OTC 18375 A Process Used in Evaluation of Managed-Pressure Drilling Candidates and Probabilistic Cost-Benefit Analysis

R.R. Brainard, RRB ENERGY INC.

Copyright 2006, Offshore Technology Conference This paper was prepared for presentation at the 2006 Offshore Technology Conference held in Houston, Texas, U.S.A., 14 May 2006. This paper was selected for presentation by an OTC Program Committee following review of information contained in an abstract submitted by the author(s). Contents of the paper, as presented, have not been reviewed by the Offshore Technology Conference and are subject to correction by the author(s). The material, as presented, does not necessarily reflect any position of the Offshore Technology Conference, its officers, or members. Papers presented at OTC are subject to publication review by Sponsor Society Committees of the Offshore Technology Conference. Electronic reproduction, distribution, or storage of any part of this paper for commercial purposes without the written consent of the Offshore Technology Conference is prohibited. Permission to reproduce in print is restricted to an abstract of not more than 300 words; illustrations may not be copied. The abstract must contain conspicuous acknowledgment of where and by whom the paper was presented. Write Librarian, OTC, P.O. Box 833836, Richardson, TX 75083-3836, U.S.A., fax 01-972-952-9435.

associated costs. More importantly, MPD may allow the drilling of wells that cannot be drilled with conventional drilling processes. MPD technologies may also allow improved well performance through a more efficient completion size and an increase in recoverable reserves. Managed-Pressure Drilling (MPD) Managed-Pressure Drilling (MPD) is an advanced form of primary well control that many times employs a closed and pressurizable drilling fluid system that allows potentially greater and more precise control of the annular wellbore pressure profiles than mud weight and pump rate adjustments alone. The primary objective of MPD is to optimize drilling processes by decreasing non-productive time (NPT) and mitigating drilling hazards in the well construction process. 1 The IADC Managed Pressure Drilling and Underbalanced Operations Committee defines Managed-Pressure Drilling as: MPD is an adaptive drilling process used to more precisely control the annular pressure profile throughout the wellbore. The objectives are to ascertain the downhole pressure environment limits and to manage the annular hydraulic pressure profile accordingly. 2 MPD processes employ a collection of tools and techniques which may mitigate the risks and costs associated with drilling wells that have narrow downhole environmental limits by proactively managing the annular hydraulic pressure profile. The techniques used in MPD may include control of backpressure, fluid density, fluid rheology, annular fluid level, circulating friction, and hole geometry, or any combinations thereof. MPD may allow faster corrective action to deal with observed pressure variations. The ability to dynamically control annular pressures facilitates drilling of what might otherwise be economically unattainable prospects under the conventional drilling process. MPD techniques may be used to avoid formation influx and typically flow incidental to the operation will be safely contained using an appropriate process. 2 Wellbore pressure-related drilling challenges result in significant NPT within the well construction process. The wellbore related part of these problems may include loss of circulation, kicks, ballooning of the wellbore, drilling in a tight PP/FP margins, use of close tolerance casing programs, wellbore stability problems due to fluctuation and/or cycling

Abstract The paper will discuss the processes, methods, factors and parameters utilized to evaluate potential candidates using a defined process and simulation methods for the application of Managed-Pressure Drilling (MPD) technology in well construction operations. The use of MPD technologies can influence many wellbore pressure-related drilling challenges, including lost circulation, kicks, wellbore ballooning, tight pore pressure (PP)/fracture pressure (FP) margins, close tolerance casing programs, wellbore stability problems, shallow water/gas flows, slow ROP, etc. These techniques may also enable future well programs that are currently thought to be conventionally undesignable with single gradient mud systems. Potential drilling efficiency benefits may include improved HSE, drilling with less Non-Productive Time (NPT) or trouble time, improved wellbore stability, reduced mud losses, improved ROP performance and extension of casing seats/fewer casing strings A process has been applied to evaluate the economics of candidate wells for the use of MPD. This evaluation has included the use of a probabilistic Monte Carlo simulation of the potential results of the use of MPD and takes into account time dependent, cost dependent and performance related factors. The use of other technologies such as wellbore strengthening or wellbore stability technologies in conjunction with MPD can also be modeled to look at the overall benefit of use of all applied technologies within the well construction process. The significance of MPD, in the face of increasing well construction costs around the world, is that these techniques may allow step-change reductions in drilling duration and

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of imposed pressure on the wellbore, water/gas flows in the shallower formations below the mudline, slow ROP due to high imposed hydrostatic along with ECD overburden and other related problems. Many statistical studies have been completed on Operator supplied drilling databases and they typically demonstrate consistent correlation with respect to these type of wellbore related problems as compared to the total NPT areas for concern. Typically wellbore related problems account for between 30% and possibly up to 50% of the overall NPT in a typical industry well. With the costs of well construction today, industry spends billions of dollars on these types of wellbore related problems in which MPD may provide significant advantages. Discussion of MPD Portfolio Techniques Techniques for the provision of MPD to our well construction operations are varied throughout the industry and generally can be categorized into either single gradient or dual/variable gradient technologies (Figure 1). Many of these techniques have been practiced for many years in industry, although they may have never been identified as belonging to the collection of MPD technologies. Single Gradient Technologies Single gradient MPD technologies are those wellbore pressure management technologies that utilize a single gradient fluid in conjunction with either surface or downhole pressure management technologies to achieve the desired annular pressure profile. Surface Pressure Control Technologies may include: External Riser Rotating Control Diverter (RCD) w/ Subsea BOPs Surface RCD w/ Surface BOPs Continuous Circulation System Circulation Friction Control Annular Geometry Underbalanced drilling w/ RCD In the case of many Operators, underbalanced drilling may not be considered a technique within the MPD umbrella of technologies, but rather considered outside the bounds of MPD, distinguished by planned influxes into the wellbore. Surface/Subsurface Pressure Control Technologies may include: Subsea RCD w/ Subsea BOPs Equivalent Circulating Density (ECD) Reduction Tool Dual/Variable Gradient Technologies Dual or variable gradient MPD technologies are those wellbore pressure management technologies that utilize two fluids of different densities or a fluid of varying density to provide the desired annular pressure profile. Again, this is used in conjunction with either surface or downhole pressure management technologies to achieve the desired annular pressure profile.

