Wednesday, April 23, 2008

Part 3 of Steps involved in a typical oil and gas drilling venture/investment – Preparing and drilling the well

This is the third article in a series that will provide an overview of a typical oil or gas drilling venture from beginning to end (payment of investors). The first two articles covered scouting a location for drilling through forming a partnership and funding the well using a private placement memorandum (PPM). This article will cover steps involved with preparing and drilling a well. The first article can be read here. The next article can be read here.

Selecting the drilling rig operator:
The oil producer now has a partnership established and funding from investors to start drilling the well. The producer should have established a relationship will a drill operator. The operator is usually responsible for securing resources to drill the well including a drill rig, rig workers, and all supplies needed. These resources vary with the depth and type of well being drilled.

Chosing the appropriate drilling rig for the oil/gas project being presented:
A simple shallow well may only need a small drilling rig that is positioned on the back of a special truck. The truck parks over the drill spot, raises the drill structure to a vertical position from the horizontal resting position, secures the rig with cables in the ground, and starts drilling fairly quickly once supplies and workers are in place. For deeper wells, off-shore wells, wells requiring horizontal drilling, these challenges require different types of rigs. The rigs can become substantial in size costing hundreds of millions of dollars. A good operator will select the right rig for the right job at the right cost.

Preparing the land before drilling:
The oil producer will pay to have the grounds cleared and roads put in for the rig and supporting equipment and supplies to have easy access for setting up. Initially they will spud the well, meaning start the drilling.

Understanding how an oil/gas well is drilled:
Drilling a well usually requires a drill bit that rotates through the ground with many teeth (usually diamond or other very hard material). The cut rocks and materials need a way to move out of the hole while being drilled. This is accomplished by having the drill bit sit on the end of a hollow drilling pipe. A special fluid (nick named mud), mixed with special chemicals, is pumped down the pipe - exiting through the drill bit. This lubricates the drill bit and carries out the cut rocks and dirt to the surface. On the surface, the dirt and rocks are separated from the fluid and the fluid reused again down the pipe. The mud serves another purpose of counteracting any pressures encountered while drilling such as gas or oil wanting to come to the surface. The weight is increased to counter the pressure and keep the well stable.

After drilling is complete, log the well to see if it is viable or not:
When the final depth is reached, the well will be logged. Usually a radioactive device is lowered through the mud to the bottom of the well. While the device moves through the total depth of the well, sensors read the reflections through the surrounding grounds. A trained geologist can usually tell what type of materials are present at each depth and how porous the ground is for letting oil or gas flow. Many times, there may be indications of oil or gas, but the ground may not be porous enough to support a good flow of the oil and gas through the well. These wells can be very frustrating for investors since the oil and gas may be present, but there may be no commercially viable/profitable way to extract it. Therefore, investors and other stakeholders in the well usually wait on pins and needles for the results of the log to know if the well is going to be a good producer or not.

Putting a viable well into production:
Viable wells will have casing placed around the wall of the well to stabilize the well, helping prevent damage or cave-in. The log determines underground layers/depths that look most promising for producing oil or gas. These areas are perforated (holes blown through the casing for the flow of oil or gas). Sometimes the well is not porous enough to support a good flow of oil or gas. The oil producer and operator may then decide to frac the well. In this case, special fluids or other materials are forced at very high pressure through the perforated holes well into the ground to open up fissures conducive to the flow of oil and gas. A frac job may not always work, but often does tremendously increase the flow of oil or gas. There are other methods used to stimulate the flow of oil or gas. The oil industry has many tools and methodologies developed over years to handle most situations encountered in wells. The goal is to get an optimal flow of oil or gas from the well that keeps the well stable and provides a good return for the investors.

Next article in this series:
In the next article, we’ll cover details about putting a well into production and selling the resulting oil and/or gas.

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Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at with any questions, thoughts, or requests for information on what projects we are invested in.

This article was posted at Accredited Investor Blog: Past articles can easily be found at This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content

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