Oil rigs constructions can be expensive and cost from $20 million to as high as $1 billion. Massively more significant investments are required in drilling equipment.
This is the reason oil producers take so much time and money. The modern process of drilling a well began in the 19th century but became more efficient with the progress made in oil drilling rigs in the 20th century.
Drilling rigs are essential pieces of oil equipment used during various stages during the life cycle of oil and gas fields.
The drilling oil rig is a highly complex operation that requires an enormous amount of planning and teamwork.
A modern drilling project may involve 30 to 40 different individual companies to fully complete the process.
The cost depends on the depth and complexity of the well. The modern horizontal costs of drilling wells can easily exceed $ 4,000.
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Oil Rigs Cost By Types
There are two types of oil rigs, onshore or Land rigs and offshore rigs. For land drilling, two significant expenses for oil producers are getting infrastructure access for roads, water, and electricity.
Land-based drilling rigs can be of different sizes, powers and can be used in various applications.
Onshore And Land Oil Drilling Cost
An onshore or Land rig is a drilling rig specially designed for drilling holes in ground locations. The installation can be a large industrial structure with all the drilling equipment and tools, or a small installation, which can be moved from one place to another.
The cost of land drilling usually starts at about $18 million to $20 million and can rise to $25 million.
Demand for onshore drilling is influenced by the growing demand for fossil fuels and global exploration and production activities.
Well, intervention and processing activities have less impact on the demand for drilling equipment due to other available well intervention methods and technologies.
However, more wells do not mean more rigs. Newer constructed rigs are more efficient, and fewer facilities are needed to produce the same or more wells with buffer drilling.
Oil price volatility significantly affects the demand for onshore drilling rigs as fewer wells are drilled during the industry downturn.
Historically, North America had the largest market share, followed by the Middle East and Latin America. In the Middle East, Oman, Saudi Arabia, and Kuwait are the most significant areas for land rigs.
Offshore Oil Drilling cost
Offshore oil rigs are drilled from all drilling equipment, storage areas, and work crew housing. Some drilling rigs stand on slit-like legs, which are embedded in the ocean floor.
Floating platforms are used to drill in deeper water, including water depths of 10,000 feet or more. These vessels are attached to the ocean floor by large cables and anchors.
For offshore drilling, the cost of drilling equipment is approximately 90% of the total investment of an oil producer.
Offshore rigs cost is 15 to 20 times higher than land drilling. The least expensive offshore rig typically costs about $200 million. It also depends on the drilling depth. The deeper the holes are, the higher cost will be.
Factors that affect the Oil Rig Construction Cost:
The price of oil rigs in the US starts from $18 million to $20 million and can go higher to $25 million with the increase in the market rate.
The amount can go double if you want to buy or construct a specific rig. The least expensive rig in the US is the small footprint land rig.
Many factors contribute to rig construction costs. These primary factors are market conditions, design type and class, rig specifications, and construction shipyard.
Apart from these, shipyard productivity, contract type, and scale economies also have a greater influence on cost, but it is more difficult to assure the nature of their impact.
In addition, many other secondary factors affect the cost of the piercing.
For example, the total depth of the well, the type of rock formation, the diameter of the well, the casing, the drilling schedule, and removal are some variables.
Some of these factors are very important because they can significantly affect other drilling variables.
Primary factors that influence the rig construction costs are described below.
Market conditions
Prices of rig construction are specified according to the demand for construction services and the capability of shipyards to supply these services.
Drilling contractors demand new build rigs when there are positive investment criteria of day rates and utilization rates.
Only a few shipyards around the world can build rigs, and during the high-demand days, the supply of rig construction services increases in the market. From 2000 to 2011, the prices for both floaters and jack-ups were low due to little activity in the market.
Material prices
Rig building requires drilling, labor, steel, and other equipment. Therefore the cost is distributed in these categories and brings variation in construction cost by rig complexity, time, and class.
The shipyard location also plays a vital role in the costs. There is a low labor cost in China and represents a small proportion of 10% of the total cost, whereas the US has a high labor cost, around 30% of the total cost.
Steel is the main component of rig construction. Steel costs are also highly variable over time. When the steel prices are high, the cost will also increase.
Service cost
Service cost is associated with any service required for the construction of wells. The service cost may include;
- Communication cost- This is the cost of telephone bills, data transfer, etc.
- Rig Positioning cost- Rig positioning cost required in offshore operations
- Wire line logging cost- This Cost is related to running and producing wireline logs
- Drilling Measurement cost- This is the cost of running and renting MWD and LWD
- Mud engineering Cost- Cost required to maintain mud products and for mud engineer
- Downhole motors Cost- the cost used in downhole motors during directional drilling or during drilling long sections of vertical wells
- Surveying Cost- This is the cost required to run surveys inside the hole to determine the hole angle
- Cementing cost- this is the cost needed to renting the cementing unit and the cement engineer
- Mud logging- this is the cost required to renting the mud logging unit and engineers to run the unit
Equipment prices
Motors, cranes, generators, drilling equipment, and dynamic positioning systems are essential components of the rig cost.
All these materials are purchased by the platform creator and assembled on-site or at another location. The rig package is the largest equipment expense and generally costs $ 20- $ 70 million for elevators and $ 100- $ 200 million for floats.
Equipment costs are influenced by steel prices, as most equipment is made of steel, but more importantly, it is influenced by demand from the oil how and commercial transportation industries. The cost of labor is also a significant component in equipment manufacturing costs.
Labor Cost
Labor cost and productivity are also essential factors for rig construction cost. Labor costs and productivity have increased over the past decades.
According to an estimation, labor cost contributes 10 to 15 percent to the total rig construction.
Allowances
A significant part of the budget must be allocated to allowances, as the drilling process is highly unpredictable due to the uncertainty of the underlying geological formation.
Minor geological variations can have an extraordinary delay in drilling rates, which increases operating costs, such as the cost of renting drilling equipment, etc., which are billed at daily rates.
Cost for Site preparation
Sometimes the construction of roads is required to the site. Good roads and pavements are necessary for heavy equipment to reach the wells. Bulldozers, excavators, road graders, and dump trucks are generally used to construct the road. The construction on-site usually takes 15 to 20 days, but sometimes it can take even longer. The cost on spend on-site preparation is
major cost factor that can exceed $ 400,000 per location.
Drilling
Moving drilling rig to the construction site is also an important task that requires an enormous amount of planning and teamwork.
A modern drilling project may involve 30 to 40 different individual companies to fully complete the process.
The cost for drilling depends on the depth and complexity of the well. The modern horizontal costs of drilling wells can exceed $ 4,000,000 in the drilling phase alone.
Without the complications of drilling, these wells generally last about three weeks for the drilling phase.
Rig mobilization
During drilling, the drilling rig must be moved in and assembled. The process of rig mobilization can take 2 – 3 days. Rig mobilization expenses depend on how far the rig must be transported, but it usually can run between $100,000 to $350,000.
Rig construction on contracts
The rig can also be built by drilling contractors with or without a firm contract commitment from A&P Company. When building a speculative rig, drilling contractors may approach negotiation more aggressively and may be less willing to pay than building a rig with a contractual commitment. Building a platform based on speculation increases the investment, which is more profitable over the rig’s life.
