AMERICAN STATISTICAL ASSOCIATION

COMMITTEE ON ENERGY STATISTICS

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PUBLIC MEETING

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FRIDAY

NOVEMBER 14, 1997

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WASHINGTON, D.C.

The Committee met in the Clark Room of the

Capital Holiday Inn, 550 C Street, S.W., at 10:30

a.m., G. Campbell Watkins, Chair, presiding.

[PRESENT]{.underline}:

G. CAMPBELL WATKINS, Chair

DANIEL A. RELLES, Vice Chair

DAVID R. BELLHOUSE

R. SAMPRIT CHATTERJEE

BRENDA G. COX

CAROL A. GOTWAY CRAWFORD

PHILIP HANSEN

CALVIN KENT

GRETA M. LJUNG

ROY W. WHITMORE

[INVITED GUESTS]{.underline}:

SEYMOUR SUDMAN

RICHARD TABORS

[EIA STAFF PRESENT]{.underline}:

JAY HAKES, EIA Administrator

BILL WEINIG

LYNDA CARLSON

DAVID MOREHOUSE

JOHN WOOD

ART ANDERSON

BOB MANICKE

I N D E X

[Item:]{.underline} [Page:]{.underline}

World Oil Supply; Evidence from 4

Estimating Supply Functions by Country

Questions from the Committee 54

Public Comments 62

Closing Comments by the Chair 67

P-R-O-C-E-E-D-I-N-G-S

(10:37 a.m.)

DR. KENT: Are you trying to do something, Campbell?

CHAIR WATKINS: I\'ve got to bring myself to order because I\'m the next
speaker.

Okay, let me start this final session of these meetings. I\'m the
speaker, as you know. And the topic will \-- might seem a bit like what
Greta Ljung would call an outlier in the sense that I\'m dealing with an
international topic here.

But you may recall that about two or three meetings ago, I did critique
the international energy outlook that was put out by the EIA. And so
what I have to say on this modeling effort is in fact relevant to some
of the \-- certainly one sector of the EIA\'s work.

Now I also \-- you\'ll see on the title here I have put, in effect, a
coauthor, Shane Streifel. And the reason I\'m doing that is that, while
this is a shortened version, nevertheless the original paper from which
the talk I\'m going to give is based is a World Bank research project
and Shane Streifel, with the World Bank, was my coauthor.

Now Greta said to me also yesterday \-- she said, \"Well, where are the
numbers?\" She had gone through the outline. And in a way \-- two
things. There are a lot of numbers, and you\'ll see them all in the full
version of the paper. But in another sense, the numbers were immaterial
in the following way.

What I was trying to do was see whether supply curves for oil are
shifting. And it\'s in whether the \-- the direction of the shift is
really what I\'m interested in rather than the absolute numerical
results.

So if we could have the next slide, I\'m going to divide my talk into
these five sections. And you can all read, so I\'m not going to read
them for you. And let me go to the next \-- do you want us to move it up
a bit, Bill?

Thank you.

We could have the next one, Bill.

I want to just talk about some of the motivation for this work. Firstly,
you\'ll see that ‑- those of you who have been following the literature
on the oil industry, you\'ll probably be familiar with the notion that
we really have had some looming scarcity with the non-OPEC oil
production expected to decline.

And we\'ll be back in the situation where OPEC really controlled the
levers of the world oil market. So what I wanted to do was try and look
at what\'s been going on with world oil supply. And my focus here is not
so much on output, which is, in effect, a variable.

You can always increase output from a fixed stock of reserves by
building more wells or producing wells more productively. I\'m more
interested in what\'s happening to reserve additions. I want to focus
mainly on the non-OPEC countries because those are the ones that I have
mentioned just beforehand are the ones that are supposed to be running
into dire straits.

And most importantly, and I\'ll go into this in more detail in a moment,
I want to conceptually distinguish a movement along a supply curve and a
shift in the supply curve.

I want to \-- what I want to do, as I mentioned earlier, determine
whether countries are in a situation where, in effect, the supply curve
is shifting to the left, and I\'ll show a diagram on this shortly, or
whether it is shifting to the right.

The shifting to the right, that\'s the good news in the sense that it
means that supply is not going to be constrained or is not a constrained
factor. If it\'s going the other way, then maybe we are in a situation
where non-OPEC countries are going to be only able over the long term to
produce less and less.

I also did a few tests for whether \-- I took a long period, first of
all, from the mid 50\'s to 1994. What about \-- that\'s a long period.
What about differences within the period? And then secondly, and this I
know is near to Bill Wood\'s heart, is the question of the impact of
technological change.

And one of the things I thought about was that well, when prices are
low, that provides a very strong incentive for cost efficiency. And does
\-- is there any evidence to show that when prices are lower, that that
really is a stimulus to technological change?

I\'ll have the next one here.

Thank you.

Now if we\'re talking about scarcity and we have a closed economy, you
might think the answer is fairly simple in the sense that well, if
resources are getting more scarce, then we\'ll see the price go up. And
in fact, with a closed economy, that would be broadly correct.

But we don\'t have that situation. The world oil market is a world oil
market. And the price, particularly after deregulation, that is
registered in the various oil producing countries is not determined by
the conditions within that country. It\'s exogenous.

And so the key here is really what may be happening to replacement cost
in these various supply regions. Now reserves are added in three ways.
One is you go out and drill new wells, wildcat wells, and then we have
new discoveries.

However, a very important source of reserve additions, and we\'ve
discussed this in previous meetings before when we\'ve been dealing with
oil reserves, is the so-called reserve appreciation. The fact that once
you discover an oil reserve, there is then a process of development, and
the developer is not only developing the discovered resource that he
just found, you extend the limits of it both vertically and
horizontally.

And in fact, particularly in the United States over the last quite
extensive period of time, most of the reserve additions that you will
see recorded in [Dallas]{.underline} analysis of reserves, the EIA
analysis reserves, will be from appreciation of previously discovered
amounts.

And the third one is where we, in effect, supply new technology in the
sense that \-- and for a typical reservoir, the amount of oil that you
would normally recover is maybe no more than \-- well, I\'ll give you a
round figure \-- 25 to 30% of the oil that\'s actually in place.

And then there are schemes that are called enhanced recovery schemes
that improve the ability of the oil to be withdrawn to the surface, and
you can raise the recovery ratio to 35, 40 and some exceptional
reservoirs.

There\'s one, for example, in Alberta, Canada where it\'s almost 90%.
That\'s a result of the physical configuration of the reservoirs. But
anyway, that\'s the third aspect of reserve additions.

