Abstract Horizontal drilling technology has become an economic reality, and the result has been a dramatic upsurge in the number of horizontal wells being drilled. Horizontal wells have proven to be cost effective in optimizing hydrocarbon recovery. Although the majority of wells were drilled because of expected productivity increases, they have not always been a solution to the economic success of the project. As the industry's experience of drilling, completing, and producing horizontal wells increases, so does the realization that horizontal well technology is not always a solution to the problem of more cost effective production. Economic analysis of horizontal well projects are much more complicated than that of vertical well projects because of the many variables involved. Several parameters are evaluated for the economic success of horizontal well projects. These include drilling and completion options, hydrocarbon pay zone thickness, well spacing, fracture intensity, vertical communication, formation damage, and multiwell prospect. The total well cost for the horizontal well is divided into two components: the vertical section cost and the horizontal or lateral section cost. The horizontal or lateral section cost is strongly time-dependent. The type of completion also affects horizontal well performance, and certain completion options are only possible with certain drilling techniques. This paper presents a step-by-step procedure that can be used when performing an economic analysis of a horizontal well project. The analysis is based on cost estimates associated with all phases of the project. To ensure the economic success of a horizontal well program, multi-disciplinary efforts are required in all preplanning phases of the program. This includes obtaining pertinent information before the well is actually drilled, with a post review of the program after production has been established.