An advanced mud system is proposed that augments a coiled tubing drilling rig designed to drill microholes. The system is tailored to the hole geometries and rig characteristics required for microholes and is capable of mixing and circulating mud and removing solids while being self contained and having zero discharge capability. Key components of this system are triplex mud pumps and a mud processing unit. The system also includes an additional component of abrasive slurry jetting which allows cutting through most all materials encountered in oil and gas wells including steel, cement, and all rock types. The jetting mechanism does not require rotation of the nozzle or drill string, has small reactive forces acting on the drill pipe, and generates cuttings small enough to be easily cleaned from the well bore. These components and parameters compliment the concepts put forth in microhole coiled tubing drilling and should help insure the reality of drilling small diameter holes quickly and inexpensively with a rig that has a minimal environmental footprint with a mud system that is efficient, compact, and portable.