Now it would be very nice in doing some of this supply analysis if we
could in fact observe that three-fold distinction and do a separate
analysis for each source of reserve additions. However, the data simply
don\'t support that kind of work.

So per force, we have to take a more simplified, aggregative approach.

The next one, please.

So I want to introduce the notion of the reserve supply curves, and I do
emphasize the term reserves there rather than output, and particularly
looking at reserve additions over time. Now I did mention earlier the
certain point that the price of world oil is not, because it\'s by no
means a perfect competitive market, a register of economic scarcity.

And so, because, as I said before, for an individual country, say, like
United States at the present, the price is exogenous. If we want to look
at what\'s happening to resource conditions, we have to look at
quantities. You\'re not going to see it registered in the price.

So we want to know if the price is at a given level, what\'s happening
to quantities added over time. Is it declining or is it increasing?

And as I indicate there, the leftward movement over time is increasing
scarcely. You have depletion taking place. And it\'s not offset, as I
say there, by technology and cost efficiencies or by new prospects \--
not sufficiently offset.

And then on the rightward movement, we have more abundance. And the
depletion, the fact that you are drawing down the reserves that have
already been discovered and developed, is more than offset by
improvements in technology, cost efficiency, and also a term that I call
prospectivity, which is basically the probability of finding oil and the
ability to find new plays.

So let\'s just have a look at that in diagrammatic terms. You may \--
particularly economists among you may find this a rather simple minded
diagram for me to put up in a meeting like this. However, I can assure
you, if you\'re reading the literature sometimes, it\'s amazing the
number of times you see a confusion between a movement along a supply
curve, which is movement up or down of that central curve, and the
shifts in the curve.

And it\'s the shifts in the curve that I\'m interested in.

Next one.

As I\'ve indicated, I don\'t have, particularly for the number of
countries we\'re going to be looking at, the kind of distinction that
one would like to be able to make between the different sources of
reserve additions, so I\'ve got to consolidate.

And ideally, what I want to look at is not so much the reserves that\'s
already known, discovered and developed; I want to look at what the
potential is. These are the discovered reserves for undeveloped reserves
\-- what\'s going to happen with those.

And I want to use \-- one of the key determinants in the analysis will
be a price for those. And so I repeat, I\'m talking about reserves. So
I\'m not talking about the wellhead price of oil that you can look up
every time you want to look in the *Wall Street Journal* and you can see
the price of oil.

What I\'m interested in is the price of reserves in the ground. And in
fact, an earlier paper I think I gave last year dealt with least
estimating reserve prices in the ground for oil and gas in the United
States.

Can I have the next one?

This is a kind of conceptual notion of how to get at what I\'m
interested in and what I call the exploration window. We see there \--
if you look on the right-hand side, you\'ve got the value of a developed
reserve, which is basically a function of the wellhead price less the
extraction cost, but then converted into a stock equivalent value.

Now if I they want to get at what is \-- of that price, what margin
might be available to justify exploration, then I take off the
development cost element. And then that leaves me with this value of
potential reserves I\'ve labeled V minus D.

And now I\'ve turned the window of opportunity for exploration. That is,
in effect, the amount that was left over that would encourage people to
go out and find new reserves.

Now we can see just by looking at that that that value is obviously
going to vary. It will vary by virtue of the wellhead price of oil. It
will vary by virtue of extraction cost. But above all, it will vary by
virtue of changes in development costs.

And so if the exploration margin is being squeezed, then you would
expect exploration effort would be reduced. In fact, you would see
reductions in finding costs, and that might make you feel good. But the
reason is, the reduction finding cost, is that it\'s no longer economic
for people to go out and explore for more expensive deposits.

So that decline \-- put the next slide up ‑- is not an indicator of more
favorable exploration results. It\'s a movement along the curve. And
what I want to get at, as I mentioned before, is the movement in the
curve, either rightwards or leftwards.

Now I specified two simple models. And the reason for simplicity, above
all, are the data problems. Remember, I\'m looking at trying to use
international data across a lot of countries.

And the data problems are documented in the World Bank research report,
but there are, as you might imagine, difficulties firstly getting hold
of reasonable data on reserve additions by country.

Not too bad on wellhead \-- equivalent wellhead prices; however, less
certainty or varying degree of variability on extraction costs.
Although, they\'re relatively small. And then I need to create a series
for reserve prices, and I did that by using some of the factors that I
talked about in an earlier paper here a year or so ago, to in effect
convert a flow price to a stock price.

And then we had to estimate development costs. That was a rather
difficult procedure because the one thing we did have was some quite
good data from the *World Oil* magazine on wells drilled by country.

We then had to assign cost to that. And we basically scaled everything
on U.S. data because a lot of the equipment is common across regions. So
it\'s not as if you\'re talking about that it costs so much less, say,
to drill a well in Iran than in the United States \-- that\'s not so \--
using much the same equipment.

So we were able to create estimates of development investment. And then
estimate \-- well, I call that window of opportunity, the V minus D.
Maybe we can put the next slide up.

This is just in algebraic form. This is a simple linear model. It says
reserve additions are a function of the \-- of an intercept and the
price of undeveloped reserves or imputed price of undeveloped reserves.

And then the \"t\" variable is the time variable. And in effect, it\'s a
confession of ignorance. It\'s the way a lot of productivity analysis is
done. We shove in time as a variable that\'s trying to pick up
systematic changes that may be happening over time.

And it\'s an expression of the net impact of all the factors I\'ve
talked about. And it\'s that sing of that C coefficient, is it positive
or negative.

If it\'s negative, the supply curve is shifting to the left. If it\'s
positive, it\'s shifting to the right.

Next one.

DR. LJUNG: Could you say anything about the number of data points you
had per country? Did you have like one observation per year or \--

CHAIR WATKINS: Well, yes; annual data. I should have mentioned that,
annual data.

Some of the countries, of course, it doesn\'t\' start until 60\'s or
70\'s. I\'m not suggesting that I had for all countries data came back
to the 1950\'s.

MR. WOOD: One data point a year in a good year?

CHAIR WATKINS: In a good year. Even in the United States.

Let\'s switch over to the next one because my Vice Chairman is giving me
a hard time over there.

There was also a non-linear model where I basically calculated for each
year a slope. And then \-- put up the next one, Bill \-- regressed the
slope on time \-- changes in the slope on the time. The sign here is
rather different.

I\'ve got a notion and a curve that goes through the origin, and I\'m
rotating it. If it goes down to the right, the slope is getting less,
but that\'s good news for the supply curve.

