ACCESS NUMBER: 85138

Technical Summary

STUDY TITLE: Modeling Exploration, Development and Production in the Gulf of Mexico

REPORT TITLE: Modeling Exploration, Development and Production in the Gulf of Mexico

CONTRACT NUMBER(5) MMS: 0102CT85 138

MMS STUDY NUMBER: OCS Study MMS 2004-0 18

SPONSORING OCS REGION: Headquarters, Environmental Studies Program

APPLICABLE PLANNING AREA(S): Western, Central and Eastern Gulf of Mexico

FISCAL YEAR(S) OF PROJECT FUNDING: 2003

COMPLETION DATE OF REPORT: March 2004

COST(S): (BY FISCAL YEAR); CUMULATIVE PROJECT COST: FY03: $163,391

PROJECT MANAGER(S): Mr. Peter K. Ashton

AFFILIATION Innovation & Information Consultants, Inc.

ADDRESS: 72 Junction Sq., Concord, MA 01742

PRINCIPAL INVESTIGATOR(S):* Peter K. Ashton, Robert A. Speir, Lee 0. Upton III

KEY WORDS: Gulf of Mexico; exploration; development; production; reserves; fields; economic model;

costs; net present value; discovery process; reserve growth; environmental models; royalties; taxes;

pipelines; platfonns; wells.

BACKGROIJNJ): When MMS prepares an environmental impact statement (EIS) or similar document,

projection of future oil and gas exploration, development, and production (EDP) activity is an important and integral step in forecasting environmental and socioeconomic impacts. Also, activity projections for

alternative lease sale schedules play a key role in the preparation of the 5-Year Oil and Gas Leasing

Program. This research resulted in a new model that improves the existing method of projecting the EDP

activity that starts the chain of impacts following lease sales or other MMS actions. Policy analysis is an

additional use of the model. Variations in projected EDP activity and resources discovered result from

changes in various policy measures such as royalty suspension volumes. This model incorporates various

policy levers to assess such impacts.

OBJECTIVES: The objectives were to build a new model to be used to (1) make the oil and gas

exploration and discovery, development, and production projections for environmental impact statements and similar documents, and (2) for projecting impacts of incentives (such as royalty relief) and other policy analysis.

DESCRIPTION: Developing this new model involved six critical steps: (1) review existing models of

exploration and production activity in the Gulf, (2) defme and analyze the variables to include in the

model either as inputs into or outputs from the model; (3) collect relevant data from MMS and other

published sources; (4) establish linkage to MMS environmental models to ensure compatibility with their needs; (5) build model equations, relationships among model components, program and implement the

new model; (6) validate and test the model and train the users of the new model.
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ACCESS NUMBER: 85138

SIGNW1CANT CONCLUSIONS: The model specifications suggested th a fast-running expected

value simulation was appropriate. The model is programmed in the C# language with database and

spreadsheet interfaces. Primary outputs are wells drilled of various types, fields discovered, production of

oil and gas, infrastructure additions and removals, as well as a myriad of secondary parameters that the

user can extract from the status variables generated by the model. The model operates at the field-level,

while retaining the capability to aggregate where appropriate.

Flexibility is permitted by not tying the model to a precise geographic or geologic structural depiction of

the GoM. Rather, the analyst may defme multiple model areas for which discovered and undiscovered

field counts are input by field size along with other state variable inputs such as exploration search

coefficients, exploratory well generation equation parameters, producing field counts by age of field, etc.

The lack of a pre-programmed model structure permits the analyst to defme the problem area arbitrarily

as the entire GoM, a particular subset of GoM geography (e.g., the Eastern GoM), water depth category,

some cross-cutting category subset of these, or even in geologic terms (e.g., by play or province).

STUDY RESULTS: The model is composed of several components or submodels including one which models the process of discovering new fields, another that simulates the processes by which

exploration/producers incorporate field economics in making decisions that affect both the discovery

process and the developmentlproduction process, and a component that estimates field production and

reserves appreciation. The model generates a series of output tables that supply the number and type of

wells drilled, fields discovered, production of oil and gas, infrastructure additions and remaining

resources.

The simulation is easiest to describe in terms of the normal flow of the exploration and development

process. Profitability, due to both recent and prospective discoveries, stimulates exploratory "wildcat"

well drilling. Factors that influence profitability include oil and gas prices, costs of development and

production, taxed, royalties, size of field, potential fields left to be discovered, and many other factors, both input and internally generated. Exploratory wells find new fields. The number of fields found in an

area in a particular year depends on the total field estimate input for that area and what has been found in

previous years.

If newly discovered fields are economic to produce, i.e., the economic submodule generates a positive net

present value (NPV), they enter a queue and move toward production in a subsequent year if resources

(principally in-field well drilling) are available for development. After discovery, a field's reserves appreciate according to a user input schedule (simulating the continual in-field exploration and

delineation process). Production is a function of reserve levels for fields as they mature. At some point, a

field's reserves are essentially exhausted, so its infrastructure assets are retired, and it ceases production.

Output variables such as reserves added, production, revenue flows, wells drilled, platforms installed and

removed, and pipeline miles installed, are tabulated and made available to the analyst.

STUDY PRODUCT(S): innovation & information Consultants, Inc., 2004. Modeling Exploration,

Development and Production in the Gulf of Mexico. A final report in three volumes including user's

manual, and IIC EDP Model, version 1.0, prepared for the U.S. Department of the Interior, Minerals

Management Service, Gulf of Mexico Region, New Orleans, LA. MMS Report OCS Study MIMS 2004-

018, contract no. 0102CT85138.

* P.I.'s affiliation may be different from that listed for Project Manager(s).