CDDA & Geotech

Drilling
Cost of Drilling

Agenda
THE COSTS OF DRILLING

Scope of a Job
Scope
The cost of any job is largely correlated to the scope of the program and the anticipated requirements including
but not limited to Health & Safety, Environmental and technical approach (i.e., wedging, testing, etc.) . The
scope of work can typically determine the length, personnel required, assets, consumables and other factors
necessary to complete job. Listed are the common components that make up the scope of any job.

Location
Season
Methodology (PWL, NWL)
Total Meters
Depth of Holes

Site Access
Topography
Safety and Environmental
Ground Condition(s)
Access to water

Scope of a Job
Example case study to understand the direct expenses
associated with drill programs
Surface Drilling Project
Location: Northern British Columbia
Season: Summer/ Fall Months
Methodology: Coring HQ/NQ
Total Meters: 30,000m
Number of Drills: 4
Hole Depth: 600 - 800 m
Site Access: Helicopter
Waterline: 1500m
Terrain: Extreme Slopes

Direct Costs - Assets

Asset Definition
A resource with economic value that an individual, corporation or country owns or controls with the expectation that it
will provide future benefit. Fixed assets are those that are expected to keep providing benefit for more than one year,
such as equipment and buildings.

Amortization and Financing of Assets

Refers to the operational life of an asset and the period over which the asset is financed. Due to the extreme
conditions of drilling, drills and support equipment life can sometimes be shortened. How does this factor into
expenses associated to the program(s)?

Utilization Rates used to Apply Internal Rental Rates

To determine what cost should be applied to the drill program for assets being used, how is the daily, weekly, monthly
rate applied for financed or owned equipment? Utilization rates, typically built off historic s, divided over the
amortization period can assist in this purposes. This approach would be variable from slower to busier periods.

Internal Rental Rates (IRR)

Internal Rental Rate captures all costs associated with company owned equipment and calculates the cost into a
Daily/Hourly Rate for job costing and pricing purposes. Each unit which is not expensed to the program and can be
utilized on future programs should have an IRR rate. Same as renting from a rental company.

Assets

Safety

Personnel

Consumables

Logistics

Overhead

Direct Costs - Assets

Drills
The selection of drill is dependent on many factors in the scope of the work which include, site access, hole
depth, drilling conditions, methodology etc. How do you charge these back to the job?

What type of drill to use?

In the exploration there are 3 main types of drills generally used each requiring there own support equipment to
facilitate movements and setups

Helicopter
Portable

Remote locations, extreme topography, no road

access, higher elevations
Grassroots Exploration Drilling limited
infrastructure

$250,000-$500,000

Skid

Sites with road access, wide open areas, lower

elevations
Definition & Resource Drilling - Mine Sites

$300,000- $750,000

Track

Partial site access, reduced ground pressure

requirement, boggy areas, warmer climates

$300,000- $1,000,000

Underground

Developed Mines
Definition and Resource Drilling

$250,000-$500,000

Drill Rigs = 8%

Assets

Safety

Personnel

Consumables

Logistics

Overhead

Direct Costs - Assets

Support Equipment:
Support Equipment is all equipment additional to the drill that is necessary for completion of the job. Each drill type
requires different support equipment. Listed is some of the major support equipment found on any job.

Drill

Drill Specific

Helicopter
Portable

Fly Shacks
Fly Baskets
Survival Shacks

Skid

Dozers
Rod Sloops
Skidders

Track

Support Trailer (s)

Tracked Support Unit
Argos/RTVs

Underground

Loaders/Man Carriers
Sloops

Ancillary Equipment

DTH Pumps
Generators
Heaters
Supply Pumps
Water Supplies (Bladders, Hose,
tanks)
Drill Rods and Casing
Mechanical Supplies
Welders
Spare Equipment

Support Equipment = 7%

Assets

Safety

Personnel

Consumables

Logistics

Overhead

Direct Costs - Personnel

Personnel

Highest direct cost and risk associated to any drill program

Balance between high wages, high production and quality of product to remain competitive
One rig operation 24 hours per day for a staff of 5 employee = $2800 minimum
4 rig operation 24 hours per day with an onsite staff of 22 employees for 6 months = $2,000,000 in wages
Cost cutting in wages can result in bad morale and bad product fine line to remain competitive

