Under balanced drilling (UBD) is a drilling operation in which effective bottom hole pressure caused by circulation of drilling fluid is taken under near well bore formation pressure. As a result influx of water from aqueous drilling fluid into the formation is prevented. Even though UBD is expected to prevent formation damage and improve well productivity, in some low permeability cases with high capillary pressure counter-current imbibition occurs and reduces well productivity specially for open hole completed horizontal wells. In this paper a new approach to model possible spontaneous imbibition during UBD are presented and the related formation damage is taken into account. The impact of this type of formation damage on well productivity is simulated using a commercial reservoir simulator coupled with a developed toolbox. The simulation result is compared against the absence of spontaneous imbibition in reservoir models with lower capillary pressure. Sensitivity analysis shows that formation damage caused by UBD depends on various reservoir parameters and drilling conditions. Different cases of ROP, hydrostatic pressure of drilling fluid, initial water saturation, and porosity in low permeability reservoir caused by capillary pressure are considered. Surface tension can vary with pressure and temperature; however, it is assumed as negligible in this study. Results show this formation damage should be considered during economics and feasibility studies.