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Drilling and Completion Cost in the Louisiana Haynesville Shale, 2007–2012

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Abstract

Well construction costs comprise the largest component of the capital expenditures required in onshore development, but detailed cost studies at a play level based on actual cost has never been presented in the literature. The purpose of this paper is to evaluate well construction cost in the Louisiana Haynesville shale from 2007 to 2012 and present cost statistics and correlations at a regional and operator level. Over half of the wells constructed in Louisiana’s Haynesville shale since its discovery cost between $8 and $11 million to drill and complete, and the average well cost is $9.95 million. EP Energy LLC realized the lowest average drilling and completion cost at $8.4 million per well, and the highest average cost among leading operators was Swepi LP at $11.1 million per well. We conclude with an empirical analysis of learning effects.

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Notes

  1. Conversion factors from English to SI units are given in Appendix 1.

  2. Long-radius horizontal wells have build rates in the 3 deg/100 ft range with the horizontal part of the borehole several thousand feet in length. Medium-radius horizontal wells have build rates 30 deg/100 ft and are usually drilled for shallow objectives.

  3. Upgrades may involve converting a rig from mechanical to electric power, expanding mud pump capacity, and adding drawworks horsepower. Upgrades may be performed at any time and is an investment decision.

  4. A unit is an area of land or minerals where the owners of the minerals share in the costs and revenues of drilling and completion (La. Mineral Code art. 213(6)(2009)). If an operator cannot get all of the owners to agree to “pool” their interest, the Louisiana Commission of Conservation may force pooling of minerals creating a “compulsory unit” to prevent waste or to avoid drilling unnecessary wells (La. Rev. Stat. Ann. 30:10(A)(i)(2009)).

  5. The best-fit model parameters for the functional specification Cost = A + B * MD all yield R 2 > 0.90, but because A < 0 for most years, we favored eliminating the fixed cost component in the relations.

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Authors and Affiliations

  1. Center for Energy Studies, Louisiana State University, Energy Coast & Environment Building, Nicholson Extension Drive, Baton Rouge, LA, 70803, USA

    Mark J. Kaiser & Yunke Yu

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  1. Mark J. Kaiser
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  2. Yunke Yu
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Correspondence to Mark J. Kaiser.

Appendices

Appendix 1: Conversion Factors

Table 16 Conversion Factors
Full size table

Appendix 2: Louisiana Severance Tax Relief Program

Severance Tax Exemption

Louisiana provides a severance tax exemption on all horizontal wells drilled or recompleted where production commenced after July 31, 1994. Under Louisiana Revised Statute 47:633(7)(c), all severance tax on a horizontal well is suspended for a period of 24 months or until payout of drilling and completion cost is achieved, whichever comes first. Applicants for the severance tax exemption are required to submit well construction cost data to receive the exemption, and the state requires a well to be certified as horizontal before severance tax exemption is granted.

Horizontal Well Certification

LA R.S. 47:633(7)(c) defines horizontal drilling as “high angle directional drilling of boreholes with 50 to 3,000+ ft of lateral penetration through productive reservoirs.” The Louisiana Office of Conservation certifies that a well qualifies as horizontal using directional surveys and the stratigraphic lateral of the wellbore projection. Three conditions are required for a well to be certified as horizontal: (1) The wellbore is drilled laterally at an angle of at least 80 degrees to the vertical; (2) A horizontal displacement of at least 50 ft measured from the initial point of penetration into the producing reservoir; and (3) Horizontal displacement occurs in the reservoir in which the well is completed for production.

Severance Tax Relief Program

The Louisiana Severance Tax Relief Program requires applicants to submit well construction cost data and to maintain invoices and documents for a period of 3 years for auditing and verification purposes. Application forms are submitted after wells produce and may arrive at the Louisiana Office of Conservation a year or more after the spud date. Once received, applications are reviewed, processed, and if complete, approved. Audits are conducted randomly by the Office Audit Division and verify approval of the application for exempt well status, filing of the monthly exempt well report, well payout, and the length of time the approved exemption can be taken in the tax return.

Well Cost Statement

Well construction cost is classified according to three primary categories and several subcategories. The primary categories of the WCS are pre-drill costs, drilling costs, and completion costs. Pre-drill costs are classified into five subcategories, drilling cost into 16 subcategories, and completion costs into 14 subcategories. Eligible expenditures that fit multiple categories are apportioned. If the drilling rig is used for completion operations, costs are separated into the drilling and completion categories. The cost of equipment servicing multiple wells is proportionally distributed between the number of wells serviced. Lease-related costs, legal fees, hearing costs, saltwater disposal wells, title searches, and existing equipment are examples of costs that are not allowed. Waste disposal and site restoration costs associated with a well control incident or spill are also not allowed.

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Kaiser, M.J., Yu, Y. Drilling and Completion Cost in the Louisiana Haynesville Shale, 2007–2012. Nat Resour Res 24, 5–31 (2015). https://doi.org/10.1007/s11053-014-9229-9

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