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Spud: Drilling in the Oil and Gas Industry

By
James Chen
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James Chen, CMT is an expert trader, investment adviser, and global market strategist.

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Updated January 08, 2024
Reviewed by
JeFreda R. Brown
Dr. Brown
Reviewed by JeFreda R. Brown
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Dr. JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University.
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Suzanne Kvilhaug
Suzanne Kvilhaug
Fact checked by Suzanne Kvilhaug
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Suzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands.
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What Is Spud?

Spudding is the first step to drilling a well in the oil and gas industry. A large drill bit is initially used to clear a surface hole. The initial drilling is lined with casing and cement to protect the nearby groundwater from contamination. After the surface hole is completed, the main drill bit is inserted to drill to the total depth. This process is referred to as "spudding in."

Key Takeaways

  • Spud refers to the early stages of drilling when rock, dirt, and other sedimentary materials are removed with a drill bit.
  • When a 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.

Costs and Timing

"Spudding in" is a highly complex task involving sophisticated techniques and machinery. It often costs hundreds of thousands of dollars to drill 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 nearly $400,000 per day as of November 2023.

When a new oil well is drilled, a drill bit larger than what is used to get to the final depth clears out dirt, rock, and other debris and creates a hole in the surface. The hole is lined with concrete, forming a barrier to prevent contaminants from bleeding into the groundwater.

The day the main drill bit begins drilling into the ground, a process called spudding in, is the "spud date." In offshore oil rigs, the spud date occurs when the drill begins working on the seafloor, not when it first breaches the water.

The phrase "spud to sales" or "spud to rig release" reflects the time from spud to the point the well comes online.

Why Are Spud Dates Important for Investors?

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.

What Determines the Success of a Drilling Company?

Comparing the spud date to the date the total depth is reached, also referred to as spud to TD, can help compare the operations of one drilling company to another. Additionally, improvements in a company’s performance from completing one well to the next well help determine the success rate.

What Are Cycle Times?

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

The Bottom Line

Spud refers to the early stages of drilling when sedimentary materials are removed with a drill bit. When the main drill bit is added to the process, the task is known as "spudding in" and occurs on the "spud date." Investors can find value in the spud dates, which help determine how effective a particular drilling operation is.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. IHS Markit. "Petrodata Offshore Rig Day Rate Trends."

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