Surface Pressure Control Technologies may include: Dual Gradient Drilling (DGD) - Annular Nitrogen Injection DGD - Nitrogen Injection DGD - Surface Controlled Diluent Injection and Surface Separation DGD - Surface Controlled Hollow Sphere Injection Riserless Pump & Dump Subsea RCD Riserless Pump & Dump Subsea or Downhole Control based technologies may include: Dual Gradient Drilling - Mudline/Riser based Subsea Pumping Systems Top Hole Riserless Mud Recovery (RMR) system Additional detail on some of the currently utilized or higher valued technologies identified above is discussed below. Pressurized Mud Cap Drilling (PMCD) and/or Constant Bottom Hole Pressure (CBHP) mode of MPD The use of Pressurized Mud Cap Drilling (PMCD) (Figure 2) and or Constant Bottom Hole Pressure (CBHP) (Figure 3) mode of MPD with use of a Rotary Control device (RCD) and associated choke manifold, Annular Pressure While Drilling (AWPD) tool and possible surface mud/gas separation equipment provides annular pressure control of the well using a combination of surface backpressure and a typically lighter hydrostatic column provided by the drilling fluid for a combined bottom hole pressure in excess of pore pressure. In PMCD, the use of these tools, in conjunction with dual annular fluid gradients, is intended to the enhance HSE aspects of well control through the elimination of flow to surface. PMCD is also used to minimize costs due to extreme mud losses to formations where there is no capability to reestablish returns (such as in vugular or highly fractured limestone formations or in pressure depleted zones). With the CBHP mode, the use of surface pressure allows a lighter mud weight than that used in conventional drilling. This technique uses fluid density, frictional pressure losses along with surface back pressure to maintain the imposed wellbore pressure between the pore and formation fracture pressures. The technology is intended to bring value to both onshore and offshore applications. Potential drilling efficiency benefits include: Improve HSE through safely managed annular pressures and reduction of any occurrence of possible annular gas migration Drilling with less wellbore related NPT Improved wellbore stability through less cycling of annular pressure Reduced mud costs through reduced losses Enabling of well program unachievable by conventional drilling processes Improved ROP performance Improved well performance capability

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MPD projects of these types have been successfully accomplished in industry offshore SE Asia 3,4 utilizing floating rigs and in deepwater GOM and offshore Angola from surface facility installations. Equivalent Circulating Density Reduction Tool Many of the problems associated with drilling in deepwater can be related back to the inherent uncertainty in predicting pore pressures and fracture gradients. Maintaining sufficient hydrostatic pressure for controlling the pore pressure while not exceeding the fracture pressure on the previous casing shoe is typically present from the initial stages of the well until the well is completely cased and cemented. In ultra-deepwater, the severity of the problem is exacerbated because shallow formations have less strength and cannot support the weight of a mud column. Extensive pre-drill engineering and geological work is performed to provide the best understanding about the narrow pressure window. Multi-disciplinary teams are essential in planning deepwater wells. However, the accuracy of their pore pressure predictions is based on the reliability of the available offset data and at times this data is minimal. Predictions are based on empirical calculations and any enhancements to pressure control with the application of mechanical technology such as a DGD system or ECD Reduction tool would increase the drillability of the prospect. The use of any type of ECD Reduction tool could provide a multitude of benefits to deepwater and ultra-deepwater operations. The use of an ECD Reduction Tool in MPD provides for a reduction in the wellbore pressure sensed by the annulus. This technology provides for the introduction of mechanical energy (Figure 4) at a single point within the upper portion of downhole string in hole at the discharge of the tool and translates this energy into a pressure reduction at the point of introduction of the pump discharge. Accordingly, a shift in the pressure gradient through a reduction of the pressure of a fixed amount, typically 200 - 300 psi, is noted. This reduction in pressure translates into a reduction in annular wellbore pressure at all points below the depth of tool installation. Accordingly, as the name implies, the ECD on the formation is thereby reduced. This cost effective technology is needed to reduce well construction cost and enhance safety, particularly in the lower portion of the hole interval(s). Use of an ECD Reduction Tool in MPD would improve the ability to drill close pore pressure (PP) / fracture pressure (FP) window regimes more economically, reduce associated NPT, significant mud losses, reduced mud weighting requirements, reduced associated logistical support and improve access to lower cost reserves. ECD Reduction Tool technology is currently being field tested by two different industry service providers. It is felt that a commercialized tool will be available within 6 to 12 months after the completion of the ongoing field trials of these tools.

Riserless Mud Recovery (RMR) Top-hole sections in deepwater and ultra-deepwater wells are currently being drilled using riserless Pump and Dump technology, where mud and cuttings returns are taken to the seafloor. RMR technology is needed to reduce well construction cost and enhance safety. Deepwater RMR will reduce mud volume requirements, reduce logistical support, lessen operational dependence on weather, and minimize discharge to the environment. It will eliminate the large volumes of top-hole mud, often in excess of 40,000 bbls, that are currently required to execute the Pump and Dump approach on some wells. BP has successfully contributed to the development of riserless mud recovery (RMR) technology (Figures 5 & 6) through its use in over 20 wells in shallow waters of the Caspian Sea. Historically, the surface holes of the wells in the West Azeri field of the Caspian Sea were drilled conventionally with seawater and gel sweeps with destabilized highly reactive soil formations. Resulting unacceptable movement of the 20-in. casing has required the use of a RMR system to allow formation inhibition with a silicate mud system. 5,6 Additional RMR work is being considered in shallow water applications offshore Russia, Australia and Malaysia. Additionally, Statoil and Norsk Hydro have participated in the North Sea field trial of the Demo 2000 Joint Industry Project (JIP) to develop and qualify an RMR system for water depths of up to 1,500 ft (450 m). An additional RMR JIP has been recently proposed in 2005 by AGR, Intellectual Property (IP) holder, to further the commercialization of this technology in deepwater depths. This R&D project will take the technology beyond its current 1,500 ft (450 m) WD limitations, extending its application to water depths of up to approximately 5,000 ft (1,500 m). The objective of the proposed JIP will be to deliver a low-to-medium capital cost system for use in commercial riserless well construction in these deepwater depths. However, the current pump type used in this technology is unable to achieve capability on the ultradeepwater water depths due to the mechanical efficiency of its design. Dual Gradient Drilling (DGD) In deepwater, the seawater column, and the unconsolidated nature of the sediments near the seafloor make for a challenging drilling environment. The pore pressure and fracture pressure are often close together, making it difficult to maintain wellbore annulus pressure safely between these values. If the annular pressure at the seafloor is reduced to that of seawater by a dual gradient (riserless) system, the hydrostatic progression with depth becomes a straight line that extends from the surface to the seafloor. Using this method, the pressure control point at the mudline is significantly reduced, when compared to a hydrostatic column of mud, allowing a much greater vertical distance to be drilled while maintaining pressures safely between the pore and fracture pressures.