Personal and Wages - Examples

Driller
Helper
5th Man
Supervisor
HSE
Officer
Mechanic
Admin

1 per drill
1 Per drill
Multi Drill or logistically challenging
scope
Multi Drill or technically challenging
scope
Multi Drill or client request
Multi Drill
Multi Drill

$26.00- $35.00
$18.00- $25.00
$17.00-$25.00
$30.00-$37.50
$50,000- $80,000
Salary
$35.00- $40.00
$18.00-$22.00

Wages x Benefits x WCB = 31%

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Direct Costs - Personnel

Movements and Living Costs;
Travel Costs:

Base office if applicable - Drillers and helpers can be located all across Canada. Average cost of a domestic flight
can range from $500-$2000 round trip

Airfare can increase with last minute bookings and changes due to weather or site access (exaggerated in winter months)

Site Access - Travel to remote sites can be costly. Many exploration sites are located in remote locations either
accessible by helicopter, small charter plane or minimally maintained roads.

Associated costs with crew overlap (duplicated wages) to avoid lost production on remote sites on crew change dates
Standby and challenges associated with access to remote sites.

Living Out Allowance & Hotels (LOA)

Inflates meter pricing or overall pricing if to be included.

Typical cost per day per employee including hotel and LOA = $140 minimum x example of 22 employees = $3040 per day

Crew Rotations

Shift selection and rotation also have large impacts on travel costs

LOA + Travel + = 5%

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Direct Costs - Consumables

Consumables:
Products necessary for the operation of a drilling program which are not considered assets and
are consumed and expensed to the project.
The quantities and costs of the consumables are always fluctuating and change with the drilling
conditions and scope.
Provide an opportunity to increase margins if controlled properly

Drill Tooling/Bit Costs:

Drill rod and casing application to consumable definition
Limited suppliers may require large inventory of drill tooling to facilitate risk management of
potential down time
Remote drill sites require sufficient inventory
Wear and tear on drill tooling differs from hole to hole, extremely difficult to forecast exact
amounts
Additional drill tooling required depending on hole conditions not anticipated
Bit consumption also controlled by operator efficiency and skill
Example - 4 rig operation 24 hours per day for 6 months: $272,000 average production of 33
m/shift

Drill Tooling + Bits + = 7%

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Direct Costs - Consumables

Drilling Muds and Additives:
Drill muds & additives are utilized to compensate and advance in most formations ranging from sands, clays to all forms of
different rocks. As ground conditions are challenging to predict without proper historic s so can be the quantities and use of
drill muds.
Muds are charged to client generally in the Meter rate or at cost or cost plus which can quickly inflate budgets. Such
challenges can result from;

Insufficient crew training on mud functionality and proper use

Increased consumption due to ground conditions (i.e. faults, fractured, clay/gravel seams)
Logistical constraints associated with recirculation or non requirement
Employing recirculation requirements can actually add to mud consumption

Challenges associated with long term programs and balancing inventory thresholds so muds dont expire
Example - 4 rig operation 24 hours per day for 6 months with recirculation: $190,000 average production of 33
m/shift

Muds + Additives = 3%

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Direct Costs - Consumables

Fuel Costs if not provided:

Volatility in fuel prices could possibly affect program costs where fuel is not provided
Storage of Fuel infrastructure required and costs associated
Transport of Fuel dependent on fuel consumption and site logistics
Tidy Tanks and Fuel pumps asset rentals

Miscellaneous Consumables:
PPE consumables (i.e. gloves, ear plugs, etc.)
Aerosols and lubricants
Environmental consumables

Equipment

Fuel Consumption

Drill Rigs

35-45 gallons per shift

Supply Pumps

10-15 gallons per shift

10-12 KW Generators

8-10 gallons per shift

Proper inventory management importance

Example - 4 rig operation 24 hours per day for 6 months : $410,000

Fuel + Consumables + Oil & Lubricants = 16%

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Safety and Environment

Safety Requirements
Various costs associated with ensuring that all safety standards are being met. Each site and client may have various
safety requirements which can result in additional costs, mostly associated with training and misinterpreted
expectations.

