Disclosed is a method of preparing a drilling fluid and lube base oil using biomass-derived fatty acid, including hydrogenating a fatty acid mixture derived from fat of biological origin so as to be converted into a fatty alcohol mixture, which is then dehydrated to give a C16 and C18 linear internal olefin mixture, which is then oligomerized to give olefinic lube base oil, followed by hydrofinishing to remove the olefin, yielding high-quality lube base oil (e.g. Group III or higher lube base oil). The C16 and C18 linear internal olefin mixture, which is a reaction intermediate, can be utilized as a high-quality drilling fluid.