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Several major operators and others have contributed to the development of DGD technology over the last 10 years through their participation in both the SubSea MudLift Drilling (SMD) JIP and the DeepVision JIP. This participation enabled the development of dual gradient technology through two distinctly different and competing approaches. Additionally, both Shell and Maurer Engineering have provided additional investments in similar DGD technology. SubSea MudLift Drilling (SMD) JIP In response to some of the challenges of deepwater drilling, five years ago, Conoco, BP, Amoco, Chevron and Texaco along with Hydril supported by a consortium of drilling contractors, and other service companies began participation in the SubSea MudLift Drilling JIP (SMD JIP). The goal was to find a method of overcoming the challenges of deepwater drilling, and it was quickly determined that dual gradient drilling was potentially one of the optimal solutions. The JIP was then charged with delivering a dual gradient drilling system, along with all the attendant drilling and well control procedures necessary to support this technology. The field test of the SubSea MudLift Drilling system and its MudLift Pump (MLP) provided the first successful demonstration of the drilling of an offshore well under a dual gradient system. 7,8,9,10 The SMD JIP developed and delivered a pre-commercial version of DGD technology. However the next major hurdle is to take the technology from the development stage to fullscale field implementation. The right to commercialize the equipment developed within the SMD JIP was assigned to Hydril. In late 2000, Hydril formed SMDC, LLC, and began to actively market the technology within the industry. SMDC initially shifted their major focus for securing industry support for a commercial system from a single operator to a consortium of interested operators. However, insufficient demand for this relatively high Capex technology (over $ 50 MM to integrate into a rig) has shelved it over the last four years due to insufficient demand by the deepwater operator industry segment. 11 The DeepVision JIP Industry participated in another JIP project, DeepVision and BP (Amoco) and Chevron in conjunction with other industry companies, Transocean Sedco Forex (TSF) and Baker Hughes Inteq (BHI). The DeepVision Project was initially envisioned to focus on the feasibility of developing a deepwater drilling and well intervention vessel using the concept of riserless drilling with a reeled pipe system. The advancement of this concept was completed in late 1998 and attention shifted to the development of a DGD system that would utilize conventional drillpipe deployed from a conventional drilling rig. After focused work on this proposed DGD system, the third phase of the project was initiated. The participants in the third and final phase were BP (Amoco), Chevron, BHI, and TSF. This phase consisted of the design, manufacture, and testing of key components, including a pump and its control system,

updating and refinement of operating procedures, and development of a training plan. The pump design utilized in this project is in contrast to the SMD JIPs hydraulically powered positive displacement MudLift Pump. The DeepVision project developed a multi-stage centrifugal pump configuration utilizing an electric powered variable speed drive. The testing in the third phase of the DeepVision project was completed in early 2002 with the successful shop testing of the major components, including the pump and its control system, in a flow loop. 11 Through the third phase of the DeepVision project, a variation of the DeepVision pump system was discussed, to provide significant benefits to the end user through a less capital-intensive system, allowing a more phased development of the technology. The DeltaVision concept utilized the motor and centrifugal pump developed in the DeepVision Project to boost return mud flow to offset ECD rather than deliver a full dual gradient column at the mudline. An enhanced version of DeltaVision, DeltaVision Plus, used the motor and centrifugal pump modules at 3,000 ft. to 5,000 ft. setting depths to obtain the majority of DGD benefits with much less complexity. 11 Surface Controlled DGD Technology The use of DGD techniques with surface controlled fluid density is potentially less complex than conventional mudline or riser based pumping solutions. Considerable work has been done by Luc de Boer to develop and test a Fluid Dilution DGD concept. He has been able to demonstrate, in a full-scale pilot technology trial, the ability to separate an intermediate density 80/20 fluid into heavy and light discharge streams using a centrifuge. Importantly, the heavy fluid stream retains the properties required of a drilling fluid. 12,13 A fluid dilution DGD system does not require complex subsea pumping systems or major modifications to drilling procedures and rig systems.12,13 Light weight solids (e.g. hollow-spheres) and/or fluid dilution systems in which a lighter density component becomes mixed with annular mud returns at or below the seafloor have potential advantages in that they are simple lower cost alternatives to subsea based mud pumps. Many deepwater rigs could use the system without significant and costly rig modifications. Fluid dilution alone can result in riser column fluid densities of 9.0 to 9.5 ppg. The use of light weight solids, such as hollow-spheres in conjunction with fluid dilution, may allow the hydrostatic to be lowered to the equivalent seawater gradient of 8.6 ppg. Fortunately, because of normal increases in rock strength with increased well depth, a DGD system with a seawater gradient to the mudline may not be required to obtain the majority of the benefits of DGD. The primary disadvantage of light weight solids is that they can effectively reduce mud weight only about 3 ppg. However, when used in conjunction with fluid diluent technologies, light weight solids may be able to achieve much more significant reductions approaching a seawater gradient at the sea floor. Additionally, future offshore shelf and/or deep onshore wells may also be