So it would be a negative shift there as an indication of better supply.
And if the slope is getting steeper, then that\'s bad news, and that\'s
the depletion context. So the interpretation of, say, \"k\" on that turn
there is different in the second model.

Next one.

Now I actually tried 45 countries. Four of them we just had to kick out
totally. Couldn\'t make any sense of the data. So you\'ll see those are
the regions that were covered. And the three crucial data elements you
need to do the estimation are reserve additions, reserve prices and
development costs.

Data I had for Norway, U.K., U.S. and Canada were a lot better in the
sense I didn\'t have to do so much manipulation to get at those numbers.

Next one, Bill.

I have talked or alluded to the problems with the data. And we did have
to make some adjustments for clear anomalies. In some cases, for
example, it was quite clear that in some countries reserve \--
particularly OPEC countries, reserves were increased almost for
political reasons because they want to establish where they wanted to be
on the quota scale, and we had to adjust for that.

Next one.

I did, on the first model, four types of models, but the first two are
the main ones. One was just time series data as they were. Then they
used a moving average one as well.

And then those are the two tests on the second and third \-- sorry, the
third and fourth models, 1C and 1D, for whether there were differences
within the supply period and for this notion of whether prices would
affect technological change.

I think, given my time, I better go to the next one, Bill.

Okay, on the first model \-- and I should say, just to show that the
first and second model results are really quite similar, the evidence
was pretty well split evenly between countries of whether there was
contraction or expansion.

And a lot of the countries didn\'t really show any systematic shift at
all. Which, if you think of the scarcity and depletion hypothesis, that
in effect is contradicting that. It\'s saying that there\'s a lot of
stability over time.

Perhaps we could move it up a bit further. I just wanted you to see.
These are the countries for these two models where we had either
statistically significant time coefficients according to whether they
were negative or positive.

Next one, Bill.

I think let\'s summarize that by basically saying that model two is \--
there was no great difference in the results according to the type of
model.

Next one.

I think \-- can you go to the last summary where we have \-- the one
after that, Bill. There\'s a table, a later table. And that\'s also for
model two. Next one.

Okay, let me make some quick comments on some of these highlights. I do
want to just highlight that second conclusion, the models did not
perform well for OPEC countries. In fact, that was reassuring. The
reason it\'s reassuring is you don\'t expect those countries to behave
in the kind of competitive way that is indicated by the base of the
model where we have a price determining variable.

That\'s not what happened. So in fact, I was quite pleased to see that
for the OPEC countries, several of them, they had what I call perverse
signs on the coefficients of the relationship between price and supply.

On those two subtests that we did of whether there was evidence of
shifts within the period, well there was some slight evidence for four
countries that I looked at for a more expansionary phase later on in the
period rather than earlier.

And second, there was some slight evidence that the lower the price, the
greater the degree of technological change.

Perhaps we can go to just the last \-- the very last one that you have.
The very last slide.

So I just now want to \-- this is the last element of it. What are the
implications of this for the world oil supply? Well, certainly the
results that I have, I do want to emphasize that the quality of the data
means this is not a hard, substantive study by any means.

We\'ve just done the best we can to make sense out of some very soft
data. But at any rate, what it does say is that the gloomy outlook for
non-OPEC production is not really warranted. Several non-OPEC countries
are still in an expansionary phase with the supply function shifting
outwards to the right.

Other countries, there\'s just no evidence of any significant shift, so
they\'re not in decline. It doesn\'t follow that if we have lower
prices, that that is necessarily going to result in a great
deterioration of non-OPEC supply.

You may recall that one of the kind of gambits that was put forward for
OPEC was that they would really ratchet down the price to squeeze out
all the high cost, non-OPEC production. Well, in fact, the price has
come down, particularly in real terms.

And yet, we\'re seeing very considerable increases in reserves in
non-OPEC countries and non-OPEC output. Non-OPEC output is taking most
of the growth in supply.

So I think I can conclude and finish just by saying that this analysis
does not suggest that we\'re running out of oil and that dwindling
non-OPEC supply is going to result in a situation in a few years where
you have strong, upward movements in prices ratcheted by OPEC producers.

Thank you.

I think \-- John, are you going to lead off first?

MR. WOOD: No.

MR. MOREHOUSE: Hopefully my voice will hold out. I\'ve been dealing with
the tail end of a real rotten head cold for the last couple of weeks.

Aside from today\'s presentation, I, of course, had the opportunity to
consider the more detailed 55 page document produced by Dr. Watkins and
Shane Streifel. It was issued last April by the World Bank.

And having done so, I found nothing of particular significance to
quibble about as regards either the economic reasoning or the mechanics
of the statistical analysis, nor did I expect to given Dr. Watkins\'
credentials.

The principal problem is posed clearly by the input data, the sparseness
of which, and the lamentable state of much of which, has been adequately
noted.

From the perspective of a practitioner of the so-called hard sciences in
consequence whereof I have found it always advisable to adopt the
philosophy of a Missouri style skeptic, I would have preferred to review
the value source and post-acquisition treatment of each datum.

That was not practical in this instance. But doing so tends to be
important in cases where judgmental adjustments have been made. One
could also argue that some major industry effort or activity is either a
better coordinate or should be included in as a coordinate vector in
this kind of a study, but that\'s sort of academic at that point.

Nonetheless, the results that were obtained and were discussed here
today are in close accord with my knowledge and understanding of the
recent history and current status of the upstream oil industry
worldwide.

Statistically, they are neither very strong, nor a basket case. Having
said that, I regret that there remains a significant error of omission
which has little to do with statistics and everything to do with
applicability of the stated principal conclusion of this study.

Specifically, the time period over which it should be considered valid
is nowhere addressed. Perhaps the intended audience was expected to
innately understand the short term applicability of the analysis.

Others who might learn of it out of context were not considered.
Whatever the case, I do not view this as an excusable omission for
reasons which will shortly become apparent.

As stated in the fifth full paragraph at page 46 of the World Bank
working paper, generalizations all too often gain currency as precise
statements. An equally cogent observation would be that generalizations
all too often gain currency as permanent statements.

Now the generalization that is easily misunderstood in the lighter sense
appears early on the same page of the second full paragraph under the
heading \"Implications for Oil Supply.\" It flatly states, as was
reiterated this morning, that a gloomy outlook for a non-OPEC production
is not warranted.

The question which goes entirely begging is for how long. The answer to
that cannot be provided by the approach taken in this study. The
analysis is historical and econometric.

