p. 1 

# OAR Box 

# 1828 Prepped by Ollie Stewart



## Document

Number: 

# 276 ) ll-K - 

# (I ) -8 9 Docket Number: 

# A-83-2 7

Printed 11/12/2008 11:12:58 AM Sheet 276 of 325P. 2 J •

A n occasiona l publicatio n o fGa s Researc h Institut e o n topic s o fcurren t interest .



# Th e GR I Hydrocarbo n Model : Th e Structure , Results , an d Sensitivitie s o fth e Mode l i n it s Initia l For m

prepare d b

y Thomas J . Wood s Gas Researc h Institut e Strategi cAnalysi s an d Energ yForecastin g Divisio n an d E . Harr yVidas Energ yan d Environmenta l Analysis , Inc .

Ma y1983 H*PW ^



## Abstract Thi s pape rdescribe s th e Ga s Researc h Institut e (GRI ) Hydrocarbo n Mode l whic h i s currentl ybein g con structe d b yEnerg yan d Environmenta l Analysis , Inc . (EEA ) unde rcontrac t t o GRI' s Divisio n o fStrategi c Analysi s an d Energ yForecastin g (SA&EF) . Plannin g an d evaluatio n o fa n R& D progra m withi n GR I require s a n institutiona l comprehensio n o fth e outloo k fo rUnite d State s energ ysuppl yan d deman d an d a projectio n ofth e physical , social , an d economi c environmen t tha t wil l confron t GR I an d th e ga s industryi n th e year s ahead . Aquantitativ e understandin g o fth e natura l ga s suppl yan d th e physica l an d economi cfactor s tha t affec t i t i s essentia l bot h fo rgenera l suppl yan d deman d forecastin g an d fo rspecifi cevaluation s o fresearc h activitie s whic h wil l impac t upo n natura l ga s suppl yan d upo n supplementa l source s o fgaseou s fuels . Th e purpos e ofth e GR I Hydrocarbo n Mode l i s t o provid e a rigorou s an d consisten t framewor k fo ranalyzin g th e resourc e cos t o ffinding , developing , an d producin g natura l ga s an d crud e oi l i n th e lower-4 8 Unite d States . Th e importan t feature s whic h distinguis h th e GR I modelin g approac h fro m othe roi l an d ga s suppl y model s include :
• extensiv e us e o fdetaile d fiel d an d drillin g dat a bases ;

• hig h degre e o fdisaggregatio n i n th e characterizatio n o fth e potentia l resourc e base ; an d

• modelin g o findustrydecision-makin g technique s t o determin e th e level , location , an d directio n (i.e. , oi l vs . gas ) o fdrillin g activit yove rtime . Thi s pape routline s th e basi cstructur e o fth e model , present s th e result s o fsom e tes t run s t o demonstrat e th e operation s an d capabilit yo fth e model , an d briefl ydescribe s furthe rdevelopmen t wor k planne d fo r th e mode l i n th e upcomin g year . 

# or\

Ga s Researc h Institute , 860 0 Wes t Bry n Maw rAvenue , Chicago , Illinoi s 6063 1 312/399-810 0P. 3 