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able to utilize this technology through the introduction of a parasite string or other deep injection point within the well. This technology also has the added benefit of replacing heavy drilling mud in the riser with a lighter fluid. This reduces riser tensile loads, thereby increasing the rigs water depth capacity and may open up the use of smaller rigs to the well construction process in deeper water applications. This technology may also provide an opportunity to utilize slim hole and smaller OD riser, reducing riser tension capacity requirements and enabling smaller and older generation rigs increased riser storage capacity for the deepwater depths. 12,13 The Future of DGD Overall, the industry has spent significant research and development funds for the initial determination of the capability and development of DGD technology. It is estimated that total research dollars in excess of $100 MM, were spent on industrys DGD technology development through 2002. This would include the work done in the late 1990s through 2002 by the SMD JIP, DeepVision JIP, work on Shells DGD solution, as well as other industry efforts such as Maurer Engineering to advance gas lift and light weight solids approaches. 11 Much of the past DGD focus has been upon tricking the wellbore hydraulics into thinking the rig is setting on the sea floor of a deepwater well. However, possibly several years may lapse before the necessity of a true seawater DGD technology will be economically viable. The industry may find in the nearer term that the 80/20 rule may be applicable in this regard. At 20% of the cost, 80% of the benefit of DGD technology can be obtained. Many of these other DGD techniques will not remove all of the mud and cuttings hydrostatic head within a marine riser equivalent to a seawater gradient at the mudline. One may say that these techniques will only trick the wellbore into thinking the rig is closer to the seabed than it actually is while allowing significant changes in Equivalent Mud Weight (EMW) and the resulting slope of the imposed pressure profile. Such DGD techniques may be applied to reap the rewards of the lower hanging fruit within the next several years. Processes, Methods, Factors and Parameters Utilized to Evaluate Potential MPD Well Candidates A process will be presented that has been has been developed and employed to evaluate candidate wells for the use of MPD techniques. The technical and commercial benefits of MPD can be evaluated using this process. This process includes preparation of the following studies which a stage gate management process (Figure 6): Feasibility Study Preliminary Engineering Study Detailed Engineering and Implementation Planning Study

Feasibility Study A feasibility study is initially completed to provide a first look basis of the technical and commercial benefits of potential application of the MPD technologies to the well construction process. Objectives typically include: 1) Identify the MPD technical solution best suited for the candidate well 2) Determine risk to personnel, environment, platform and wells introduced by the technology 3) Briefly evaluate risk mitigation tools, systems and processes 4) Determine potential MPD value through a scoping cost estimation and an overall Cost-Benefit analysis The Feasibility Study will address both the technical and commercial issues and allow management to make a decision on the merits of further study. If the stage gate is passed, work will progress with the development of a Preliminary Engineering Study. Typically the scope and duration of Preliminary Engineering Study activities for the initial well/well program candidate application can be completed within 4 to 6 weeks and with the required funding of US$ 50,000 - $ 100,000. Typical deliverables for a Feasibility Study may include: 1) Cataloging of available MPD techniques for the candidate well/well program 2) Technical evaluation of techniques & lessons learned from other relevant MPD projects 3) Preparation of a wellbore pressure profile with potential MPD techniques identified 4) Evaluation of the risks & benefit of MPD to the candidate well 5) Determine time and cost estimates for: a. Preliminary Engineering Study b. Detailed Engineering and Implementation Planning Study 6) Determine scope, schedule and deliverables for above studies 7) Evaluate the economic benefit of MPD techniques for targeted hole sections of a candidate well or well program through a Cost-Benefit analysis Preliminary Engineering Study After a completion and review with Management of the results of a successful Feasibility Study, an approved Preliminary Engineering study will provide more engineering and technical support for development of a general strategic MPD plan for the candidate well or well program. This study will also provide detailed AFE cost estimate support and additional detailed verification of the applicability and benefits of such work. The scope of work will typically include collection, organization and review of pertinent data on the candidate well/well program, review of offset well information, review of field site and/or rig specifications including drilling operations history, vendor data, desired completion plans, and

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detailed specification of requirements or a Basis of Design (BOD) for the required MPD equipment. Detailed analysis of site-specific costs and spread rates for the MPD equipment and personnel will be undertaken, and the basis of a general, strategic MPD plan will be developed. Specific tasks to be undertaken generally will include: 1) Implementation of a kick-off meeting to review the Feasibility Study and establish project objectives 2) Gather electronic data on offset candidate well operations 3) Organize, review and analyze data 4) Develop preliminary well & pressure profile designs and perform specific preliminary hydraulics analysis 5) Prepare a justification basis to address regulatory concerns in technology application 6) Meetings with Operator regulatory groups 7) Meetings with potential MPD vendors and contractors 8) Field or rig site based visit 9) Determine and document required rig modifications and MPD equipment layout/integration 10) Prepare impact of MPD on basic well design 11) Final MPD method/technique selection and application 12) Review AFE costs and spread rates for MPD equipment, personnel and rig integration costs 13) Determine time requirements/schedule for execution of MPD 14) Perform a probabilistic Cost-Benefit analysis 15) Present recommended MPD methods and basic program Typical deliverables for a Preliminary Engineering Study may include: 1) Well Profile Basis of Design (BOD) 2) Preparation of a wellbore pressure profile with potential MPD techniques and pressure profile for BOD design, including hydraulics analysis 3) Presentation material for regulatory introduction to project 4) List of required rig modifications, including estimated cost of each modification and proposed responsible party 5) Strategic plan, including specific MPD method for the specified wellbore/well program 6) Refine time and cost estimates for MPD implementation as a basis for changes in the assumptions utilized in the initial Cost-Benefit analysis 7) Preparation of a more defined probabilistic CostBenefit analysis 8) Overall MPD BOD for the application of the technology With the basis of funding and completion of a Preliminary Engineering Study, it is envisioned that Management can be provided significant evidence with regard to both the technical and commercial viability of the project. Should a negative result be encountered, Management may suspend further

