Cutting completion costs

Elaine Maslin

February 1, 2017

The UK North Sea has an industry target to cut well completion costs by 50%. Elaine Maslin reports.

Looking up through a derrick. Photo from BP.

Well construction accounts for 30%-50% of capex on the UK Continental Shelf (UKCS) and costs have escalated in recent years, contributing to low drilling activity. According to industry body Oil & Gas UK, since 2004, well construction costs quintupled, and rigs costs doubled (although the current economic climate is having some impact on this). Wells are also taking twice as long to drill.

BP found that since 2003-2005 mud, chemicals – and engineering support around those – directional drilling, measurement while drilling, and logging while drilling services had all doubled or quadrupled. In addition, costs associated with cement, additives and related engineering support had doubled and tripled. Wellhead maintenance increased by 2-4x, mud logging and wellsite geophysics by 2-3x, logistics by 3-5x, diving and remotely operated vehicle services by 2-3x.

The result? There were an average of 51 appraisal wells per year from 2006-2010, and just 24 per year from 2011-2015, Oil & Gas UK says. While that is a concern for driller’s revenues, the bigger concern is the future health of the industry – no drilling, no new production.

Katy Heidenreich, operations optimization manager, Oil & Gas UK, says that the cost increases are due to a number of factors, including rig- and service rate escalation, reduced operational efficiency, tightening industry standards, additional complexity to access smaller reserves, and erosion of experience levels. Furthermore, competition within the market has traditionally prevented sharing between operators.

BP’s approach, set out at Oil & Gas UK’s Share Fair in Aberdeen last year, is to use a minimum technical approach from the start to “explicitly justify design choices.” BP’s approach also includes, “rigorously assessing what [the company] really needs to purchase and rent for equipment and services to execute the design, keeping detailed information on spend and progress towards the 50% reduction target from a 2015 baseline (and) making progress on our aspiration of top quartile delivery on all [BP’s] wells.”

Work is underway to address these challenges through a Well Cost Reduction Initiative, set up (through Oil & Gas UK’s Wells Forum) with operators, contractors and project management firms – on board. It aims to cut well construction costs by 50% and push exploration drilling rates back on an upward curve, unlocking new areas, but also helping to extend the life of existing assets. The initiative promotes well design and equipment simplification and standardization, and encourages better sharing of information and good practices.

Further work is underway aimed at reducing well construction costs, under the MER UK Technology Leadership Board, which includes studying which technologies can help drive construction efficiencies and improve well productivity.

So far, the initiative has two focus areas. The first has seen cross-industry peer reviews of wells planned for the end of 2016 and early 2017. This saw 10 operators peer reviewing well and completion designs. Workshops found areas for improvement around standardized and simplified designs, encouraging broader uptake of technology, reduced operational uncertainty through better planning, and shortened rig use. The second area is around reducing drilling time, by sharing improvements made. Eleven operators and contractors are supporting this work, which will lead to updated guidelines.

“We recognize that on an individual basis companies are running their own performance improvement initiatives and have already achieved significant cost reductions,” Heidenreich says. “However, there is an even greater prize to be achieved through cooperative industry efforts and, most importantly, that operators, rig contractors and service providers work together to lock in efficiency measures, and continue to share good practices and expertise. This is the most effective way to establish a new, lower and sustainable benchmark for cost effective well operations on the UKCS.”

There’s a prize to be had if these initiatives work. Oil & Gas UK estimates that a 50% reduction in core well construction costs, could unlock more than 5 billion boe of known reserve potential over the next decade. To put it another way, the amount of money that could be saved could pay for 40 additional wells at today’s estimated cost.