Oil and Gas Drilling is a high-risk activity

Tuesday, 15 February, 2022

Definition of Drilling

Drilling is a process to create dan developing a well to extract the oil and gas from the reserve beneath the soil layer.

Drilling is divided into exploration and production activity. Drilling in the production phase will continue to be carried out and commonly for onshore production or shallow water area.

This article will focus on drilling for the exploration phase.

Drilling in the exploration phase is an activity to find and prove that the suspected reserve has viable volume at the targeted depth.


Where is the drilling done

Drilling, on land (onshore) or at sea (offshore), is a challenge by itself. Each drilling location has its own unique risk e.g. if it is onshore, there is a possibility of improper & inadequate road access into the targeted drilling location which affects the mobilization of equipment. If it is carried out at sea and is a newly explored area, the logistics of goods and transportation of people from land to sea or vice versa is challenging.

Therefore, drilling has become a very risky activity, both technically and non-technically, for oil and gas companies it becomes a gamble in conducting exploration, including taking into account the success rate to find the oil & gas reserve.


Drilling risk

On the other side, the Special Task Force for Upstream Oil and Gas Business Activities in Indonesia (SKK MIGAS), on one occasion stated in Kontan.co.id daily, the oil and gas exploration business is full of risks. Check out the full statement at https://industri.kontan.co.id/news/skk-migas-sebut-bisnis-eksplorasi-migas-penuh-risiko

A different article, written by investopedia.com, https://www.investopedia.com/articles/fundamental-analysis/12/5-biggest-risks-faced-by-gas-and-oil-companies.asp, said that the 5 biggest risks in the world of oil and gas and applicable for drilling activities are:


1. Political Risk. In the exploration phase, consisting of seismic, 2D & 3D studies of the reserve, then continue drilling. The length of the exploration process, for example in Indonesia, there is a change that ongoing exploration process affected by the presidential and political policies change.

2. Geographical and Geological Risks. Indonesia is an archipelagic country, known for challenging logistics processes. It is becoming challenging if the onshore location is deeper into the interior of the forest. At sea, if the location is located in the deep-sea area and far from the east of Indonesia’s water territory, the lack of logistics infrastructure will impact and increase the risk.

Geologically, no one knew beforehand how difficult it was and how difficult it was to get into the reserve of oil content. The reserve may not be economic after the hydrocarbon is extracted during the well-test. In this case, a loss for the oil and gas company. A famous quote within the drilling project is "Completed drilling campaign, no matter the result".

3. Price Risk. Oil and gas as commodities, the market price is volatile.

4. Availability and Demand Risk. In Indonesia, it becomes a challenge in itself, because Indonesia is a net importer. A business decision shall be made by oil and gas companies to execute drilling. If proven, will the company sell it entirely for the domestic or global market?

5. Cost risk. Unreachable location and deeper oil reserves, the greater the costs required. As stated by SKK MIGAS on Kontan.co.id, 5 wells were drilled, which proved could only be 1 well.

Other than the above, there are technical risks such as:

1.     Deep-sea

2.     Extreme weather

3.     Hardest layer

4.     Asset Integrity

5.   Safe Operation