It is therefore considerably removed from, albeit somewhat indirectly
influenced by, the physical reality of the world\'s remaining
conventional crude oil resource base. That base is ineluctably finite,
and its quantitative and other distributional characteristics are far,
far better known today than in the energy hysteria days of the mid
1970\'s or at any prior time.

To draw a generalized policy relevant conclusion such as the one cited
here in disregard of this reliable and highly relevant body of
information is, in my view, a serious, intellectual error. Moreover, it
is a dangerous one.

In light of the available data regarding the physical resource base, it
is clear that the central conclusion of this analysis is only valid for
the immediate past, and the present, and for some relatively short
future period ranging from perhaps as little as five to, at the outside,
15 years.

For business planning purposes, that\'s probably just ducky. But from a
public policy perspective, it\'s bad news.

Given additionally the present expected population of GDP growth rates
of the developing countries, it is abundantly apparent that world crude
oil production will peak in the early part of the next century and
decline more or less monotonically thereafter.

While, at the same time, energy demand will be more or less
monotonically increasing, particularly for liquid transportation fuels.
The resulting classical scarcity situation will be accompanied by higher
crude oil prices. In fact, ever increasing ones.

None of this is prophesied by nor even contemplated beyond the present
study confined as it is to historical economics with an atoning dash of
geology indirectly thrown in.

The message conveyed by the conclusion here is that everything is just
fine and there\'s no need to worry, which is anything but the case over
the medium and longer term.

For the United States to develop means of effectively dealing with what
is in store, barring fairly sudden global achievement of affected
population control, will require several decades of lead time since it
cannot rationally be expected, based on the wealth of past experience,
that the necessary and sufficient compensatory energy R&D can be
successfully completed and disseminated in economically viable form more
quickly than that.

That is why the present, I believe, and inadequately qualified general
conclusion based on what is really a narrowly drawn blind side study is
dangerous. It is virtually guaranteed to lull those with inadequate
scientific and technological knowledge to grasp its limitations or place
it in its proper context into a false sense of security.

Sadly, the latter group includes the vast majority of Americans. And the
error of omissions cited here is far too ubiquitous in energy studies
produced from the geological deficient perspective by economists,
econometricians and other types of business analysts.

Indeed, EIA has often been as guilty of ignoring and misrepresenting the
physical reality of the resource base as any other source of such
studies. What inevitably suffers first, as it has for years now, is our
national energy policy.

What will suffer second if this sort of thing continues to be the norm
much longer is not us, but our progeny and theirs.

That\'s all I have to say.

CHAIR WATKINS: John.

MR. WOOD: I have an abiding interest in trying to, in a quantifiable
way, know what things like oil reserves are, and what they will be in
the future, and what production will be in the future, and what cost of
providing that production will be in the future.

And it may be most clear in a model. You know, how do we know that the
model is accurate, or the prediction or the forecast is accurate? Or
hell, even that the data that went into it that may be ten or 20 years
old is accurate.

And you know, and what makes us think we know? What process actually
makes us think we understand what\'s going on and how do we know, and
why do we trust a certain process?

Statisticians may have a certain world view on that; and economists, no
doubt, do; and so do I. And they\'re not always the same.

But most of it is that if you have studied something a long time, you
have decent data, you really understand perhaps the physical and
economic parameters that might be in a model, and you have used them
over extremely wide range of conditions, then, in the same sense that
you know the expansion coefficient of metal, if you keep it in the right
range and you don\'t exceed conditions that you\'ve seen in the past,
then you really know something.

And there should be ways to formally state that and have everyone agree.
What I \-- more often the case is you don\'t know anywhere near as much
as you\'d like, and you should be properly cautious in presenting
results.

And in fact, that\'s what I found most appealing about this paper and
that it was properly qualified. That, you know, these things are \-- the
data is not very good. In fact, I understand more why Campbell Watkins
was \-- expressed almost dismay.

Well, he didn\'t almost. I think a direct quote would be last year he
expressed dismay that EIA was \-- had considered a drastic reduction in
its crude reserves program. And he wasn\'t terribly happy that it was
being reduced at all as oppose to perhaps increased.

Now it\'s fairly apparent why he might hold that feeling because he
actually uses data like that and he thinks it\'s important to know it
well. You know, the basic conclusions are data dependent. And EIA will
shortly be in the process of revising a lot of its fundamental drilling
data.

And to not have that data correct because the vendors of that data were
in error and the ever vigilant EIA finally got them to do it right \--
but still, the published results can lead to some pretty incorrect
assumptions.

Now, you know, the basic economic framework, I think, is fine, and I
generally prefer the non-linear because the world isn\'t linear.
Although, some \-- and I often use myself, something linear, at least it
will work in a certain range.

The general treatment of all the terms are, I think, adequate for, you
know, the purpose that was stated. You want to clearly try and talk
about this idea of the shifting supply curve as opposed to being on the
supply curve.

Now, I\'m not an economist. A good friend of mine, Bill Trapmann, is a
very good energy economist. And we have had, for many years, the
Dubliner debates, the great pub in Washington, D.C., the Dubliner. And
after enough Guinness, you can\'t really follow a complex argument until
you go to the essentials of the argument.

And we had discussed many times the way a supply curve shifts or whether
you were following a supply curve. And of course, I often get the words
wrong and I don\'t use the terms right, and that goes for my statistics
too; but I know where I\'m going usually.

Now sometimes we get the napkins out of there that we write things, and
one of the things that we manage to get out of the bar with was the
concept of the isovolumetric technology price curve, which is a
projection of the dodechahedron N dimensional resource accumulation
extraction volumes.

And when working with the National Petroleum Council, and we were trying
to describe stuff we really didn\'t understand too well, that sounded
pretty good. And it was pretty glib, and I was able to repeat it on
demand.

And that\'s kind of the structure we used, and then we drew curves.

And basically, the concept is one that is critical to all the long range
forecasting. And if you don\'t get it under control, then all the long
range forecasting will not be terribly reliable. Now I would actually
prefer to see a slightly more complex picture than simply linearly
shifting left and right even though it\'s just a schematic.

And the reason is because just as the shape of those supply curves \--
and I assume everyone in this room knows the general shape of a supply
curve. If you turn that around and say it\'s the technology axis that\'s
directing that supply curve, those look just like the price supply
curves.

There is diminishing return. The incredible technology advances get you
a small increase in recovery. In the same sense that a small price
increase when the price is a dollar a barrel gets you a large impact, a
dollar a barrel increase in the price of \$50 doesn\'t get you much.

And there are many ways to structure that. It\'s one of the most complex
problems that I\'ve ever tried to get a handle on. And, you know, I
appreciate any time I see it, you know, laid out coherently so that you
can, you know, come at the main concept.