## Overview

of GRI Hydrocarbon

Model Introductio n Thi s pape rdescribe s th e Ga s Researc h Institut e (GRI ) Hydrocarbo n Mode l whic h i s currentl ybein g con structe d b yEnerg yan d Environmenta l Analysis , Inc . (EEA ) unde rcontrac t t o GRI' s Divisio n o fStrategi c Analysi s an d Energ yForecastin g (SA&EF) . Plannin g an d evaluatio n o fa n R& D progra m withi n GR I require s a n institutiona l comprehensio n o fth e outloo k fo rUnite d State s energ ysuppl yan d deman d an d a projectio n o fth e physical , social , an d economi c environmen t tha t wil l confron t GR I an d th e ga s industryi n th e year s ahead . Aquantitativ e understandin g o fth e natura l ga s suppl yan d th e physica l an d economi cfactor s tha t affec t i t i s essentia l bot h fo rgenera l suppl yan d deman d forecastin g an d fo rspecifi cevaluation s o fresearc h activitie s whic h wil l impac t upo n natura l ga s suppl yan d upo n supplementa l source s o fgaseou s fuels . Th e GR I Hydrocarbo n Mode l ha s bee n develope d bot h a s a n ai d t o projectin g ga s suppl yvolume s an d cost s unde rdifferin g assumption s an d a s a researc h too l t o explor e th e technica l an d economi cparameter s whic h gover n natura l ga s production . I n 198 2 EE Abega n a projec t fo rGR I t o develo p a computerize d mode l t o projec t futur e natura l ga s price s an d availability . Th e initia l for m o ftha t mode l wa s complete d an d teste d i n lat e 1982 . Thi s pape routline s th e basi cstructur e ofth e model , present s th e result s o fsom e tes t run s t o demonstrat e th e operation s an d capabilit yo fth e model , an d briefl ydescribe s furthe rdevelopmen t wor k planne d fo rth e mode l i n th e upcomin g year . Mode l Coverag e Th e purpos e ofth e GR I Hydrocarbo n Mode l i s t o provid e a rigorou s an d consisten t framewor k fo ranalyzin g th e resourc e cos t o ffinding , developing , an d producin g natura l ga s an d crud e oi l i n th e lower-4 8 Unite d States . Th e importan t feature s whic h distinguis h th e GR I modelin g approac h fro m othe roi l an d ga s suppl y model s include :

• extensiv e us e o fdetaile d fiel d an d drillin g dat a bases ;

• hig h degre e o fdisaggregatio n i n th e characterizatio n o fth e potentia l resourc e base ; an d • modelin g o findustr ydecision-makin g technique s t o determin e th e level , location , an d directio n (i.e. , oi l vs . gas ) o fdrillin g activit yove rtime . Th e lower-4 8 Unite d State s i s broke n dow n int o th e region s use d b yth e Potentia l Ga s Committe e (PGC ) i n estimatin g remainin g undiscovere d ga s resources . (Se e Figur e 1. ) Th e mode l ha s 1 0 onshor e an d thre e offshor e regions . PG C region s H an d I ar e combine d i n th e model , an d th e Gul foffshor e i s treate d a s a singl e region . Th e onshor e region s i n th e mode l ar e divide d int o fou rdept h intervals : 0-5,00 0 ft , 5-10,00 0 ft , 10-15,00 0 ft , an d belo w15,00 0 ft . Eac h dept h interva l ha s it s ow n particula rresourc e bas e an d hydrocarbo n find-rates . Th e mode l cover s th e exploration , development , an d productio n ofoi l a s wel l a s natura l gas . Ther e ar e tw o primaryreason s t o includ e oi l i n th e model . Th e firs t i s tha t th e find-rat e methodolog yselecte d fo r th e mode l i s base d o n "area l exhaustion"—i.e. , a s mor e an d mor e well s ar e drille d i n a give n cubi cmil e volum e o fsedimentar yrock , th e probabilit yo ffindin g a fiel d o fa give n siz e i s reduced . Becaus e bot h oi l an d ga s field s ma yb e foun d i n th e sam e geographi carea , oil , gas , an d combinatio n oil/ga s field s mus t b e treate d togethe ri n usin g historica l dat a t o develo p find-rat e equation s base d o n area l exhaus tion . Th e secon d reaso n fo rincludin g oi l i n th e mode l i s tha t th e economic s o fexploratio n fo roi l an d ga s ar e intertwined . Whil e explorer s ca n identif ya regio n a s oi l o rga s prone , the ycanno t identif ya par ticula rprospec t a s bein g eithe roi l o rga s befor e a wel l i s drille d t o tes t th e prospect . Therefore , i n area s wher e bot h resource s ma yb e found , exploratio n activit yan d cost s canno t b e modele d credibl yfo rga s independentl yofoil . Mode l Structur e i n Brie f Th e GR I Hydrocarbo n Mode l ha s bee n designe d t o operat e i n tw o modes : a s a time-dimensionles s curv e generato ran d a s a simulato ro fdrillin g activit yove rtime . Th e firs t mod e i s use d t o sho who wth e oi lP. 4



