5 Steps Of The Oil Drilling Process Explained

As one of the driving forces of the global economy, oil is an endless source of wealth for leading industries across every business sector, and for powerful nations around the planet. Some of the greatest fortunes in the world have started with simple yet wise investments in oil.

5 steps of oil drilling

There are several different ways for individuals with little or no prior experience in the oil industry to buy oil as an investment:

Oil sector mutual funds. An investor might be lured into the oil market by a sudden rise in oil prices, which could serve as an incentive to capitalize on the rising value. A common way that investors go about this is to invest in an oil sector mutual fund, which dilutes the risk of investment by spreading it out amongst several entities, such as companies in the refinement, production and servicing ends of the oil sector.

Therefore, if one company goes through a sluggish period, the individual's overall investment won't be harmed by the underperforming entity.

Individual stock. Another investor might opt for individual stock, in which the person purchases shares of an integrated blue chip oil company that offers dividend payouts based on successful performance. This investment can prove very lucrative during times when oil and gas prices surge.

gas pump

For instance, when an upheaval occurs in a certain part of the world that draws international attention and requires high-powered intervention, fuel supplies could suddenly be at a premium. Events like this are often high times for investors with individual stock in oil.

Futures contracts. Returns can also be maximized with investments in oil by purchasing futures contracts. The value of a futures contract increases with the price of oil. Contracts of this type can be sold in advance of their expiration date. Therefore, if oil prices skyrocket as expected due to foreign conflicts of some sort, a contract can be sold on the eve of negotiations, right when the value is at its hottest.

ETFs. A novice investor will sometimes buy an exchange traded fund (ETF), where the investment is tied to daily movements in crude oil prices. While movements can be inconsistent over time, ETFs are an easy way to invest in oil. As such, huge profits can be made when oil prices skyrocket.

oil drilling steps infographic

How to Implement and Execute an Oil Drilling Operation

Some people opt to buy oil as an investment, while others look to drill oil themselves. In any case, oil drilling is a huge undertaking that involves tremendous manpower and large sums of money. Additionally, drilling requires forehand research to determine the stakes and practicalities, as well as permits to iron out the legal technicalities.

In order to set up a drilling site, the selected area must first be properly evaluated for oil-rich sediments under the surface. Before rigs can be established, the area that surrounds the prospective well must be paved and padded to withstand the impact of tremors and spills, and also so rain can drain from the ground as needed.

Dirt Sediments

In most drilling operations, the hole is sent vertically into the ground at depths of several hundred feet. Eventually, rocks are pulled to the surface and examined for oil content. Once the drilling crew confirms that oil has been reached, a pipe is sent down to finalize formation of the well. Alternately, drilling can be performed at vertical angles in unique bodies of shale that are found to be dense in hydrocarbons.

While none of the steps involved in drilling for oil could be described as small feats, they can basically be divided into the following five categories.

Step 1: Choose a Location and Make a Proposal

Oil exists under many different land formations, but some areas are a lot more optimal for drilling than others. While it might seem practical to buy up a piece of land and run some wells on your own acreage, viable drilling locations are unlikely to be found anywhere near where you'd want to build a home or cottage. Therefore, the start of an oil-drilling project requires some travel and scoping.

oil riggers

Spot an optimal drilling location. In this day and age, you're unlikely to pull a Jed Clampett and stumble upon oil in some remote area, far from any other mining activities. Generally speaking, oil is easiest to find in areas adjacent to currently active oil fields.

  • Soil gas surveys. One of the easiest and most affordable ways to test for the presence of oil in a certain area is to measure samples of soil for hydrocarbon content, which is a key indicator of oil-rich qualities within the ground.
  • Seismic imaging. The study of sound waves in underground rock layers can also help determine whether oil lies within the ground of a given area. With the use of geophones, seismologists are able to pick up echo patterns within the soil for indicators of oil streams that could possibly lie under a particular stretch of land.

Make a proposal for drilling. Once your team has located a viable drilling site, draft a proposal that addresses the technical ramifications of the endeavor. Consider the following questions when making this proposal:

  • What are the estimated costs of this drilling project?
  • What do investors stand to earn from this undertaking?

Address the hardest questions with specific answers, including projected times for the commencement and completion of drilling, as well as an estimate for the overall lifespan of the well. Also cover potential intervening factors, such as market fluctuations, competing nearby oil operations, and the number of similar projects that may be in the works. Arm yourself with specific answers that demonstrate your confidence and authority on the project.