work. Alternatively, a positive and convincing case for the use of an MPD approach will result in passing through a stage gate into the next phase for the preparation of a Detailed Engineering and Implementation Planning Study. Typically the scope and duration of the activities for a Preliminary Engineering Study for an initial well/well program candidate application can be completed within 8-12 weeks and with required funding of no more than US$ 100,000 - $ 200,000. Detailed Engineering and Implementation Planning Study The Detailed Engineering and Implementation Planning Study will provide for preparation of detailed MPD procedures, including hazard identification and mitigation, a contingency plan, detailed hydraulics analysis of the wellbore, a tactical MPD plan including a training program as required for successful implementation of the MPD technology. The scope of work typically will include thorough planning required to penetrate the target formations, managing both virgin and/or potentially depleted or transition/regression pressure horizons to drill to the projected total depth. Details such as target location, casing design criteria, drilling fluids, the formation evaluation program, and review of well control issues must be considered. Hazards and operational aspects necessary to mitigate the hazards will be identified and contingency procedures will be prepared for inclusion in the overall MPD plan. All necessary equipment, including any additional well control or specialty equipment will be sourced and procured, and any necessary rig modifications will be specified. Site-specific training programs will be developed and presented in a timely manner to allow sufficient time for Operator, drilling contractor and vendor personnel to become familiar with the MPD equipment and techniques that are to be used. All material generated will be organized and used to prepare a specific, detailed tactical MPD plan. Specific tasks to be undertaken will include: 1) Compilation of standards and practices related to MPD 2) Description of specific PP/FP/wellbore stability profile and hydraulics analysis 3) Preparation of detailed MPD procedures 4) Specification of MPD equipment, monitoring, and suggested procurement 5) Design of path of the flow design, routing and definition of required pressure testing 6) Description of drilling fluids & required parameters, particularly rheology 7) Evaluate and analyze casing design for MPD and associated changes in rating for revised Maximum Anticipated Surface Pressure (MASP) 8) Review MPD Implications on BOP and Well Control equipment and practices 9) Prepare casing/liner running and cementing procedures w/MPD 10) Define bit program, general hydraulics and hole cleaning parameters for MPD 11) Drill string design and analysis

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12) Identify MPD potential equipment and processes problems and prepare detailed contingency procedures for proper risk mitigation 13) Prepare HazID/HazOP Report 14) Finalize regulatory requirements & meetings with regulatory personnel 15) Review HSE implications and modify mitigations as necessary on the well program 16) Refine time and cost estimates for MPD equipment and MPD rig integration 17) Prepare schematics and P&ID's, including rig modifications/integration 18) Peer review of MPD drilling program 19) Prepare customized training Deliverables related to the Detailed Engineering and Implementation Planning will be similar to the Preliminary Engineering phase, however will be more detailed to allow implementation to proceed. However, these deliverables will typically include in addition: 1) System P&ID drawings for MPD, including rig modifications 2) Detailed MPD drilling/tripping procedures for all intervals 3) Regulatory requirements changes 4) Detailed MPD casing/liner running and cementing procedures 5) HazOP Report 6) Documentation of a customized training program, including training manuals and defined program Commitment by Management to undertake the Detailed Engineering and Implementation Planning Study typically will require thorough preparation and adherence to the project schedule to deliver a completed plan that all office and field personnel are prepared to execute to make MPD a part of the well construction process. Typical scope and duration of the activities for a Detailed Engineering and Implementation Planning Study for an initial well/well program candidate application can be completed within 8 to 20 weeks and with required funding for total costs typically in the US$ 150,000 $ 250,000 range. Cost-Benefit Analysis The cost-benefit analysis is an evaluation of the total estimated incremental costs and associated time for the application of the MPD techniques as compared to the value of the benefits of the use of these techniques. This analysis requires collection of vendor and operator estimates of MPD and other equipment costs, personnel costs, study and training costs, and estimates of the duration of incremental tasks within the well program as related to changes due to MPD application. Additionally, the benefits of these techniques such as increases in ROP for particular hole interval(s), reduction in wellbore related NPT, reduction in liner requirement and associated setting costs or other benefits will also have to identified for the project. A cost-benefit analysis is initially prepared for the Feasibility Study. This base analysis is further evaluated in subsequent

Preliminary and Detailed Engineering and Implementation Planning phase studies. As necessary, the cost-benefit analysis can be refined with modifications to the variable assumptions and the possible introduction of additional variables within the model. Simulation Methods This evaluation has included the use of a probabilistic Monte Carlo simulation of the potential results of the use of MPD and takes into account time dependent, cost dependent and performance related factors. This method allows for a range of potential inputs to be used to develop a probabilistic result based on probabilities rather than the conventional methodology of using a deterministic number based on past experience. With respect to past experience, in many cases there is generally no reliable experience that can be applied to the inclusion of MPD into the well construction process due to the limited industry experience with such technology. Probabilistic modeling of general cost estimating for drilling operations was discussed in industry literature in the 1990s by S. K. Peterson et al.14,15 of Marathon. Other work has addressed risked based decision-making and modeling for stuck pipe and fishing operations, the influence of environmental conditions in Arctic areas on drilling operations, and weather downtime. Through the use of probabilistic Monte Carlo simulation techniques, a more accurate assessment of the expected distribution of total well costs or potential savings in costs and duration for the well construction operations can be made. 16 Additional sensitivity modeling within this analysis can identify the effects of certain modeled parameters to the effective outcome of events such as total well days or well cost to more cost effectively apply resources to that those parameters that can most influence the outcome of events. 16 With this modeling, the forecasted benefits of MPD can be identified that are most sensitive to certain variables such as a change in rig and/or spread rate, reduction in number of required casing strings or other similar variable. With the continuing significant rise in the cost of both the drilling contractor and other industry services required for well construction along with considerable escalation in tangible and other materials and equipment costs, it has been increasingly difficult to accurately assess costs related to both the use of MPD technologies, particularly when trying to assess these costs one to two years before the actual project may be initiated and the variability of the benefits of these technologies with variation in their associated costs. Through the use of probabilistic Monte Carlo simulation techniques, a more accurate assessment of the expected distribution of total costs and the results of the benefits of the MPD process for drilling operations can be made.16 We can introduce uncertainty into the level of costs that comprise the daily spread rate which includes items such as the MPD equipment and MPD personnel rates, drilling contractor rig costs, rental tools, transportation and other logistics costs, company supervision costs, daily mud maintenance costs, daily rig consumables and other daily costs.

