What Is Spud?

Spudding is the process of beginning to drill a well in the oil and gas industry. A larger drill bit is initially used to clear a surface hole, which is then lined with casing and cement to protect groundwater. After the surface hole is completed, the main drill bit—which performs the task of drilling to the total depth—is inserted and this process can also be referred to as "spudding in."

Spud Explained

Spudding in is a highly complex task involving sophisticated techniques and machinery. It often costs hundreds of thousands of dollars to drill even a simple well. More difficult wells can cost millions of dollars. The most expensive wells are often found offshore, where high-end drilling platforms can cost over $500,000 per day in times of peak demand.

Key Takeaways

  • Spud refers to the early stages of drilling when rock, dirt, and other sedimentary materials are removed with a drill bit.
  • First, a larger bit is used to form the well, and then a second bit is put in place to do the main drilling.
  • When the main drill bit is added to the process, the task is known as "spudding in" and occurs on the "spud date."
  • With offshore oil rigs, the spud date is when the drill begins working on the seafloor.
  • "Spud to completion" is the time between the spud date and the completion of the well.

Initially, when a new oil well is going to be drilled, a larger drill bit is used than what is going to be used to get to the final depth. This first drill clears out dirt, rock, and other debris and creates a hole in the surface that is then lined with concrete, forming a barrier to avoid any contaminants from bleeding into the groundwater.

Once the initial hole is complete, the main drill bit is attached. The day the main drill bit begins drilling into the ground—a process called spudding in—is referred to as the "spud date." In cases of offshore oil rigs, the spud date occurs when the drill begins working on the seafloor, not when it first breaches the water.

Special Considerations

Many investors find value in the spud dates, as this helps determine how effective a particular drilling operation has become. This can help differentiate one company from another, providing a point of analysis when determining how to invest funds.

Comparing the spud date to the date the total depth is reached, also referred to as spud to TD, can help compare operations of one drilling company to another, as well as improvements in a company’s performance from the completion of one well to the next. Additionally, the phrase "spud to completion" refers to the time between the spud date and the well being completed, and the phrase "spud to sales" or "spud to rig release" involves the time from spud to the point the well comes online.

The time required to move from spud to TD, spud to completion, and spud to sales can all be included as cycle times. The shorter the cycle time, the faster the particular well was drilled, completed, or capable of producing, respectively.

Lastly, the rate at which oil can be extracted directly affects oil pricing, generally sold by the barrel on the open market. Increased efficiency generally lowers cost, allowing the same quantities of crude to be made available in less time.