Development Well

What Is a Development Well?

A development well is drilled in a proven producing area for the production of oil or gas. It stands in contrast to an exploratory well, which is one that is initially drilled to find oil or gas in an unproven area. As a result, dry or unsuccessful development wells are rarer than dry exploratory wells. Chances of success increase when the development well is drilled to a depth that is likely to be most productive.

Key Takeaways

  • A development well is drilled after an area has been proven to hold oil or gas reserves and is typically the final phase of the oil drilling process.
  • An exploratory well is an effort to determine if oil or gas reserves are present.
  • The probability of success increases as more wells are drilled in a given field.
  • Development wells are more complex and expensive compared to exploratory wells because they are wider in diameter and drill deeper.
  • Over the years, technology has helped increase the success rates of exploratory drilling projects.
  • Development wells are drilled with various objectives: flowing production, artificial lift production, injection of water or gas, and to monitor the performance of a well.

Understanding a Development Well

The intent of an oil company’s development well drilling phase is to maximize economic production and recovery of a reservoir’s known reserves. The exploratory well determines whether oil and gas are present in a prospective reservoir. Since geology and subsurface conditions are uncertain, there are heightened risks of complications during exploratory drilling. 

Energy companies expend significant resources in pinpointing the best locations for drilling wells since a dry or unproductive well can be a substantial expense. While exploratory wells are designed to confirm reserves are accessible, development wells are drilled with various and different objectives, such as flowing production, artificial lift production, injection of water or gas, and monitoring the performance of a well.

The accounting treatment for development wells also differs from exploratory wells. The costs of dry development wells are usually capitalized as an asset on the balance sheet, whereas the costs associated with dry exploratory wells are an expense on the income statement, according to the International Financial Reporting Standards (IFRS) and the United States generally accepted accounting principles (GAAP).

Development Well vs. Appraisal Well

The probability of achieving a successful well increases as more wells are drilled in an oil field. It is first necessary to divide the drilling program into stages, and then it is possible to compare the success of wells in different fields.

Development wells tend to be the final phase of the oil drilling process. The four phases of the oil and gas extraction process are as follows:

  • Exploration
  • Well development
  • Production
  • Site abandonment

Before the drilling of a development well, oil and gas companies usually drill appraisal and exploration wells. Appraisal wells are drilled only when a discovery is made, with the motive of assessing the size and viability of the reservoir. Drilling techniques vary widely.

The life cycle and operational period of development wells are much greater than appraisal wells. Additionally, development wells are normally larger in diameter and deeper than exploratory wells, thus they are also much more expensive and complex to drill.

Success rates of wells drilled during the exploration phase have improved significantly over the last 50 years. For example, in the 1960s, exploration wells were successful only about 45% of the time, compared to development wells, which enjoyed a 70% success rate. By the 1990s, the gap had narrowed considerably, with exploration wells successful 62% of the time and development wells 67% of the time.

According to the Energy and Information Administration (EIA), The number of producing wells in the United States reached a high of 1,029,588 wells in 2014 and steadily declined to 936,934 wells in 2020, mostly because of lower oil prices and less rig activity.

U.S. oil production reached 12.9 million barrels per day in December 2019, and U.S. natural gas gross withdrawals reached 116.9 billion cubic feet per day in December 2019. U.S. oil production and natural gas gross withdrawals both declined in 2020 because of lower demand linked to the COVID-19 pandemic.

Article Sources
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  1. FASB. "Statement of Financial Accounting Standards No. 19. Financial Accounting and Reporting by Oil and Gas Producing Companies."

  2. U.S. Energy Information Administration. "U.S. Oil and Natural Gas Wells by Production Rate."

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