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Although many times we think we have a better estimate of our non-time dependent costs such as tangibles and intangibles, we also need to introduce uncertainty into the evaluation of these costs. This is particularly important when application of estimates from time period may not reflect differences in labor rates, competitiveness or lack of competitiveness of the local service industry and other factors.
16

An Excel spreadsheet has been prepared with the modeled assumptions and forecasted variables on which commercial Monte Carlo simulation software packages can be run. Due to the relatively short cumulative duration of the required studies of 6-12 months followed by well drilling time of less than 180 days, no attempt has been made to introduce Net Present Value (NPV) concepts into the spreadsheet calculation. Modeling Parameters A level of uncertainty regarding the duration of time savings and similar variables was captured through assignment of an assumed range for the particular variable modeled. Typically either a uniform (Figure 8) or triangular distribution (Figure 9) is utilized to represent variability within our defined assumptions. One exception would be when actual historical data on NPT is available and can be curve fitted. The resulting distribution often takes the form of a Beta or Weibull distribution. Variation in the type of assumptions utilized within the spreadsheet model for analysis of the cost-benefit analysis of several different techniques of MPD is further discussed below. The use of other complimentary technologies to MPD, such as wellbore strengthening or wellbore stability technologies can also be incorporated within the model variables to look at the overall use of any applied technologies in conjunction with MPD to further benefit the well construction process. An additional particularly complimentary technology may be casing or liner drilling, which reduces required trips in the process of well construction, a set of tasks in which MPD is most difficult to manage with a RCD. Description of Variable Factors in the Model for Varied MPD Techniques The variables considered for inclusion within the Cost-Benefit Analysis Model include 1) Time Dependent factors, 2) NonTime Dependent factors along with 3) Performance related factors. PMCD and or/ CBHP Mode with RCD These techniques, within the umbrella of MPD technologies, are some of the more frequently utilized applications at this time within industry. These techniques have applications for candidate wells on fixed bottom offshore facilities such as jack-ups or platforms as well as floater applications, both for subsea and surface BOP stacks. Additional detail on the factors typically considered in the modeling for such techniques is shown below: Time Dependent Factors Increased tripping time due to MPD

Decreased NPT trouble time Increased/Decreased circulating time Faster ROP Presence of Downhole Deployment Valve (DDV) or similar to reduce trip time Incremental installation time for DDV Additional RCD RU/RD time Additional Separator/Piping/Choke RU/RD time

Non Time Dependent Factors DDV equipment and installation costs Additional RCD deployment and rental costs Additional separator/piping/choke costs Reduced mud costs-lower density/less losses Additional operator/rig personnel training costs Performance Factors Decreased skin/Increased well performance No acid job required in completion Decreased HSE risk in hole section due to improved gas/kick detection Improved ability to get liner to bottom-contingency liner reduced No trip/swab surge losses while running liner Forecasted potential total cost savings of US$ 2.4 MM from a typical cost-benefit analysis of MPD application in two hole intervals for a candidate offshore well using a jack-up rig is shown in Figure 10. Riserless Mud Return (RMR) The potential application of RMR technology in the deepwater and ultra-deepwater regions will provide advantages as related to reduction in mud discharges to the environment as an enabling technology and the reduction in mud and logistics costs and potential casing/liner settings costs as an enhancement technology. Additional detail on the factors typically considered in the modeling for such techniques is shown below: Time Dependent Factors RMR deployment/recovery time RMR rental costs Decreased NPT trouble time Decreased circulating time Faster ROP Flat time reduction for elimination of casing/liner Reduced logistics costs Non Time Dependent Factors Reduced mud costs-less losses Additional Operator/rig personnel training costs Performance Factors Reduction of environmental discharges to the environment at the mudline

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Decreased HSE risk in upper hole sections due to gas/water flows Improved ability to get casing to bottom-no contingency involved Improved cementation of hole due to less washout, better cement contact to formation and less required remediation Decreased susceptibility to flow after cementing with improved cement results Reduced potential of loss of well and required respud

One of the most important and visible factors to the erosion of value of a deepwater version of the RMR system at this time is the total rig spread rate costs, now approaching US$ 675,000 $ 750,000/d, for deepwater and ultra-deepwater regions of the world. Much of the potential value of RMR in deepwater is eroded by the effective value of critical path rig time that may be required to initially deploy and ultimately recover the RMR mud return line and other subsea components. A simulation of the overall benefit of the use of RMR solely by the reduction of pump and dump mud volumes shows a forecasted savings (Figure 11) of approximately US$ 723,000 P(50). This benefit is approaching the effective value of the range of the total rig spread costs for one day of a deepwater operation. An operator may judge the benefits of this potential savings not to be significant enough when considering the value of the spread rate should potential delays in deployment or recovery of the mud return line and the rest of the subsea components occur. It also becomes apparent that the potential reduction in one or more shallow casing string(s) by the ability to pump higher mud weight fluids in the shallow hole sections may be a more important factor to commercialization of deepwater RMR than the value realized in the reduction of cost savings from pump and dump mud volumes and associated logistics costs. In this case, a savings of approximately US $ 4.34 MM P(50) (Figure 12) may be realized with RMR and this benefit has significantly more cushion in terms of comparison to the daily spread rate should delays occur. This modeling suggests that significant potential savings can be realized in the use of a pre-deployed deepwater RMR mud return line. In this case, a deepwater rig would move onto location, deploy a suction module and hook up subsea/surface mud return hoses to a pre-installed mud return line adjacent to the rig.. DGD The potential savings for the use of dual gradient technology for typical wells in deepwater basins has previously been estimated in the US$ 5 MM - $15 MM range per well during the 1999 - 2002 time period. These primary benefits are achieved by the reduction of required casing strings and less reliance on close tolerance casing designs.7,8 An extensive exercise to determine the value of using DGD technology has been previously performed and potential cost savings/per deepwater well of approximately $US 6 MM

