Future Trends in Drilling Costs: A Cost-Based Perspective

Abstract

ABSTRACT U.S. drilling costs have fallen substantially since the 1982 peak reported in the Joint Association Survey. In 1987 average U.S. well costs were 54 percent of their 1982 peak. The decline in drilling costs has essentially offset the decline in gas and oil prices between 1981 and 1987. Nevertheless, drilling activity has declined substantially. The combination of lower drilling activity and lower charges for drilling has affected the financial health of the U.S. drilling and service industry, even though the Industry is substantially more efficient today than it was in the early 1980s. If drilling activity is to recover in the future, drilling charges will have to recover to support the expansion of the drilling and service industry. These charges, however, will only be able to recover to the extent that resource economics will allow. If resource economics constrain the recovery of drilling charges, such that the drilling industry can only expand modestly, then the outlook for U.S. oil and gas production could become less optimistic. Therefore, the economics of the optimistic. Therefore, the economics of the drilling and service industry is as important to future U.S. oil and gas production as the outlook for oil and gas prices.