How much does that rig cost?
Drilling cost is a highly variable cost. Every prospect has a unique cost due to changing strata geological formations, fuel and other costs incurred. The deeper the well, the more these factors affect your cost per hour or foot of completion.
Certainly historical drilling cost records are helpful but standard accounting methods that look back over short term periods of months or even a year, seldom provide anymore than partial cost numbers. This is due to upcoming future repair and replacement costs like engine, pumps and other components. These componets are partially consumed with every operating hour. These need to be included in a true Cost per Hour or Cost per Foot calculation. Historical costs are important to track but on complex machinery and equipment Unfortunately, historical accounting numbers seldom properly recognize these and other costs.
Long term look backs at historical cost suffer from imprecision due to the many different projects differences included in these numbers. This gives you only a broad historical average. For accuracy, you need to compute drilling costs for each prospect. This is going to take new methods and approaches to cost.
Drillers need a better way of calculating their true cost. A far better approach to costing both rigs and supporting heavy equipment and trucks is a costing method called Dynamic Life Cycle Costing. This method utilizes special software tools developed by Decisive Systems Inc.
www.DecisiveCost.com.You must know your costs to maximise profitability!
