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Spending on Offshore and Gas-Directed Drilling Soars

Spending on Offshore and Gas-Directed Drilling Soars

The industry spent 35% more on offshore drilling in the U.S. and about 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 1998 from the previous year to its highest level since 1985, API said. The cost increase occurred despite sufficient supplies of crude oil worldwide, falling oil and natural gas prices and weakened Southeast Asian economies. According to the survey, the industry spent 9.6% more in 1998 to drill and equip wells than it did in 1997. Total drilling expenditures were estimated to be $17.6 billion in 1998, compared with $16 billion during the previous year.

For the first time in four years, gas targets dominated domestic drilling as the oil-well share of total wells drilled fell 10% from the previous year. Also, an emphasis on deep to ultra-deep (10,000 to 20,000+) development objectives, mainly offshore, fueled the highest average cost per well and the highest average cost per foot ever. Operators spent $5.5 billion offshore in 1998, a 35% jump from the previous year, drilling and completing wells in steadily deeper waters. The number of offshore development wells drilled and their costs rose 40% and 71% respectively from the previous year. Exploration in the U.S. offshore remained confined almost entirely to the Gulf region where drilling and completion activities accounted 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 the previous year. Development onshore drilling rebounded in 1998, compared with 1997, largely due to activity concentrated in East Central California's Kern County, Central Alabama, the Texas Panhandle and East Texas Basin, and those areas of the Rockies-northern New Mexico, Utah and Wyoming-where drilling in recent years has increasingly focused on natural gas.

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

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

Rocco Canonica

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