Step 2: Ready the Area and Hire the Crew

Things really get serious once an area has been selected and a proposal has been made, because this is where the teamwork and physical labor begins. For starters, amenities are needed for the work crews that will be on-site handling all the tough and heavy tasks. Second, you'll need to enlist various people to handle technical and legal aspects of the oil-drilling process.

oil rig

Set up an on-site drilling infrastructure. Whether you establish a drilling site on land or offshore, there will need to be amenities put in place to accommodate work crews during long hours. Resources like food, water, electricity and sanitation will need to be established, as will transportation to hard-to-reach areas, such as with the following sites:

  • Offshore locations. This will require ships and submersibles, as opposed to construction vehicles.
  • Volatile locations. If the prospective location is in an area prone to volatile weather patterns, sheltering equipment and an extra-secure line of vehicles will be needed to conduct operations.

By contrast, a site that's located in or near a developed urban area will require fewer special amenities and will generally cost less to manage.

Hire people to handle various aspects of the drilling process. When it comes to oil drilling, operations are delegated across the following categories:

  • Geologists. People in this role study soil and rocks to determine the nature and viability of selected areas.
  • Ecologists. Issues regarding the presence and protection of wildlife in or near a chosen site are handled by people in this field.
  • Attorneys. The legal aspects of permits and contracts are handled by lawyers, who work in talks with company officials.
  • Construction crew. The work that entails breaking ground and setting up apparatuses is meant to be handled by a team of individuals with extensive training in high-tech machinery. These people must be physically fit and experienced at lifting heavy loads in challenging conditions. In order to operate a well that extends 10,000 feet into the ground, you'd need a crew of at least 60 individuals.

Once everyone has been brought on board, you're dealing with a large team of talent and expertise across the science, legal and labor sectors. In every way conceivable, oil is one of the most integrated of industries to drive the global economy.

Step 3: Finalize Legal Work and Establish Policies

As with any big business undertaking, the establishment of oil wells involves plenty of paperwork, much of which covers the ecological factors of drilling holes far into the ground. After all, a well cannot be put into place without respect for the habitat and stability of the surrounding area. With all the manpower and heavy-duty machinery involved, there are also various safety issues to be taken into consideration. Therefore, it's crucial to have paperwork finalized and protocols established before any breaking of ground commences.

folders holding papers

Complete the documents. Before you proceed to break ground, gather all the legal paperwork, including permits, leases and any other document that drilling might require in a particular state or local area. The necessary paperwork is likely to include the following:

  • Registration. In order to operate a well, your company will need to declare its intentions regarding the location, means and magnitude of the project in question.
  • Designation. If a third party has been designated to drill and operate a well on behalf of a company, the latter entity must file paperwork that identifies the people who have been assigned to carry out such work.
  • Deposit. In the event that a well breaks down or needs to be removed due to issues with oil resources or local habitation, your company will need to have an agreement on file of a willingness to decommission and remove all operating components in accordance with laws in the state or county in question. Depending on the area or terms in question, this could be in the form of a performance bond or letter of credit.

If a well is renovated, reopened or sold, other sets of paperwork will need to be filed. In any case, the necessary permits and documents must be checked with local governing agencies — preferably in the presence of an attorney — in advance of commencing with operations.

Establish safety measures. Once the area has been designated, give all concerned parties a complete rundown of on-site safety procedures and verify that each individual has a full understanding of policy and protocol. Depending on whether the designated site is on land or offshore, utilize one of the following marking tools:

  • Global positioning system (GPS) device. An essential coordinate marker for pinpointing the longitude and latitude points of a given location.
  • Buoys. Anchored floating devices that serve as navigational markers for an offshore drilling location.

For crew protection and oil containment, set up a blowout preventer (BOP) in advance of drilling. A BOP acts as a heavy-duty emergency valve that contains oil if and when blowouts occur.

Step 4: Prepare Soil and Begin Drilling

Even though oil is one of the world's most abundant natural resources, reaching its reservoirs within the ground is no small feat. In most places, you have to drill hundreds of feet before you can reach the oil, and along the way you have to cut through layer upon layer of thick soil and hard rock. Therefore, an oil drilling project is only likely to succeed if the ground has been cleared, a rig has been set up and the angle has been determined before the drilling starts.

oil rig

Pre-digging. When establishing a well, the digging doesn't start with the actual oil drilling. The first on-ground physical steps are divided into area clearance and leveling work. The pre-digging stage consists of the following four holes:

  • The earth pit. This protects against the contamination of water and soil.
  • The rat hole. The place where pipes are established.
  • The mouse hole. The hole where equipment is placed.
  • The pilot hole. The hole from which operations are conducted.