And yes, I see much confusion, and often I\'m much confused myself about
the difference in following a supply curve or shifting a supply curve.
There are \-- one of the things in particular that I was happy to see in
the paper was that, for example, he took unconventional out \--
unconventional resources out of the problem he was analyzing.

The reason that\'s important is that if you go to any confined
geographic area and you talk about one type of resource like
conventional oil or conventional gas, then the problems are relatively
well understood.

If you mix in the continuous changes where you may add a frontier area
in with an extremely mature basin, then you have to be very clever to
resort it all again. The type of data that was used in this analysis are
country by country at best.

And that means Alaska and the deep water Federal offshore are being
lumped in. True frontier areas are being lumped in with Pennsylvania,
the most mature oil producing region in the world. And that makes the
analysis very difficult.

And so, to get any kind of results that are headed in the right
direction is kind of a triumph of basic thinking.

Now, I\'d like to \-- in the analytical framework, you went through and
mentioned that \-- you know, that there were discoveries and there are
revisions and various classifications of those. And I think those are
\-- tend to be the two things that ought to be linked together most.

And I\'d prefer to see in the section you\'ve called exploration, it
would be all the stuff that you get by drilling exploratory wells. And
that would include new field discoveries, new reservoirs found in an old
field, and the physical extension of the area of a field.

The thing that you sort of lumped in with reservoir extensions and
enhanced recovery, those, in our own data series and the ones we try to
set up for other countries, are more properly classed as revisions. And
they do not need exploratory wells to bring them about, but they often
need an intense amount of drilling.

So it is not cost free, and it is where technology in fact is making
some actual impact.

There is something that I\'ve personally experimented with that I would
like to suggest whenever it\'s conceivably possible, and that is time is
not the best parameter to use in making any of these analyses.

Some measure of activity effort is. Drilling is the most commonly useful
one where the data is available. And the reason that\'s true \-- and
I\'d have brought some kind of reservoir growth curves except it takes a
long time to explain them all.

But if you look at some of the supply curves, there\'s a radical change
in slope for the United States of rather mature area. And the reason is,
in one ten-year period from the mid 70\'s to the mid 80\'s, half of the
gas wells ever drilled in the United States were drilled.

So all those years aren\'t the same if there\'s a huge intensity. At the
same time, of course, there was an extremely high price. So whenever
possible, you know, some true measure of the activity going on, for
example, drilling, is very useful.

And then you can always cross walk back to time and it just gives you a
better feel for it. Now, you know, again, the \-- well, let me save the
conclusion for a minute.

Yes, sir?

VICE CHAIR RELLES: We need to move quickly.

MR. WOOD: We need to move quickly?

I would like to maybe beg your indulgence as a new and only time I\'ve
been a discussant and for a few things that would \-- maybe put in
perspective some of Dave\'s remarks, so I\'ll use some of his time.

Okay.

(Laughter.)

But the \-- you know, the short history of oil supply is, in the
beginning, there was a singularity in space/time, and then there was a
big bang, and then there was energy, and then it condensed. So there was
light, and then there was stuff, and then stars formed, and then they
grew into stars and they created heavier elements.

And they novaed, and then there was another generation of stars. And
they novaed, and then there\'s a third generation of stars. And there\'s
lots of carbons in that one. And then the air formed and settled down.
And then the planets and the continents formed and the seas formed.

And then little things started screwing around with other little things,
and they had other little things. And they died in synch at the bottom
of the pond and formed sediments, which formed source rock, which formed
the oil supply.

And then, in about 5000 years ago, there was a brisk oil industry in the
Middle East. A Greek fire was \-- you know, weapons is always good to
sell. The Chinese were drilling wells fairly well in 1100-1200 AD,
bamboo drilling pipe.

In 1859, Drake drilled a nice well in Pennsylvania, the beginning of the
modern era. And now we\'ll skip forward to 1945. This is gas reserves
because the subject of the paper was oil reserves, but the curves look
the same.

And there\'s about 150 trillion cubic feet of gas reserves in the United
States in 1945. The production plotted on the right-hand axis was rather
small, the red line. As you move forward from 1945 to, you know, 1963,
there was an extremely rapid growth of production.

The major interstate pipelines went in. And there was a rapid increase
in crude reserves, and they peaked in 1967. Now if you were around in
1963 or 1960, and you looked at that curve, and you did some kind of
short term analysis, you might get pretty bullish on gas supply.

Now, after the peak, we went into a period of very rapid decline. You
know, half a dozen years later, the production peaked. The little blip
\-- the pointer came up here \-- but the little blip that says Alaska
North Slope gas supply as N was the largest field in North America, and
all it did was make a blip on a very rapid decline \-- five, six percent
a year.

So you can see why the people that were caught in the first oil price
surge in the early 70\'s were a little pessimistic. Now, there\'s cause
and effect, of course. You get down to, you know, like 1974 and 1975
when and the energy information administration took over the national
reserve estimation, and we fixed that rapid decline.

And then we come over, and then the decline shortens out a little more
because that program was shifted to Dallas, and we fixed it further. And
then we get to, oh, you know, the early 90\'s.

And remember, causality is something that you \-- the data, we
shouldn\'t ever have to argue about. It\'s the interpretation. And Jay
Hakesley became administrator of EIA, and there was a real gas supply
problem.

Now, you have to be subtle. There\'s a two year time lag involved. And
then, in 1974, natural gas crude reserves actually increased \-- 1994.
And they increased again in 1995, and they increased again in 1996. And
this is a trend.

And the AEO says that that production curve is going to go back up and
surpass that peak that we had historically and keep climbing, and the
reserves are going to increase. For oil, they have it going the other
way.

They agree with the results of the paper presented today, that the oil
supply is going to go down. Now, it\'s actually kind of interesting
because if you take all of the unproved and undiscovered and inferred
gas reserves and divide them by today\'s production, you get a number,
you know, like 60 something.

And if you take oil and do the same thing, all the unproved,
undiscovered, inferred, etc. resources and divide it by today\'s oil
production, you get a number like 60. And those numbers aren\'t very
different.

And yet, the current modeling effort has a radically long term,
different outlook. And so it\'s interesting to look into why.

Could I have the next slide?

Okay, now for oil and gas, the last couple of years have been very good.
The last three years, we\'ve been replacing production. Reserve
additions have been 108, 107%. Doesn\'t make much difference because 103
or 106 or 110, they\'ve been replaced.

By the way, one of the reasons we like to have real precision and to
avoid sampling errors in the reserves program is because the small
changes are really important.

