ACCESS NUMBER: 32806-39902 

STUDY TITLE: Marginal Production in the Gulf of Mexico – Economic, Environmental, 

and Regulatory Perspective 

REPORT TITLE: Assessment of Marginal Production in the Gulf of Mexico and Lost 

Production from Early Decommissioning 

CONTRACT NUMBER: 1435-01-04-CA-32806-39902 

SPONSORING OCS REGION: Gulf of Mexico 

APPLICABLE PLANNING AREA: Western, Central, Eastern 

FISCAL YEARS OF PROJECT FUNDING: 2008, 2009, & 2010 

COMPLETION DATE OF REPORT: January 2010 

COST(S): FY 2008: $97,219.85; FY 2009: $34,263.77; FY 2010: $35,626.38; 

CUMULATIVE PROJECT COST: $167,110.00 

PROJECT MANAGER: M.J. Kaiser 

AFFILIATION: Louisiana State University, Center for Energy Studies 

ADDRESS: Energy, Coast & Environment Bldg., Nicholson Extension, Baton Rouge, 

Louisiana 70803 

PRINCIPAL INVESTIGATOR: M.J. Kaiser 

KEY WORDS: Gulf of Mexico; offshore structures; marginal production; 

decommissioning; hurricane; economics 

BACKGROUND: All producing properties are unique and have costs and benefits 

specific to each stage of its life cycle. The capital intensive expenditures associated with 

drilling offshore wells and installing infrastructure during the early stages of 

development are usually quickly recovered during the first few years of production and 

operations are highly profitable during this time. As fields mature and operations 

transition into the later half of their life cycle, decreasing revenue streams, higher 

operating costs, and fewer upside opportunities lead to declining profitability. Eventually, 

all properties are abandoned when the value of production is less than the cost of 

operations. Assets transition to marginal status at some point during their life cycle and 

may spend a considerable amount of time in this state before production is no longer 

economic. 

OBJECTIVES: The purpose of this study is twofold: (1) quantify the oil and gas 

production that was lost from hurricane destruction in the Gulf of Mexico during 2004 

and 2005, and (2) investigate the role marginal production in the Gulf has contributed to 

historic production and is expected to contribute to future production. 

DESCRIPTION: Hurricanes Ivan, Katrina, and Rita passed through the Gulf of Mexico 

during 2004 and 2005 and resulted in the largest number of destroyed and damaged 
ACCESS NUMBER: 32806-39902 

offshore structures in the history of Gulf operations. In the final official government 

assessment, a total of 120 platforms were destroyed, including one deepwater floating 

structure. According to Minerals Management Service production data, 21 destroyed 

platforms have restarted production, but by December 2008, only two of these 

structures were still producing. Gas structures appear more successful than oil 

structures in redevelopment and apparently present better economics and production 

potential. Eleven of the 14 redevelopment plans on leases that contained destroyed 

infrastructure are for gas structures. We review pre- and post-hurricane production, 

revenue, and drilling characteristics for the collection of destroyed structures that have 

been redeveloped and compare against structures that have not submitted 

redevelopment plans. 

In June 2008, there were 3,847 structures in the Outer Continental Shelf of the Gulf of 

Mexico associated with the production of oil and gas. About 65 percent of the inventory, 

or 2,514 structures, were producing in 2008, with the remaining structures either serving 

in an auxiliary role or no longer in production. Structures in water depth less than 1,000 

ft constitute the vast majority of the oil and gas producing assets but contribute less 

than 30 percent of the Gulf’s annual hydrocarbon production. We categorize shallow 

water committed assets according to their age of production and the nature of their 

production profile, and forecast production within each asset category. We describe the 

forecast methodology and illustrate each asset category with examples. 

A forecast of marginal production of the current inventory of producing structures in the 

shallow water Gulf of Mexico is provided. We estimate the number of shallow water 

committed assets that are economic and marginal throughout a 60-year time horizon, 

and compute the expected quantity and value of the production and revenue streams. A 

meta evaluation procedure is adopted to simplify the results of our analysis. Model 

results are presented along with a description of the model framework. 