P(10) - $ 12 MM P(90) were modeled. Typical variables that were used in this probabilistic model included: 10 Consumable Materials per Well (Excluding Mud) Mud Contingent Casing/Liner string, Hanger, etc. Time Savings per Well Casing Flat Time Days Savings ROP Days Savings Historical Non-Productive Time (NPT) Deepwater Trouble-Free Well Days NPT Associated with DGD technology Variation in Days through Surface (20 in. Csg.) Setting NPT Savings Total Days Saved Contract Drilling Rates Rig Total Daily Spread Rate An additional analysis has recently been performed with this same model. Updating of the previous simulations with the range of current total rig spread rates (US$ 675,000 $ 750,000/d) for deepwater operations, it becomes apparent that there is significantly more value to be realized to operators if a low Capex, low rig integration cost, efficient DGD system with high reliability can be provided to the industry. Potential cost savings/per deepwater well of approximately $US 8 MM P(10) - $ 16 MM P(90) (Figure 13) are now realistic in the current industry market structure, significantly higher than seen in the previous time frame due to the up tick in deepwater rig rates. Conclusion Managed Pressure Drilling (MPD) with its many techniques, is currently providing decreases in costs of well construction within the industry with additional HSE benefits. Certain MPD techniques less commonly utilized such as DGD and RMR, previously have been considered only as an enhancement technology, but are now ready to be commercialized to become enabling technology as industry steps further into the ultra-deepwater depths of the Gulf of Mexico and other areas of the world, often exceeding 6,000 ft water depths with planned well depths in excess of 30,000 ft. For the further commercialization of DGD, the industry must evaluate the status of the various DGD technologies, either developed or yet to be developed, and determine which technology is technically most cost-effective for the range of water depth or other parameters. To move DGD technologies forward on a common industry basis, operators with the help of drilling contractors and other technology providers will need to work together to implement these technologies to make the significant step changes possible in reduction of well construction costs. 11 Techniques, processes and modeling simulations such as presented in this paper can be used to evaluate the potential use of MPD technologies in candidate wells or well programs. MPD techniques have the potential to allow industry to make the most significant step-changes in drilling well duration and

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also reduce costs associated with non-productive time. More importantly, MPD will allow the drilling of wells that are otherwise incapable of being drilled with conventional drilling processes and will improve well performance through a more efficient completion size and resultant increase in recoverable reserves, particularly for the ultra-deepwater areas of the world. References
1. Managed Pressure Drilling, Hannegan, D.M., Section 10, Chapter 9, new SPE textbook in editorial process entitled Advanced Drilling Technology & Well Construction 2. Technical Meeting notes from the IADC MPD & UBO Committee Meeting, Leiden, The Netherlands, March 13, 2004. 3. SPE/IADC 92294 Pressured Mud Cap Drilling from a Semi-Submersible Drilling Rig by J.H Terwogt, SPE, L.B. Makiaho, and N. van Beelen, SPE Shell Malaysia Exploration and Production, B.J. Gedge, SPE and J. Jenkins, Weatherford Drilling and Well Services presented at the SPE/IADC Drilling Conference, Amersterdam, The Netherlands, 23-25 February 2005 4. Pressured Mud Cap DrillingAdvanced Well Control for Subsea Wells", Jan Terwogt, Leo Maekiaho, Wee Si-Boon, Shell Malaysia Exploration and Production, James Jenkins and Ben Gedge, Weatherford presented at the Petromin Subsea Asia Conference, 20-21 September 2004, Kuala Lumpur, Malaysia 5. SPE/IADC 92769 Silicate-Based Fluid, Mud Recovery System Combine to Stabilize Surface Formations of Azeri Wells, S. E Alford, A. Asko and M. Campbell, M-I SWACO; M. S. Aston and E. Kvalvaag, BP Exploration 6. OMC 038 Riserless Mud Recovery System and High Performance Inhibitive Fluid Successfully Stabilize West Azeri Surface Formation, S. E. Alford, A. Asko, M-I SWACO, R. Stave, AGR Subsea, M. S. Aston, E. Kvalvaag, BP Exploration presented at the Offshore Mediterranean Conference and Exhibition, Ravenna, Italy, March 16-18, 2005 7. SPE 7159, SubSea MudLift Drilling: Design and Implementation of a Dual Gradient Drilling System, J.C. Eggemeyer, P.E., M.E. Atkins, R.R. Brainard, P.E., R. Judge, C. Peterman, R. Theti, and L.J. Scavone, SPE Annual Technical Conference and Exhibition, New Orleans, LA., 30 September3 October 2001. 8. SPE 71358, SubSea MudLift Drilling: Planning and Preparation for the First Subsea Field Test of a Full-Scale Dual Gradient Drilling System at Green Canyon 136, Gulf of Mexico, J.P. Schumacher, J.D. Dowell, L.R. Ribbeck and J.C. Eggemeyer, 2001 SPE Annual Technical Conference and Exhibition, New Orleans, LA., 30 September3 October 2001. 9. SubSea MudLift Drilling JIP- Achieving Dual Gradient Technology, K.L Smith, et al., Deepwater Technology, August 1999, pp. 21-28. 10. Dual gradient drilling nearly ready for the field test, K.L. Smith, et al., World Oil, October 2000, pp. 61-67. 11. What Has Happened to the Industrys Commercialization of Dual Gradient Technology? A.E. Frazelle, R.R. Brainard, P.E., 2002 Deep Offshore Technology Conference, November 13 through 15, 2002 in New Orleans, LA. 12. New Proposal Summary DEA-154: "DGS Technology" submitted October 23, 2003 by L. de Boer & Curtis Huff

13. DGS Dual Gradient Drilling System presentation to the DEA, November 20, 2003 by L. de Boer 14. SPE 30887, Brief: Risk Analysis and Monte Carlo Simulation Applied to the Generation of Drilling AFE Estimates, S.K. Petersen, J.A. Murtha, F.F. Scheider, SPE, 1995. 15. SPE 29364, Drilling Performance Predictions: Case Studies Illustrating the Use of Risk Analysis, S.K. Petersen, J.A. Murtha, R.W. Roberts, SPE, 1995. 16. R.R. Brainard, P.E., Use of Probabilistic Cost Estimating Techniques in Assessing Exploratory Drilling Costs Throughout Latin America, 1998, XI Congreso Latinoamericano de Perforacion, Buenos Aires, Argentina, October 26, 1998.

