I would be cautious about using any iron-bearing mineral in the mud. This can be a cause of "magnetic mud" which tends to shield the MWD magnetometers in the cross-axial direction. The effect is to reduce the measured magnetic field in the cross-axial direction, leading to directional errors. A reduction of 1 or 2% can cause a significant azimuth error.
Typically the magnetic mud problem is encountered when drilling with oil-based mud that is used for a long time. Wear between casing and drill pipe causes microscopic iron particles suspended in the mud. A ditch magnet helps but is not very efficient at removing these small particles.
The effect is greatest when the mud around the MWD is stationary (pumps off). If there is a difference in pumps on and pumps off cross-axial magnetic surveys, this can be suspected as a problem. Another diagnostic is to pump a pill of fresh OBM around the MWD to see if that makes a difference.
For more info see Tim Allen's presentation at www.iscwsa.net
> presentations > ISCWSA meeting 33 presentation #16.
Steve Grindrod's presentation #07 at ISCWSA meeting 41 has some additional info and references to SPE papers, as does Giorgio Pattarini's presentation #07 at ISCWSA meeting 44.