cost of drilling cdda & geotech drilling. t he c osts of d rilling scope assets safety and...

Cost of DrillingCDDA & Geotech Drilling

Agenda

THE COSTS OF DRILLING

Scope

Assets

Safety and Environment

Labour

Consumables

Logistics

Overhead

Scope of a JobScopeThe 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.

LocationSeasonMethodology (PWL, NWL)Total MetersDepth of Holes

Site AccessTopographySafety 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 ProjectLocation: 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 DefinitionA 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 AssetsRefers 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 RatesTo 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.

Personnel Consumables Logistics OverheadAssets Safety

Direct Costs - AssetsDrillsThe 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 elevationsGrassroots Exploration Drilling – limited infrastructure

$250,000-$500,000

Skid Sites with road access, wide open areas, lower elevationsDefinition & 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 MinesDefinition and Resource Drilling

$250,000-$500,000

Drill Rigs = 8%

Direct Costs - AssetsSupport 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 Ancillary Equipment

HelicopterPortable

• Fly Shacks• Fly Baskets• Survival Shacks

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

Skid • Dozers • Rod Sloops• Skidders

Track • Support Trailer (s)• Tracked Support Unit• Argos/RTV’s

Underground • Loaders/Man Carriers• Sloops

Support Equipment = 7%

Direct Costs - PersonnelPersonnel• 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


Wages x Benefits x WCB = 31%

Driller Helper5th ManSupervisorHSE OfficerMechanicAdminr

• 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

Direct Costs - PersonnelMovements 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%

Direct Costs - ConsumablesConsumables:

• 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%

Direct Costs - ConsumablesDrilling 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 don’t 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%

Direct Costs - ConsumablesFuel 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

Proper inventory management importance

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

Fuel + Consumables + Oil & Lubricants = 16%

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

Assets SafetyPersonnel LogisticsConsumables Overhead


Safety RequirementsVarious 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%


Cuttings ManagementIncreased 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)


Water ManagementAs 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

LogisticsMobilization/ 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

LogisticsConsumablesPersonnelAssets Safety Overhead

Overhead - DirectOverhead: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 – IndirectOverhead: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 contractor’s ability to offer competitive rates if improperly managed.

Separates major, medium and junior drilling companies from final bid offers.

Overhead = 9%

Assets Personnel Consumables LogisticsSafety Overhead

Overview

=

Assets • Drill Rigs• Support Equipment

$780,000

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

$52,000

Overhead • Direct Costs• Indirect Costs

$884,000

$4,779,000

Example of 4 drill exploration program x 6 Months

DisclaimerPlease 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.

Thank you

cost of drilling cdda & geotech drilling. t he c osts of d rilling scope assets safety and...

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extreme conditions of

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financing of assets

fixed assets

scope of work

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