Marginal properties evaluation, other studies

World Oil, Dec, 2001 by Robert E. Snyder

In its Summer 2001 issue of Inside Tech Transfer, the U.S. Department of Energy's National Energy Technology Laboratory (NETL) features a six-page review of an important public policy analysis to encourage domestic oil/gas production. The article's introduction says NETL has completed a comprehensive evaluation of "marginal properties" in the Gulf of Mexico. Objectives of the study are twofold: 1) develop a methodology to predict when existing oil and gas leases are expected to reach their economic limit; and 2) determine what impacts specified economic incentives, in terms of Federal royalty relief, would have in extending economic life of these leases, thereby maximizing their production.

NETL conducted this analysis in direct response to a joint request from the Independent Petroleum Association of America (IPAA) and National Ocean Industry Association (NOIA). The study was completed in close consultation with: 1) a peer review committee, with participants from three operating companies--Devon Energy, Forest Oil and EOG Resources; 2) the American Petroleum Institute (API); and 3) the Petroleum Technology Transfer Council (PTTC).

Representatives from the Minerals Management Service (MMS) also attended all the peer review meetings, even though findings and conclusions of the analysis "don't necessarily reflect MMS's views." The results presented are not intended to propose any royalty relief mechanisms, but only to evaluate the potential impacts of selected scenarios.

This study's topic is important because shallow-water oil/gas resources in the GOM are massive, with significant contributions to the nation's energy supplies. It is currently the largest producing area in the U.S., and the source of about 20% of total U.S. oil/gas production. There are 7,564 active oil/gas leases in the area, located beyond the three-mile limit of the Federal-state line and extending up to 200 mi into the Gulf. A total of 3,268 of these leases are in water depths of 200 m or less; collectively these leases account for about 50% of the oil and 75% of the gas produced in the Gulf.

The analysis presented in the report is based on a comprehensive study using DOE's analytical capabilities. The system represents the disposition of the total existing oil/gas resources in the GOM for all leases in 200 m or less water depth, representing all completions active as of Dec. 31, 1999.

The TORIS Decline Curve Model was used to match existing performance and predict future recovery potential from all producing completions. Production profiles were then aggregated to the "lease" level for economic analysis. The model used the prediction to calculate the economic limit and provide all required sensitivity analyses. Results of individual leases were then aggregated to the study area in the timing model.

The analysis focused on two additional periods earlier than the time for economic limit, because when a lease reaches its actual economic limit it is no longer "marginal." The two time periods are times when revenue is 5% and 10% greater than cost. Using these criteria, the economic limit of each lease was defined at four different oil/gas prices ranging from $16 to $28/bbl and $1.95 to $3.64/Mcf.

After more details of the study were discussed in the cited report, major points of the summary were that reasonable royalty relief scenarios can potentially boost production by 3% to 9%, from leases located in shallower waters, and additional production of up to 2.5 Tcfe or 455 Mmboe is possible.