The industry spent 35% more on offshore drilling in the U.S. andabout 10% more on gas-directed drilling last year than in 1997,according to the 1998 Joint Association Survey on Drilling Costs(JAS) by the American Petroleum Institute.

U.S. oil and gas drilling operation expenditures rose in 1998from the previous year to its highest level since 1985, API said.The cost increase occurred despite sufficient supplies of crude oilworldwide, falling oil and natural gas prices and weakenedSoutheast Asian economies. According to the survey, the industryspent 9.6% more in 1998 to drill and equip wells than it did in1997. Total drilling expenditures were estimated to be $17.6billion in 1998, compared with $16 billion during the previousyear.

For the first time in four years, gas targets dominated domesticdrilling as the oil-well share of total wells drilled fell 10% fromthe previous year. Also, an emphasis on deep to ultra-deep (10,000to 20,000+) development objectives, mainly offshore, fueled thehighest average cost per well and the highest average cost per footever. Operators spent $5.5 billion offshore in 1998, a 35% jumpfrom the previous year, drilling and completing wells in steadilydeeper waters. The number of offshore development wells drilled andtheir costs rose 40% and 71% respectively from the previous year.Exploration in the U.S. offshore remained confined almost entirelyto the Gulf region where drilling and completion activitiesaccounted for nearly 85% of all offshore expenditures in 1998.

Onshore, expenditures for deep development dry hole activity(greater than 10,000 feet) increased nearly 30% in 1998 from theprevious year. Development onshore drilling rebounded in 1998,compared with 1997, largely due to activity concentrated in EastCentral California’s Kern County, Central Alabama, the TexasPanhandle and East Texas Basin, and those areas of theRockies-northern New Mexico, Utah and Wyoming-where drilling inrecent years has increasingly focused on natural gas.

Advances in technology have made horizontally drilled wells aviable option for field development. Horizontal drilling activityin 1998 remained at roughly the same level compared with theprevious year with 1,016 horizontal wells completed and $1.1billion spent, a nearly 4% increase over 1997 expenditures.

Copies of the 1998 Joint Association Survey on Drilling Costsare available for $450. Call (202) 682-8375. There is a 20%discount for API members.

Rocco Canonica

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