For sufficient storage, a steel cellar should be set up near the drilling site. In order to keep the area clean, a pit should be established for mud and rock that gets uprooted as the drilling progresses. If the drilling is situated offshore, storage space needs to be included in the oil platform.

Set up the rig. Consisting of pumps, drills and other excavation components, oil rigs for land-based wells are generally transported in pieces and assembled on site. For offshore wells, rigs need to be incorporated into the platform. The depth of the well will determine how large and strong the rig must be to support the operation.

Determine the best angle for drilling. Depending on where the oil is located within the ground, drilling should be conducted in one of the following ways:

  • Vertical. If your team is directly above the oil source, the hole should go straight down into the oil.
  • Angled. If you’re unable to set up operations directly above the source, you'll need to do things from an angle and drill diagonally to the oil.

Ready the soil for casing pipe. This is where the actual drilling begins, and it's carried out in two stages:

  • Drill a starter hole. In order to make way for the casing pipe, there needs to be a wide starter hole — which will ultimately serve as a conductor hole once everything is in operation — drilled to a depth of between 100 and 200 feet into the ground. As this drilling takes place, uprooted mud and rock must be pulled aside and discarded in an assigned compost area.
  • Insert casing pipe. With the hole complete, pull out the drill and insert the casing pipe. The pipe must reach a depth at which oil exists under the surface of the area in question. With the pipe firmly in place, fill the gaps between the soil and pipe with cement, which will block out contaminants and secure the overall structure.

For the drilling portion, you need a drill that's best optimized to cut through layers of rock that run dozens of feet deep. Today's drillers generally use tricorne rotary drills, which feature three tooth-lined rollers at the front end. To further stimulate the drilling process, sporadically pour a mixture of bentonite and water to the hole in progress. This will kick up rock, balance pressure levels and keep the drill tip at an optimal temperature.

Step 5: Test for Oil and Insert Piping

It takes a lot of hard digging to reach the oil-rich depths that lie under the surface of some of the world's most plentiful areas. If not for tools, manpower, patience and determination, a lot of the planet's most lucrative oil wells would have never been established in the first place. Along the way, there's bound to be some back and forth as rock pieces excavated from a given underground reservoir are examined for evidence of black gold.

oil rig

Test for traces of oil. Once the drill has reached the depths where oil-rich rock layers are believed to exist, it's time to test your results. This can be carried out with one of two methods:

  • Inspect rocks extracted from the farthest depths for oil content.
  • Place gas sensors down into the hole.

If the depth has still not been reached, keep drilling. As soon as rock samples confirm oil content, remove the drill and proceed with tube insertion.

Alternately, a drill equipped with Measurement While Drilling (MWD) technology can identify properties touched at the bottom of the well. This way, surface crews can determine whether oil has been reached without extracting the drill just to test for such results.

Insert tubing into the well. With the reservoir rock layers now reached, place a narrow tube down the full depth of the well, along with a perforating gun. The purpose of the gun is to poke holes into the surrounding cement so that oil can flow into the well.

If oil comes forth, remove the blowout preventer and place a pump jack over the well. If the drilling proves to be fruitless, plug the hole with mud and try again elsewhere.

Investing in Oil Drilling

As the market fluctuates and increasing numbers of jobs get shipped overseas, more Americans are looking for new ways to make money in these uncertain times.

cars on highway

One part of the business sector that remains lucrative is the fuel industry, simply because gas and oil are the lifeblood of automobiles and numerous types of machinery that make the world go ‘round. Therefore, investing in oil drilling has been an increasingly attractive undertaking to people with a drive to branch out in life and make their money grow.

While it does take market knowledge to wisely and prudently buy oil as an investment, virtually anyone can pull it off with healthy returns after a few key tips and points. However, mistakes have been made by people who've invested in the wrong entities or entered when things were bearish. For those reasons, it's crucial to get good advice before investing in oil drilling for the first time. Due to the inconsistencies between various entities hoping for a slice of the pie, avoiding oil investment scams should also be a top priority for anyone new to the field.

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