Could I have the next one?

There is a new frontier. There are several new frontiers in the United
States. That is a plot of the crude reserves by year in the Federal
offshore, and the blue is in water shallower than 200 meters, and the
red \-- whoop, the blue is water deeper than 200 meters, and the red is
water shallower than 200 meters.

Six hundred and fifty six feet or something deep. Hard to touch bottom
if you\'re swimming near that boundary. The deep water reserves have
doubled in the four year period. And they exceed the crude reserves in
the water at depths 200 meters or shallower. That\'s extraordinary.

Could I have the next one?

Now there\'s a reason. Fixed platforms could go potentially to 1,000
feet of water. A compliant tower can go deeper. The floating production
systems can probably go to 10,000 feet with today\'s technology.

The tension leg platform is probably more economical at various depths.
The spar is again more economical, which makes smaller reserves in deep
water economically accessible. And then the subsea completions extends
the reach out even further.

Could I have the next slide?

International \-- we have a report that\'s wandering around somewhere in
EIA getting ready to be published on the oil and gas resources of the
West Siberian Basin, one of the probably three most important basins in
the world.

If you look at it, the production history is the curve that has the \--
it goes up, peaks in the mid 80\'s, and then it\'s been sharply
declining.

Where is the \-- right there. And you notice it\'s in precipitous
decline. Russian oil production is in precipitous decline. If you look,
our conclusion is that it doesn\'t have to continue; that any time they
start picking up the drilling activity, making the appropriate
investments, using the appropriate technology, you can stop that perhaps
and turn it around.

If it had been a well run, free market with reasonable prices, the curve
would have gone like this. And it would have been perhaps easier to
interpret an economic model. But as was discussed, that price structure
didn\'t happen or did not prevail in that country.

Now the thing that I would recommend is that, to the extent possible,
economic studies incorporate as much of the physical data and the
underpinnings of the analysis as they can. If you look at the cumulative
discovery curve, you\'d notice that it\'s having a significant change of
flow.

And you look at the cumulative production curve, and it\'s not as
obvious, but you can do details. Now the thing that makes this important
is the data that supports this was developed by EIA, for the most part,
and has been unavailable up until now.

And John Grace, in particular, was just really excited in reviewing this
report because of the wealth of supporting data that is in that report.
And again, it is \-- you know, the data for those international studies
is sadly lacking.

Can I have the next slide?

In the spirit of the paper we\'re discussing, the authors of this report
think that the fundamental conclusion is that the oil and gas resources
of West Siberia that potentially remain to be tapped are big, not small.

And so there is a very large target for both the Russian industry and
the American industry to go in and develop supplies at reasonable cost
if you can cut the right kind of deal.

Can I have the next slide?

Well, and maybe, you know, we \-- for the most part, it\'s a little more
reliable to talk scenarios instead of things that you tend to really
model. We could have a return to a very high production rate in West
Siberia and Russia. We could go back to a current rate and sustain it.

Or the continuing trend could be projected, and you have a precipitous
decline.

Could I have the next slide?

Now there \-- when you talk about shifting supply curves and technology
shifts, there is an underlying resource base that is reasonably well
understood. Certainly orders of magnitude better understood than global
warming.

Most of the oil and gas is in a relatively small number of fields,
period. And the distribution has almost always found to be log normal. A
lot of small fields. A few very large fields that dominate the resources
of an area.

And it\'s really not too important over here as long as you say that the
number doesn\'t grow faster than the volume or vice versa \-- infinite.

Could I have the next slide?

Well, just one second. If you\'re in this region here of finding
moderate size fields, there\'s a lot of them, and you can have a fairly
flat finding rate curve.

Yes, sir?

VICE CHAIR RELLES: John, we really need to wrap it up.

MR. WOOD: Okay. And I would close in \-- and if any of you would like to
discuss afterwards, there are a lot of reasons why \-- actually, put the
drilling curve up, if you\'d please. There\'s \-- the one with the well
drilling. And this will be 30 seconds.

In the early 80\'s, there was a huge drilling boom and refining per well
plummeted. As the drilling boom \-- 1/5 the number of wells were
drilled, the refining rate per well doubled.

Most of that is just economic in efficiency. There is a slight
technology improvement in the drilling in the lower 48 onshore. What I
would, you know, close with is there is a possibility of combining kind
of the economic framework with a wealth of physical data that would make
both types of analysis more effective.

Thank you.

CHAIR WATKINS: I think, Dan, maybe the best thing \-- could I quickly
respond to discussants and then throw it open to the floor?

David, we do have a fundamental, intellectual disagreement, and I\'m
glad that you brought it up. But just one comment, first of all. Yes,
indeed, these models are not a tool for simulation.

But what I\'ve tried to do with these models is to \-- you know, the oil
industry is a long life business, long lead times and all the rest of
that. I\'ve looked \-- tried to look at it over an extensive period of
time to see whether there\'s evidence of the view that has persistently
prevailed not only just for oil, but basically in the finite resource
syndrome.

And look out, because we\'re going to run out. I think that is a
fundamental misconception. I don\'t find the finite resource aspect a
useful framework for thinking about natural resource supply. I say that
for the following reason.

The finite resources are calculated carefully by eminent geologists;
maybe people like yourself, David. And it\'s an interesting exercise
that doesn\'t bear any relation to the problem at issue. I shouldn\'t
say doesn\'t bear any relation.

The point is, what we\'re interested in is economic resources. We will
never get the last barrel of oil out of the ground. It will be choked
off long before that with price. So I think all the modeling efforts
that have gone on so far which have been couched in some kind of notion
of finite resources are fundamentally misconceived.

If you go back to Jevons in the 19th century in England alerting the
fact that England was going to run out of coal, well it would be an
embarrassment now to show him coal resources of England and the United
States.

I did an interesting plot some time ago, and this is done \-- these
people who put these numbers together do it very carefully. It was on
ultimate reserves. This happened to be Canadian ultimate reserves of oil
and gas.

And I emphasize the word ultimate. Ostensibly, these estimates were
always this is the finite resources just sitting there on the ground
irrespective. Well, these estimates of ultimate resources have continued
to climb.

It\'s a remarkably elastic term ultimate, the way they go up. And I\'ll
make one confident prediction that the next set of numbers that you see
for ultimate resources of oil and gas in the United States are going to
be higher than the previous ones.

And that\'s telling me something. That says that this framework is not
the way to think about natural resource supply. I\'m glad, David, you
did emphasize, you know, the uncertainties involved, and I tried to
bring that out in the paper.