SIGNIFICANT CONCLUSIONS: We estimate that about 35 MMBOE out of 48 MMBOE 

recoverable reserves from the 2004-2005 hurricane destroyed structures are accounted 

for in operator plans to redevelop. The discounted gross revenue estimates range from 

$988 million ($60/bbl) to $2.32 billion ($140/bbl). 

For the inventory of producing structures circa January 2007, the cumulative 

hydrocarbon production from the inventory of producing assets is estimated to be 1.056 

Bbbl of oil and 13.3 Tcf of gas. Marginal production is expected to contribute 4.1 

percent of the total oil production and 5.4 percent of gas production from the committed 

assets in the Gulf. 

STUDY RESULTS: We developed structure-specific production models from the 

collection of destroyed assets and estimated remaining reserves and their likely value to 

future production in the Gulf. We also reviewed operator development plans and 

described a redevelopment matrix based on remaining reserves and production rates. 

We operationalized the definition of marginal production based on revenue threshold 

and classified and forecast economic and marginal production in the shallow water Gulf. 

The number of marginal structures and the amount and value of marginal production 
ACCESS NUMBER: 32806-39902 

was forecast for a 60-year time horizon. A simulation strategy was employed that 

combined scenario analysis and a meta framework to investigate the impact and 

sensitivity of input variables on model output. Count and production trajectories were 

presented for economic and marginal structures for oil, gas, and BOE forecasts. 

STUDY PRODUCTS: Kaiser, M.J., Y Yu, and A.G. Pulsipher. 2010. Assessment of 

Marginal Production in the Gulf of Mexico and Lost Production from Early 

Decommissioning. U.S. Dept. of the Interior, Minerals Management Service, Gulf of 

Mexico OCS Region, New Orleans, LA. OCS Study MMS 2010-007. 199 pp. 

Kaiser, M. J., D. E. Dismukes, and Y. Yu. 2008. Modeling Gulf of Mexico lost 

production – 1: Field redevelopment economics and storm impact assessment. Oil & 

Gas Journal 106(25):42-50. 

Kaiser, M. J., D. E. Dismukes, and Y. Yu. 2008. Modeling Gulf of Mexico lost 

production – 2: Model framework can aid decision on redevelopment. Oil & Gas Journal

106(26):49-53. 

Kaiser, M. J., D. E. Dismukes, and Y. Yu. 2008. Modeling Gulf of Mexico lost 

production – 3: Value of production losses tallied for 2004-05 storms. Oil & Gas 

Journal 106(27):32-36. 

Kaiser, M. J., Y. Yu, and C. Jablonowski. 2008. Modeling Gulf of Mexico lost 

production – 4: Meta evaluation helps model lost Gulf of Mexico output. Oil & Gas 

Journal 106(28):30-34. 

Kaiser, M.J. 2009. An evaluation of post-hurricane recovery of oil and gas platforms 

destroyed in the 2004-2005 Gulf of Mexico hurricane seasons. International Journal of 

Oil, Gas and Coal Technology 2(3):215-261. 

Kaiser, M.J. 2009. Gulf marginal production–1: Reserves, revenues substantial in 

marginal Gulf of Mexico fields. Oil & Gas Journal 107(45):32-39. 

Kaiser, M.J. 2009. Gulf marginal production–2: Model identifies marginal structures, 

future output. Oil & Gas Journal 107(46):33-38. 

Kaiser, M.J. and Y. Yu. 2009. Gulf marginal production–3: Model tracks structures’ 

transition from marginal to abandonment. Oil & Gas Journal 107(47):33-39. 

Kaiser, M.J., Y. Yu, and C. Jablowonski. 2009. A meta-model valuation of lost 

production in the Gulf of Mexico. Energy–The International Journal 34:1156-1171. 

Kaiser, M.J. 2009. Hydrocarbon production forecast for committed assets in the 

shallow water Outer Continental Shelf of the Gulf of Mexico. Energy–The International 

Journal 34:1813-1825.