Oil rig equipment is expensive due to the size and operations carried out by such large machinery. Purchasing a newly constructed drill rig is a huge investment.
As such, you’ll want to be sure you have the right expectations before you begin searching for one to complete your assignment. This article will discuss just what a drill rig does and the estimated costs involved in the drilling process.
What is a drill rig?
When you need a machine powerful enough to bore through the earth’s crust to retrieve minerals, gas, or any other natural resources, a drill rig will get the job done. Each rig is designed for the environment they’re operating in and the product being extracted. Those two factors greatly affect the cost of the rig you’re looking to purchase.
What is the average cost of a drill rig?
A standard land rig with 1,500 to 1,700 horsepower will cost between $14 million and $25 million to own. An offshore oil rig cost is much higher, starting at $20 million and going as high as $1 billion. Owning your drill rig will save you money in the long run, especially when considering the daily cost of operations.
How much does it cost to run a drilling rig per day?
Your daily rate depends on the rig type, distance from shore, drilling depth, and water depth. Onshore drilling rates range from $200,000 to $310,000 each day. Offshore drilling can cost between $600,000 to $800,000 per day.
Factors That Affect the Cost of a Drill Rig Construction
Several factors impact the oil rig cost, including construction, including materials, market conditions, equipment prices, and more. We’ll cover the basics, so you have a realistic expectation when searching for a rig price.
Market Conditions
Cost and demand go hand-in-hand. When there is a high demand for building new rigs, the cost rises because a limited number of shipyards can provide the service.
For example, in the early 2000s, there wasn’t a demand for new rig construction, so rates were low. In the mid-2000s, demand increased, and prices rose, but after the 2008 recession, demand decreased. But the prices didn’t drop significantly as the recession wasn’t expected to last long.
Material
The materials used in making a drill rig are a key component in construction costs. The material used most, steel, comes in various strengths, and the stronger the steel, the higher it’s priced. When steel prices are low, rigs will be cheaper to produce; when steel prices rise, so do the costs of the rigs.
Concrete is another material that will raise production costs. It’s often used in environments containing salt water as a way of avoiding corrosion and rusting. Concrete usually costs about 7% to 10% more than steel.
Service Cost
The cost of additional services needed for constructing wells will begin to add up. Phone bills and fees for transferring data are part of your communication cost. For those working offshore, rig positioning will be another fee.
The cementing equipment and engineer have to be paid for their services also. Other services are wire line logging, drilling measurement, mud engineering, downhole motors, mud logging, and surveying the hole.
Equipment Prices
There are two types of oil rigs, jackups, and floaters. Floaters aren’t attached to or resting on the seafloor. Jackups have support legs that allow the rig to be raised or lowered. Each type has different equipment to assist with the drilling process.
The engines, generators, cranes, and other oil rig components are purchased from a third party and assembled by the rig builder. Non-drilling related equipment is about 30% to 60% of the total cost.
Since most of the parts used are made from steel, the fluctuations in the steel market will influence the rig’s price. Demand for the additional equipment to fit on the rig will also play a part in costs.
Labor Costs
Where your rig is built impacts the labor costs, which affect the price of the drill rig. It’s estimated that labor is 10% to 15% of the total cost of the rig is built internationally. While the U.S. and Korea have similar costs, Singapore charges three times less.
Each dollar spent on labor in the U.S. generates $3 in revenue, while in Singapore and South Korea, every dollar generates $7 to $10 in revenue. Since labor costs are typically lower internationally, the cost of your rig won’t be as high.
Allowances
Always expect and prepare for the unexpected by setting aside a portion of the budget for allowances. Once you start drilling, you can’t be sure what you’re going to find, and variances in the geological structure could require different equipment and delay the process. Both of these instances will increase the cost of the rig being used.
Site Preparation
Preparing an area for drilling can mean building roads to the site. These roads need to support heavy machinery and can take 15 to 20 days to build. Preparation also varies based on the environment.
Marshes, land, and offshore drilling all have their own preparation needs. It can take several weeks before drilling can begin, and each day spent getting the site ready comes with a hefty cost.
Drilling
The drilling depth and well complexity are primary cost influencers. Once the drill rig is moved into position, it can take a team of 30 to 40 companies to complete the process. Costs can easily top $4 million during the drilling phase and take about three weeks to finish.
Rig Mobilization
Positioning drilling rigs isn’t an easy task. It takes 3 to 5 days to move in and assemble a rig for well digging. Once the job is complete, the rig has to be disassembled and moved again. Rates hover between $100,000 and $350,000 depending on how far the rig is being transported.
Drilling for Oil is Big Money
The oil industry is very lucrative, and the machines used to drill for the resource are not cheap. Oil rigs are heavy-duty machines needed to reach extreme depths.
The harsh environments they’re in demand that they are built with the best materials available. If you need a drill rig, it’s important to keep in mind all the factors that contribute to the cost of the equipment so you can budget correctly.
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