What we\'ve tried to do is at least try and grapple with this problem.
You\'re concerned about, oh, that people are going to be too at ease
now. I\'d turn it the other way around because the prevailing
prognostication about supply have almost always been too pessimistic.

We\'ve made some fundamental policy errors on the notion that we\'re
facing a persistent moving oil crisis. Almost all the supply projections
have been wrong, and they\'ve almost always been wrong in the same
direction. They are too low.

And so if this paper does nothing else, at least supply some evidence
for the other notion that this persistent habit of underestimating
availability of resources is flawed, then \-- or at least have
undermined it a bit, then I think that is useful.

And you can say well, yes, this is not what we\'re facing. And I agree
there\'s another simulation model, but I think that supplies some
evidence on the other side.

Now if I can just briefly comment on a couple of John\'s points. One
thing I didn\'t have time to mention, John, but it is in the paper, that
we did in fact do a run where, rather than I looked at what I called the
window of opportunity for exploration, we knocked out development cost
and said well, as you point out, a lot of reserve growth is through
intensive drilling development activity.

We re-estimated the models with a rather different price term that would
accommodate that, and it really didn\'t change anything too much. I
agree with you entirely that if we could have the data to do a more
detailed analysis \-- and for some of the individual countries,
certainly you would have that.

That is preferable. But I think one of the conclusions I\'ve put in the
paper was that, in terms of the framework of this analysis, if you\'re
thinking that you can do more complex models than the simple ones I put,
you can do some on those.

But if you\'re thinking you can do a more complex model, forget it. The
data just are not of a stage to support that. I could say something
about the Russian oil, but I think I\'ll close off now.

Greta, you had a question.

DR. LJUNG: A couple of comments or questions related to the studies.

MS. CARLSON: Greta, could you pull the microphone closer?

DR. LJUNG: You had the data for 45 countries. You reject five of those,
so you do 40 significance tests. I was just wondering what assumptions
underlie those tests, in particular the assumptions on the error term.

You don\'t have an error term in your model, and it\'s not clear exactly
what you assume about \-- or the correlation in particular since you are
using time series data.

CHAIR WATKINS: In the material I distributed for this meeting, you
don\'t see that. Yes, it doesn\'t have a term. And in fact, we did have
a lot of the series where we did have to correct for first order
correlation, but not for correlation beyond that.

I also looked at \-- I didn\'t do any tests for heteroscedasticity
because, when I looked at the data \-- and one stage we did was looked
at the raw data in graphical form a lot before we did any modeling to at
least \-- as I said, there are a lot of anomalies.

And John, there was one thing you mentioned about the development
drilling. Some of the data we had development drilling that was really
bunched for one year. And where that in effect really skewed the
implicit price of undeveloped reserves for that year, we did in fact do
some smoothing there.

Going back to the point about heteroscedasticity, it just seemed that
the scale was not a problem there. So that I didn\'t in fact do any
formal tests for that.

DR. LJUNG: My main concern would be the serial correlation. You say you
feed more than one to the original data, and you feed it moving average.
The correlation of this would be quite different.

CHAIR WATKINS: Yes. I think at least half the results had to be adjusted
for the correlation.

DR. LJUNG: The second comment I have, you have modeled two X variables,
one of which is time. And I was wondering whether you checked for, what
is it, correlation between the X\'s. You are looking at one \-- you are
looking at \-- you are focusing on one coefficient, but the sine of that
coefficient could be wrong or go in the direction you did not expect if
you have strong \--

CHAIR WATKINS: Maybe I\'ve misused some symbols. There was no kind of
X\'s. I just have the slope.

DR. HANSEN: The independent variables.

CHAIR WATKINS: The development costs?

DR. HANSEN: That\'s right.

CHAIR WATKINS: Oh, I see what you mean. All right, the correlation
between \-- well, you could see that actually the prices were all over
the place. There\'s no obvious time trend on prices at all. Sorry, I
misunderstood what you said.

Yes, that\'s a valid point because they could have had correlated
independent variables and that\'s what really messed up the variances
and all that stuff.

DR. HANSEN: Did you find \--

CHAIR WATKINS: No, it just \-- I\'ve forgotten the procedure in the
package I was using for the correlation.

DR. HANSEN: I mean, you got 40 countries and you have \-- you know,
they\'re \-- you know, they\'re coincident in time. And so you\'d expect
that there might be some information that\'s carried across from one
equation to another because \-- and you know, so like the Zellner-like
SUR estimator might \--

CHAIR WATKINS: Well, we did try some pooling of regions, particularly
where some of the data were questionable. That did not prove to be
helpful. But remember that a lot of the costs of these countries are in
quite different stages of development.

And on the U.S. incident, the \-- that was clearly all the tests they
used in the contractionary phase. That doesn\'t mean to say, as Bill was
pointing out with the gas, we don\'t see reserve growth every year.

Yes, we\'re getting new reserves. But the point is that the kind of \--
the potential reserves there for bringing into is diminishing in
quality.

You\'ve got another one?

John, you looked as if you were about to say something.

MR. WOOD: Yes.

CHAIR WATKINS: That\'s it?

MR. WOOD: In 1976, I was at an Electric Power Research Institute
meeting. I think some of us gave a paper and Morry Adelman gave a paper.
I kind of liked his \-- some of the less enlightened economists\' papers
I did not.

There was an extreme wing that simply said if the price goes up, the
supply will follow; there\'s no problem. And at the same meeting, there
was the also slightly lacking in experience and judgement displaying
physical scientist who said we\'re almost out and we\'re running out
fast, and the end is near.

And they\'re both wrong. Now, as a fundamental point where I would go
back to my opening statement \-- you know, what do we know, and why do
we think we know it, and how could we demonstrate it to anyone else?

We know with reasonable certainty what the size of the conventional oil
and gas resources are in the United States and in most of the rest of
the world. Most of the oil and gas in the world was laid down in six
distinct stratigraphic layers.

And they were mostly laid down in the equatorial regions of the world.
And then the continents shifted, so we find preferentially that oil and
gas in the northern hemisphere. And we know this reasonably well.

And the more explored regions, we know it very well. And I think that
that knowledge needs to be borne in mind if you start talking about any
long term process. And there\'s a \-- again, when you lump in new
frontiers or things, it appears as if technology may be changing stuff.

But I don\'t think it is. Well, it isn\'t in the dramatic form. There\'s
very small. But it does happen \-- the economic effects have to be
equally weighed, and they weren\'t. And those people who said we were
going to run out were also wrong.

