What is a Development Well

A development well is drilled in a proven producing area for the production of oil or gas. It is drilled to a depth that is likely to be productive, so as to maximize the chances of success. A development well 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.

BREAKING DOWN Development Well

The intent of an oil company’s development well drilling phase is for maximum 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. Development wells are drilled with various different objectives, such as flowing production, artificial lift production, injection of water or gas and to monitor the performance of a well.

Energy companies expend significant resources in pinpointing the best locations for drilling wells, since a dry or unproductive well can be a substantial expense. The accounting treatment for development wells 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 immediately expensed on the income statement under International Financial Reporting Standards (IFRS) and United States Generally Accepted Accounting Principals (US GAAP).

Three Phases of Drilling Wells

The probability of achieving a successful well increases as more wells are drilled in a field. To compare the success of wells in different fields, it is necessary to divide the drilling program into stages. Development wells tend to be the final phase of the oil drilling process. Prior to the development well it is necessary to 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. 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 to drill. Development well drilling can be very complex and often costs around 1-9 million dollars per well, according to a study by the International Finance Corporation.

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