Acknowledgments The author offers special thanks and credit to the Mr. Ken Armagost - BP America Inc. and Mr. Don Hannegan, P.E. Weatherford International for review and advice in the writing of this paper. Author Mr. Richard R. Brainard, P.E. is a consulting Petroleum Engineer providing particular expertise in deepwater drilling and subsea completions, conceptual project evaluation, project planning and operations management of drilling, completion, and production operations around the world. His expertise also extends to Dual Gradient Drilling, Managed Pressure Drilling (MPD) along with probabilistic analysis through Monte Carlo simulation. He was seconded by BP to the Subsea Mud Lift (SMD) JIP and participated on this JIPs Field Test Team in the drilling of the worlds first dual gradient well. His clients include major oil and gas companies such as BP America (and former Amoco Production Company and its subsidiaries), Marathon Oil, Shell International Exploration and Production, Repsol YPF, independent oil companies including Mariner Energy, Burlington International, Devon Energy, and Norsk Hydro, turnkey drilling contractors including Applied Drilling Technology (ADTI), Schlumberger Drilling and Completions (SDC) and Diamond Offshore Turnkey Services, and other professional and engineering clients. His 27 years of overall industry experience have included the domestic U.S. Gulf Coast and deepwater/shelf offshore (OCS) Gulf of Mexico, California, and Alaskan waters. International experience has included projects in the North Sea, offshore Sudan, offshore India, offshore Angola, offshore Australia, onshore/offshore the Peoples Republic of China, the former Soviet Union, onshore/offshore Venezuela, offshore Trinidad and Brazil and onshore Argentina and Bolivia. Mr. Brainard formed RRB ENERGY INC International Petroleum Engineers and Consultants in 1990 to provide consulting services to the upstream oil and gas industry. His prior 14 years of industry experience included former employment with Amoco Production Company, Tenneco Oil, Texas Eastern E&P, and a domestic independent oil and gas company. Mr. Brainard graduated with a Bachelor of Science Degree in Chemical Engineering from the University of Florida in 1978 and has been a Registered Professional Engineer in Petroleum and Natural Gas Engineering in Texas since 1985.

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11

FIGURES

CONS TANT BHP M P D

Managed Pressure Drilling (MPD)

N o te : Id e a lly , A F P = B P , s o B H P re m a in s c o n s ta nt, a n d p re s s u re a t w e a k zo n e is re d u c e d .
Dual/Variable Gradient Technologies

Single Gradient Technologies

T V D

Surface Pressure Control

Surface/Subsurface Pressure Control

Surface Pressure Control Technologies

Subsea or Downhole Control Technologies

S T A T IC B H P = H H (M W ) +B P D Y N A M IC B H P = H H (M W ) + A F P

psi
Figure 1-MPD Technologies

AFP

Figure 3-Constant Bottom Hole Pressure (CBHP) Mode of MPD w/ RCD (Courtesy SPE 2)

Pressurized M ud Cap M PD
BACK PRESSURE GELLED M UD INJECTED INTO ANNULUS PREVENTS HC M IGRATION

TRUE VERTICAL DEPTH, FT

ALL RETURNS INJECTED INTO CARBONATE LOSS ZONE

EQUIVALENT SINGLE DENSITY GRADIENT

LOW DENSITY FLUID, E.G. SEAWATER BHP PRESSURE, PSI

Figure 2- Pressurized Mud Cap (PMCD) Mode of MPD w/ RCD

Figure 4- ECD Reduction Tool Pressure Profile

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Defined MPD Well Candidate Process

Stage Gate Stage Gate Stage Gate Execute Preliminary Engineering Study Detailed Engineering and Implementation Planning Study

Feasibility Study

Figure 7-Defined MPD Well Candidate Process

8 1/2" Hole-Avg Trip Depth

Figure 5-Riserlesss Mud Recovery (RMR) Technology Pressure Profile

13,100.00

13,950.00

14,800.00

15,650.00

16,500.00

Figure 8-Example Uniform Distribution for 8 1/2 Hole Average Trip Depth

12 1/4" Hole-Bit Trips

Power Supply, Winch and umbilical

Suction module

Return line

Pump module

8.00

9.00

10.00

11.00

12.00

Figure 6-RMR Basic System Configuration (Courtesy AGR)

Figure 9-Example Triangular Distribution for 12 Hole Bit Trips

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13

Forecast: All-Total Well Cost/Savings w MPD 5,000 Trials

.028

Forecast: RMR Estimated Total Savings

4,950 Displayed
139

Frequency Chart

5,000 Trials
.020

Frequency Chart

4,998 Displayed
102

.021

104.2

.015

76.5

.014

69.5

.010

51

.007

34.75

.005

25.5

.000 ($1,423,486) $600,563 $2,624,612 $4,648,661 $6,672,710

.000 $3,047,127 $3,698,764 $4,350,402 $ $5,002,039 $5,653,677

Figure 10- Forecasted Total Well Cost Savings w/ MPD (Jack-up Case)

Figure 12-Forecasted Total Well Cost Savings w/ RMR (DW Floater Case w/ One String Casing/Liner Reduction)

Forecast: RMR Estimated Total Savings 5,000 Trials

.018

Forecast: Total Savings/Well

Frequency Chart

4,997 Displayed
90

5,000 Trials
.024

Frequency Chart

4,887 Displayed
121

.014

67.5

.018

90.75

.009

45

.012

60.5

.005

22.5

.006

30.25

.000 ($335,386) $198,963 $733,313 $ $1,267,662 $1,802,012

.000 $4,405,301 $8,377,102 $12,348,903 $ $16,320,703 $20,292,504

Figure 11-Forecasted Total Well Cost Savings w/ RMR (DW Floater Case w/ Pump & Dump Mud Reduction Only)

Figure 13-Forecasted Total Well Cost Savings w/ DGD (DW Floater Case w/ Current Rig Market Rates)