This project develops a software tool to model pressure loss of two phase flow in the annulus of a well during underbalanced drilling. By adjusting the Mukherjee and Brill correlation for production/injection wells, insight into which parameters are of influence in predicting the frictional pressure drop during underbalanced drilling is gained. Also the difference between the use of oil-base mud or water-base mud is presented. Underbalanced drilling is the oldest drilling method which over the past years received new attention for bringing new life to an old reservoir. With no reservoir impairment, this method can achieve a higher recovery factor if completed 100% underbalanced. For the success of an underbalanced drilling operation, understanding the annular frictional performance of non-Newtonian mud is crucial. This is a key factor in the development of the hydraulic program which is used in the selection of the drilling equipment. Although several simulators exist, none of them accurately predicts the pressures which are experienced in reality. In this project a power-law model for predicting frictional pressure loss in eccentric annulus is used instead of the formulas defined by Mukherjee and Brill. After selecting the parameters that have a potential impact on the frictional pressure loss, a range for each parameter was defined and a sensitivity analysis was performed to quantify the impact due to changes in each parameter.