DRILLING FLUIDS THE TRUE COST

General Fluid Costs

• In oilfield rule of thumb is 5% of the drilling budget is allocated to drilling fluids. (The cost of the fluid does vary eg: Oil based, water based, highly inhibitive systems, costs go up for difficult drilling situations and problematic ground types and so on costs can go much higher easily up to 15%.)

• General non-oil field work drilling fluids cost around 1-2% of the hole, in good competent ground more meters are drilled per shift then drilling fluids cost are reduced. In problematic ground the cost can be as high as 10% and get to 15% where there are full losses.

• In problematic ground it takes higher performing products to stabilize the formation.

• Any formation can be stabilized it just comes down to how much $$$

When we look at the true cost of a drilling fluid we need to examine

• The performance levels (Activity Rate)• Packaging • Transit• Mixing ability (Disperseability)• Unit Price • Running a pre-planned mud program prior to having difficulties • Cost Vs Failure (Is it worth running a cheap mud program if the target isn’t

met?)

PRODUCT PERFORMANCE

• With products that have a higher activity rate there is less used and cost less to freightEg: The difference between POLY VIS 2000 and POLY VIS LIQUID shipped to Newman at $350/pallet POLY VIS 2000 is 50% active in a 20kg drum $150.00 each POLY VIS LIQUID is 33.3% active in a 25kg drum at $140.00 each

POLY VIS 2000 = $16.09/active kg (10% lower cost) POLY VIS LIQUID = $17.75/active kg

• POLY VIS 2000 is a much higher performing product with a longer shelf life, higher activity, much higher tolerance to poor quality water.

• Water is the primary drilling fluid if the water quality is poor the product still needs to be able to perform

1. Overall consumable usage from 12 tonnes per month to <1 tonne per month• Translates to Kia ~100-120K cost saving in helicopter per month (14 hours of flying time)

2. Lower mud and associated freight costs• Translates to Kina ~50K per month inclusive of freight

3. Increased production impacts overall cost per meter (inclusive of standing costs and overheads)• Consistent +30m drill production per day – mud program has demonstrable impact • Significant improvement to in-ground expenditure KPI

1. Reduced mud volume / weight

2. Reduced mud cost

3. Improved production

Daily drill metrics April – September 2015

MK1MK2 MK3

1. Overall consumable usage from 12 tonnes per month to <1 tonne per month• Translates to Kina ~100-120K cost saving in helicopter per month (14 hours of flying time)

2. Lower mud and associated freight costs• Translates to Kina ~50K per month inclusive of freight

3. Increased production impacts overall cost per meter (inclusive of standing costs and overheads)• Consistent +30m drill production per day – mud program has demonstrable impact • Significant improvement to in-ground expenditure KPI

Harmony Gold Kili Teke Project Production cost efficiencies – Mudex GEO BOND

A cost comparison on a site running POLY VIS HV in 15kg pails and 15kg bags at 1 pallet per month

• POLY VIS HV $125.00 / 15kg x 32 drums / pallet each month plus $200per pallet freight to site = 5760kg of product sent to site over the 12 months = $54,900 with 384 empty drums left over.

• POLY VIS HV $121.00 / 15kg x 65 bags / pallet every 2 months at $200 per pallet freight to site = 6000kg of product sent site over the 12 months = $48,390 with minimal waste on site.

• Offering a saving of $6,510.00 per year with higher quantities sent to site and less wastage from packaging.

PACKAGING & TRANSPORT

Eg: The difference between GEL X 180 and GEL X 220 shipped at $200/pallet GEL X 180 is 180bbl / yield Australian Bentonite GEL X 220 is 220bbl / yield US Bentonite (20% higher yield)

GEL X 180 =$16.00 / bag $20.16 freighted GEL X 220 =$18.00 / bag $22.16 freighted

• GEL X 180 is 10% lower cost freighted but 20% lower yield.

PACKAGING & TRANSPORT

MIXING AND DISPERSABILITY

Both products are mixed at low shear to test the disperseability of the products VIS PAC RD

Is 85% dispersible mixed for 30second100% dispersible at 60 seconds

VIS PACIs 25% dispersible mixed for 30second

35% dispersible at 60 seconds

MIXING AND DISPERSABILITY

UNIT PRICE

• Most mud companies will have both a standard and a high performance range of products, this is to compete in price sensitive markets

• Unit price is very important when comparing two products that are the same

Ask • Does it meet API Spec (American Petroleum Institute)? • What is the activity of the product?• What is the packaging size?• What is the packaging type? • What is the shelf life of the product?

MUD PROGRAMS (Pre Planning)

• Before entering a new area go with a mud program• If there not much geological data available for a comprehensive mud

program take some contingency products eg: PAC or Trol, lost circulation material

• This is particularly important in remote areas when it is difficult to get product to site.

• Hole stability needs to be maintained• If the hole is allowed to deteriorate beyond what the drilling fluids can

stabilize the hole will generally need to be cemented.• DRILLING FLUIDS ARE USED TO KEEP OUT OF TROUBLE NOT GET OUT OF TROUBLE

COST Vs FAILURE Scenario 1.• The cost of a hole not getting to depth down to 500mts at $200/meter• The hole is abandoned at 400mts at a cost of $80k and• If the mud program was not effective at 1% of the hole cost • The failed hole cost $81K

Scenario 2.• The rig is moved a few meters and everything else is the same beside the mud• The mud costs are taken up to 5% of the hole cost and the hole is completed • The mud bill is $5000

If the mud budget was run at $5000 apposed to $1000 there would have been large savings across both holes

TO EVALUATE THE TRUE COST

• Unit Price

• Cost per 1000 litres

• Cost per meter

Questions