When drilling through normally pressured formations, the mud weight in the well

is controlled to maintain a pressure greater than the formation pressure to prevent
the influx of formation fluid. A typical overbalance would be in the order of 200 psi.
A larger overbalance would encourage excessive loss of mud into the formation,
slow down drilling and potentially cause differential sticking. If an influx of
formation fluid into the borehole did occur due to insufficient overbalance, the
lighter formation fluid would reduce the pressure of the mud column, thus
encouraging further influx, and an unstable situation would occur, possibly leading
to a blowout. Hence, it is important to avoid the influx of formation fluid by using
the correct mud weight in the borehole all the time. This is the ‘first line of defence’.

When drilling into an overpressured formation, the mud weight must be increased

to prevent influx. If this increased mud weight could cause large losses in shallower,
normally pressured formations, it is necessary to isolate the normally pressured
formation behind casing before drilling into the overpressured formation. The
prediction of overpressures is therefore important in well design.

Similarly, when drilling into an underpressured formation, the mud weight must be

reduced to avoid excessive losses into the formation. Again, it may be necessary to
set a casing before drilling into underpressures.

Considerable effort will be made to predict the onset of overpressures ahead of

the drill bit. The most reliable indications are gas readings, porosity-depth trends,
ROP and shale density measurements.

If a situation arises whereby formation fluid or gas enters the borehole, the driller

will notice an increase in the total volume of mud. Other indications such as a
sudden increase in penetration rate and a decrease in pump pressure may also indicate
an influx. Much depends on a quick response of the driller to close in the well before
substantial volumes of formation fluid have entered the borehole. Once the BOP is
closed, the new mud gradient required to restore balance to the system can be
calculated. The heavier mud is then circulated in through the drill string and the
lighter mud and influx is circulated out through the choke line. Once overbalance is
restored, the BOP can be opened again and drilling operations continue.

4.8. Costs and Contracts

The actual well costs are divided into

 Fixed costs: casing and tubulars, logging, cementing, drill bits, mobilisation

charges, rig move

 Daily costs: contractor services, rig time, consumables
 Overheads: offices, salaries, pensions, health care, travel.

A fairly significant charge is usually made by the drilling contractor to modify

and prepare the rig for a specific drilling campaign. This is known as a mobilisation
cost. A similar charge will cover ‘once off ’ expenses related to terminating the
operations for a particular client, and is called a demobilisation cost. These costs can be
significant, say 5–10 million US$.

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The actual costs of a well show considerable variations and are dependent on

a number of factors, for example

 type of well (exploration, appraisal, development)
 well trajectory (vertical, deviated, horizontal, multilateral)
 total depth
 subsurface environment (temperatures, pressures, corrosiveness of fluids)
 type and rating of rig
 type of operation (land, marine)
 infrastructure available, transport and logistics
 climate and geography (tropical, arctic, remoteness of location).

4.8.1. Contracts

Most companies hire a drilling contractor to supply equipment and manpower
rather than having their own rigs and crews. The reasons for this are threefold:

 a considerable investment is required to build/buy a rig
 rig and crew need to be maintained and paid regardless of the operational

requirements and activities of the company

 drilling contractors can usually operate more cheaply and efficiently than a

company which carries out drilling operations as a non-core activity.

Before a contract is awarded a tender procedure is usually carried out (very

different from the tender described earlier!). Thus, a number of suitable companies
are invited to bid for a specified amount of work. Bids will be evaluated based on
price, rig specifications and the past performance of the contractor, with particular
attention to their safety record. Several types of contract are used.

4.8.1.1. Turnkey contract
This type of contract requires the operator to pay a fixed amount to the contractor
upon completion of the well, whilst the contractor furnishes all the material and
labour and handles the drilling operations independently. The difficulty with this
approach is to ensure that a ‘quality well’ is delivered to the company since the
drilling contractor will want to drill as quickly and cheaply as possible. The
contractor therefore should guarantee an agreed measurable quality standard for
each well. The guarantee should specify remedial actions which will be
implemented should a substandard well be delivered.

4.8.1.2. Footage contract
The contractor is paid per foot drilled. Whilst this will provide an incentive to
‘make hole’ quickly, the same risks are involved as in the turnkey contract. Footage
contracts are often used for the section above the prospective reservoir where hole
conditions are less crucial from an evaluation or production point of view.

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4.8.1.3. Incentive contract
This method of running drilling operations has been very successfully applied in
recent years and has resulted in considerable cost savings. Various systems are in
operation, usually providing a bonus for better than average performance. The
contractor agrees with the company on the specifications for the well. Then the
‘historic’ cost of similar wells which have been drilled in the past is established. This
allows estimation of the costs expected for the new well. The contractor will be
entirely in charge of drilling the well, and cost savings achieved will be split between
company and contractor.

4.8.1.4. Day rate contract
As the name implies the company basically rents the rig and crew on a per day basis.
Usually the oil company also manages the drilling operation and has full control
over the drilling process. This type of contract actually encourages the contractor to
spend as much time as acceptable ‘on location’. With increased cost consciousness,
day rate contracts have become less favoured by most oil companies.

Actual contracts often involve a combination of the above. For instance, an

operator may agree to pay footage rates to a certain depth, day rates below that
depth, and standby rates for days when the rig is on site, but not drilling.

4.8.1.5. Partnering and alliances
In recent years, a new approach to contracting has evolved and is gaining rapid
acceptance in the industry. The concept has become known as partnering and can be
seen as a progression of the incentive contract. Whilst the previously described
contractual arrangements are restricted to a single well project or a small number of
wells in which a contractor is paid by a client for the work performed, partnering
describes the initiation of a long-term relationship between the asset holder (e.g. an
oil company) and the service companies (e.g. drilling contractor and equipment
suppliers). It includes the definition and merging of joint business objectives, the
sharing of financial risks and rewards and is aimed at an improvement in efficiency
and reduction of operating costs. Therefore, a partnering contract will not only
address technical issues but also include business process quality management. The latter
has proven to result in more efficient and economic use of resources, for instance
the setting up of ‘joint implementation teams’ has replaced the practice of having
separate teams in contractor and operator offices, essentially performing the same
tasks.

The industry is increasingly acknowledging the value of contractors and service

companies in improving their individual core capabilities through alliances, that is a
joint venture for a particular project or a number of projects. A lead contractor, for
example a drilling company, may form alliances with a number of subcontractors to be
able to cover a wider spectrum of activities, for example completions, workovers and well
interventions.

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