowers a drill string and proceeds to “spud” or start the well inside that pipe.

Drilling begins, with the crew adding sections of length to the drill string as they go deeper. They cement sections of casing into the well as they go to stabilize the well walls. Casing typically steps down in diameter, getting narrower as drilling goes deeper. Casing a well requires repeated “trips” or lifts of the drill string in and out of the well using the big derrick.

As drilling proceeds, the crew circulates specially tailored heavy fluid called drilling “mud” through the bit back up the well, inside the casing but outside the drill string, to remove cuttings and to keep well pressure under control.

To gather information as they drill, the crew either pulls out and runs a logging tool into the well or, in the case of deep wells, uses sophisticated “measurement while drilling” tools attached to the string above the bit. These MWD tools measure such things as electrical resistivity of formations, a sign of the presence or absence of oil or gas.

When they reach bottom, they put in a temporary cement plug and pull the drill string out. Then they run production tubing — sometimes more than one tube — inside the casing. The tubing runs to the level intended for production, packers are placed above and blow the target zone and the casing is perforated with an explosive to start production.

(Reporting by Bruce Nichols and Kristen Hays; Editing by Walter Bagley)

Factbox: Oil and gas drilling demystified