But there is substitution. And I think that\'s an economic concept that
ought to be paid more attention to. If the price of oil and gas gets too
high, then we\'ll do something else. But in the end, in the battle
between depletion and technology improvement, depletion wins.

And if that isn\'t the answer, then you have to go to a different kind
of resource. There are other resources. There\'s more hydrocarbons and
natural gas hydrates than there are in all of the oil and gas and coal
in the world.

The U.S. has its share. There\'s very large deposits in the Blake
Plateau off in North Carolina in 3,000 feet of water. And the EIA
actually, in its very long range model, has put in a supply curve for
gas hydrates.

CHAIR WATKINS: Jay, you have a \--

DR. HAKES: I would just suggest that since Aristotle was neither an
economist or a geologist, that he would probably be the appropriate
person to referee this dispute.

And one of this criteria of truth was that a model was more likely to be
right if facts that developed subsequently to the model were consistent
with the model. And if the facts were inconsistent with the model, that
model was less likely to be the case.

My own view is that most of these lines, when you see big changes, that
the economic interpretations have been better able to accommodate new
data and what\'s actually developing. In an ideal world, I think you
would want to certainly include both aspects.

CHAIR WATKINS: Yes.

DR. CHATTERJEE: Thank you.

Just to \-- I don\'t want to have the last word on the matter. But I
think when analyzing resources which are depleted, I think we should
take into account the finiteness of it. I know, I understand Campbell\'s
point that nothing is finite if you don\'t consider the price.

But that \-- we\'re talking about finiteness which are exploitable and
so forth which takes into account technology. And rather than ending up
with somebody as profound as Aristotle, I would end by something \-- Mr.
Baruch, an economist, businessman \-- they\'re not making it anymore.

(Laughter.)

CHAIR WATKINS: Any comments from the floor?

Art, can you use the microphone, please?

MR. ANDERSON: I don\'t remember the specifics now \--

CHAIR WATKINS: Can you identify yourself?

MR. ANDERSON: Yes, Art Anderson, Energy Information Administration.

But, of course, I\'m quite sympathetic with the position that you\'ve
put forward. And the \-- but this business of finiteness, I remember a
review of what was economic from the standpoint of copper. And years
ago, the study said well, when they first began, you had to have ore
that was in the range of five percent copper.

And now, I think we exploit copper from ores that have less than a half
a percent. How did we get from one to the other? Technology. To my mind,
the question of what\'s conventional or what\'s not conventional even in
the oil area is interesting to contemplate.

If we think about the U.S. oil supply, is deep Gulf unconventional or
conventional? From a technological standpoint, it\'s now accessible to
us. It was formally \-- it was still there before, but we couldn\'t
touch it because we didn\'t have the technology.

In Canada, you\'ve got tarsands that boggle the mind from the standpoint
of potential availability for energy. And even today, some of it, at
relatively low prices, is economic. At somewhat higher prices, a lot
more would be economic.

And the finiteness of that is way beyond any \-- but the longest term
modeling contemplation that is out there.

CHAIR WATKINS: That\'s a good illustration in the sense that, in the
last five years, the cost of extracting oilsands in Canada is pretty
well half. And now you have a new scheme as far as sands development
which are not predicated on any increase in world oil prices.

MR. WOOD: But that\'s not \--

CHAIR WATKINS: I think \-- it\'s not in my study. I\'m just following up
on Art\'s comment.

Yes.

MR. MANICKE: Two very quick questions. Bob Manicke, EIA.

Kind of extending Greta\'s questions, did you say that you did test for
heteroscedasticity or there was no \--

CHAIR WATKINS: I said I didn\'t do any formal test. I looked at the
graphs and didn\'t think it was necessary.

MR. MANICKE: Was the shift in C, the coefficient of T, tested?
Homogeneity regression, is that the methodology? Did I miss that?

CHAIR WATKINS: I did one \-- for four countries, I did one test where I
subdivided the data period and used Chow tests for whether there were
differences in C.

MR. MOREHOUSE: With respect to the Canadian tarsands issue, it\'s my
understanding, having talked to some of the people involved with it
that, in fact, none of those deposits are currently economic if you
include the written off \-- already written off initial development
cost.

They are economic on an operating basis now. There\'s a major
distinction to be made there.

And I think the other thing that I\'d kind of like to say is that yes,
we do have a very, very different viewpoint on the worth of resource
estimates, perhaps.

You have to understand that the whole resource estimation methodology
only got kicked off in 1960 with a very, very simple study that was done
by a French man by the name of Allaiss regarding the possible oil and
gas resources of the Algerian Sahara.

It was a simple regression equation where he essentially used as an
analog the United States endowment, as it was known then, and applied it
to the \-- a real extent of the Sahara. A lot of water has gone under
the bridge since then in the whole area of resource estimation.

And probably, since about the early part of this decade or slightly
before is where you can draw a line between some fairly primitive and
sort of growing up baby type things that were done prior to then and
some pretty sophisticated and solid techniques for doing such analysis.

That \-- I agree with you that most of the early estimates of resources
of oil and gas or almost anything else were way too low. And that\'s
because people didn\'t have the approach and the data that we have now
in order to be able to estimate.

And I think the situation has fundamentally changed. And therefore, to
assume that that sort of situation will continue I think is wrong. If
you look, for instance, at the last USGS assessment of oil and gas
resources in the United States, the number of \-- the total number that
came out is, in fact, larger than the one they produced the time before.

The reason for that, however, is not because they changed their
assessment of the undiscovered portion of the resource base. They
changed their assessment of that portion that can be caused by reserve
growth, which was an issue they\'re still doing research on, and that
number\'s probably going to change again.

But I don\'t think you will ever see much in the way of changes in the
undiscovered portion of the resource base. That information remains
solid.

CHAIR WATKINS: Well, I think we should close off the discussion of at
least my paper.

Now do we have any other committee business?

Linda, do you have any comments to make?

MS. CARLSON: Yes, I do. I wanted to thank you very much for your
stewardship of this committee. And I hope that we will be able to
continue our \-- and I hope that you\'ll be able to continue some of
your stewardship and we\'ll be able to tap your advice in the future.

CHAIR WATKINS: Well, these are my final words, so to speak. I wish the
committee well. It\'s been a great honor and a pleasure for me to serve
on it. And I\'ve learned a lot, even perhaps from David Morehouse\'s
last comments.

(Laughter.)

Thank you.

Are there any other business items to be dealt with?

Bill.

MR. WEINIG: No, sir. Thank you.

CHAIR WATKINS: Okay.

Well, we\'ll close the meeting.

Thank you.

(Whereupon, the proceedings were adjourned at 12:00 p.m.)