Training

Third party costs - Cost of trainers, job shadowing, career development, wages and support costs associated
Industry and Jurisdiction Standards - First Aid , WHIMIS, Common Core, etc.
Site specific and client training

Assets associated with Ergonomic Task and Risk mitigation

Rod Handlers training costs associated with safe operation and rental association
Interlock Guarding install and maintenance requirements

Potential of reduced production associated with correct H&S initiatives - increased cost and
acceptance for possibility of decreased production Industry driven by production

Safety Training + Indoctrination + Safety Assets = 1%

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Safety and Environment

Cuttings Management
Increased demand for reducing the potential environmental footprints associated with drill returns.
Mitigation techniques may increase asset and maintenance, and decrease production. Acceptable cost???

Cutting Management Equipment

Mud centrifuge systems Asset increase and possibility of increased personnel to maintain system
Recirculation mud tanks maintenance costs
Gravity displacement systems or sumps
Accumulation of contained cuttings and where to dispose.

Increased costs with remote sites

Cutting Disposal and Transfer (and associated costs)

Sumps Developed through manual labor or with equipment

Mud Management systems Mud is collected through a mud system bagged and removed from site
manually
Onsite Disposal Pumped or drained to a natural depression
Drummed and removed offsite

Cutting Disposal + Sumps + Filtration Systems = 3% (not factoring

lost production potential)

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Safety and Environment

Water Management
As the industry evolves there is becoming an increased focus on water management and
consumption. Topography and site location are large factors in the cost of water
management systems which may also require additional personal and equipment.

Water Management Systems Cost factors:

Equipment requirements- Additional pumps, tanks, bladders, hose, sump pumps can be
required for limiting water usage
Water source- depending on access of water, additional pumps or water trucks may be
required.
Winter supplies- water management in winter can be more expensive. Line heaters and
fuel costs associated
Personnel- depending on the size and distance of the water management system and
additional 5th man may be required to help manage the water.

Additional Personal + Water Supplies = %3

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Logistics
Mobilization/ Demobilization:

Trucking Costs can range from $150-$200 per hour cost only
Labor associated with unloading/loading and setup
Helicopter costs associated with mob/demob movements
Remote property increased costing to client
Movement of equipment on large property sites (i.e. mine sites, multiple deposit properties, etc.)

Hotshots:

Cost of Hotshot is correlated to remoteness of site and anticipated frequency

May require plane, driver, truck or helicopter at whose cost?
Hotshot opportunity vs. inflated inventory??

Shipping (Third Party)

Regularly schedule shipments associated with onsite inventory maintenance

Mobilization + De Mobilization + Hotshots = %1

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Overhead - Direct
Overhead:
The applicable costs that are direct to the project and reflect the ongoing expenses of any business, and in support of
the project.

Project management senior Guidance and management of project as required

Purchasing inventory management and maintenance of request deadlines
Fleet advisement of maintenance and deployment of support as required
Health and Safety QA/QC policies and procedures and support of real time activities
Human Resources - retention and support of employees and efficient turnaround/replacement capabilities

Identified departments are becoming necessary to the appropriate facilitation of projects and
expectations of clients but also can prevent a contractor from remaining competitive if not managed
properly.

Overhead = 8%

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Overhead Indirect
Overhead:
The costs that are not direct to the project but reflect the ongoing expenses of business requirements.

Research and Development

Marketing
Infrastructure (i.e. rent)
Business Development
Accounting AR, AP

Indirect Overhead (General and Administration) can have a negative effect on a contractors ability to
offer competitive rates if improperly managed.
Separates major, medium and junior drilling companies from final bid offers.

Overhead = 9%

Assets

Personnel

Consumables

Safety

Logistics

Overhead

Overview
Example of 4 drill exploration program x 6 Months
Assets

Drill Rigs
Support Equipment

Personnel (Wages)

Drilling Time
Travel & LOA

$1,867,000

Consumables

Drill Tooling
Muds
Misc.

$832,000

H&S/Environment

Training
Cuttings Management
Water Management

$364,000

Logistics

Mobilization and Demobilization

Shipping and Receiving
Hotshots

Overhead

Direct Costs
Indirect Costs

$780,000

$52,000
$884,000

$4,779,000

Disclaimer
Please note that the percentages and values disclosed within this presentation
do not reflect the view of the CDDA or Geotech Drilling and are assumptions only
for example purposes.

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