The feasibility and success of petroleum development projects depend to a large degree on well construction costs. Well construction cost estimates often contain high levels of uncertainty. In many cases, these costs have been estimated using deterministic methods that do not reliably account for uncertainty, leading to biased estimates. The primary objective of this work was to improve the reliability of deterministic well construction cost estimates by incorporating probabilistic methods into the estimation process. The method uses historical well cost estimates and actual well costs to develop probabilistic correction factors that can be applied to future well cost estimates. These factors can be applied to the entire well cost or to individual cost components. Application of the methodology to estimation of well construction costs for horizontal wells in a shale gas play resulted in well cost estimates that were well calibrated probabilistically. Overall, average estimated well cost using this methodology was significantly more accurate than average estimated well cost using deterministic methods. Systematic use of this methodology can provide for more accurate and efficient allocation of capital for drilling campaigns, which should have significant impacts on reservoir development and profitability.