Drilling fluid (mud) is a mixture of clay, usually bentonite, and water or oil used to carryrock cuttings to the surface and to lubricate and cool the drill bit. Special chemicals are added to the mud to compensate for the varying composition of the water and the formation being drilled and to increase the weight of the mud column. The drilling mud also helps prevent the collapse of unstable formations into the hole and the intrusion of formation fluids. Fluid is circulated with mud pumps and a tank, called a suction pit, which makes up any losses.

A standpipe connects the pumps to a kelly hose which in turn connects to a swivel on top of the kelly. From here mud is pumped down the drill string, through the bit and back up the space (annulus) between the drill string and the borehole and, in offshore wells, the riser. The mud then passes through solids control equipment which filters out the cuttings and returns the filtered fluid into the drill string and back through the drill bit nozzles. At the surface the mud exits into a surge tank before moving across shale shakers, which are vibrating screens that separate the coarse drill cuttings from the mud.

It then enters a series of tanks (called pits) where it is degassed and the finer cuttings are removed in de-sanders and de-silters that work centrifugally. The mud properties arefinally tested by a "mud-man" and altered as necessary with materials taken from a dry storage area along with clean water taken from a storage tank. Any excess fluid is diverted into a reserve pit. The mud composition is a major factor in the success of a drilling operation. In addition to lifting the cuttings to the surface, the drilling fluid must lubricate and cool the bit, help control the flow of reservoir fluids and gases into the wellbore, and prevent the loss of fluids into the reservoir. Fluids are formulated to fit the specific characteristics of the well and formation, and can be manufactured by mixing additives with an oil, water, or synthetic base.

Water-based muds are the most commonly used type of fluid. Oil-based muds were developed for use in highly-deviated wells to prevent the drill pipe from sticking. With the advent of environmental regulations restricting the discharge of oil-based muds into the marine environment, polymer/synthetic fluids were developed to take the place of oi/based muds on highly deviated wells. The use of polymer/synthetic drilling fluid increases mud costs but lowers the overall cost of drilling by improving rate of penetration (ROP) and, because of its lower coefficient of drag, allows for greater horizontal penetration before sticking the drill pipe.