### an d gas resource bas e i s distribute d wit h regar d t o th e cost o

fdiscovery , development , an d production . I n thi s mode , a cost/quantitycurve i s create d showin g th e amoun t o fgas that eventuall ywoul d be foun d an d produce d give n a certai n price . Example s o fsuc h curve s produce d b yth e GR I Hydrocarbo n Mode l ar e presente d i n th e sectio n o n test results . I n th e secon d mod e o

foperation , th e mode l simulate s drillin g decision s i n eac h mode l period—generall y a five-yea rinterval . Th e mode l choose s th e leve l an d locatio n o fexplorator

ydrillin g i n ne

wfield s i n eac h mode l period . Withi n th e model , thi s explorator ydrillin g the n lead s t o th e discover yo fne wfield s and , ove rtime , t o reserve additions , developmen t drilling , an d production . Th e timin g o freserve additions , developmen t drilling , an d productio n followin g a field' s discover yi n th e GR I Hydrocarbo n Mode l i s base d o n historica l experienc e fo rhydrocarbo n field s wit h simila rcharacteristics . Decision s o n wher

e t o dril l ar

e mad e i n th e mode l base d primaril yo n economics . Eac h incremen t o f explorator

ydrillin g of , say , 500 well s i n a regio n i s evaluate d t o determin e whethe rth e results o fthat incremen t (includin g al l subsequen t developmen t drillin g an d production ) wil l resul t i n th e require d minimu m rat e o

freturn . Becaus e o

fresource depletion , eac h additiona l incremen t o fdrillin g usuall ywil l fin d les s oi l an d gas an d thu s wil l hav e a lowe rrat e o

freturn . A

t som e point , a drillin g incremen t wil l hav e a rat e o

fretur n belo

wth e minimu m require d rate , an d furthe rdrillin g wil l be uneconomical . I n anygive n five-yea rperiod , ther e ma ybe severa l economi cdrillin g increments availabl e i n eac h region . Th e mode l choose s amon g availabl e increments base d o n th e highest rat e o freturn . Thi s selectio n pro cess , however , i s constraine d suc h tha t th e tota l o

fexploratio n well s fall s betwee n a pre-specifie d minimu m an d maximu m i n eac h region . Thes e regiona l minimu m an d maximu m drillin g limit s ar e use d t o simulat e industr yinerti a an d industr

yresource constraint s (i.e. , ri g availability , industr ycas h flow) . Thes e limit s ar e set i n th e mode l a

s a user-specifie d percen t deviatio n fro m th e previou s period' s explorator ydrillin g solution . Fo rinstance , i f1,50 0 explorator

ywell s ar

e drille d i n th e 1981-85 perio d fo ra specifi cregio n an d dept h interval , th e minimu m an d maximu m numbe ro fwell s tha t coul d be drille d i n th e 1986-90 perio d migh t be 75 0 an d 2,25 0 wells . Th e mode l als o ha

s a feature allowin g th e specificatio n o fmaximu m dolla rexpenditure s fo reac h perio d a s a simulatio n o

fproducer' s capita l constraints . Whe n thi s feature i s used , th e selectio n o fdrillin g in crements amon g region s i s stoppe d whe n th e su m o fth e expenditure s require d fo rth e selecte d increment s reache s th e predetermine d maximum . Anothe rfeatur e o fth e mode l allow

s fo rth e specificatio n o

flower-48

Represent s Offshore Area s ffilh Depth s Les s Tha n •1,00 0 liter s



### Figur e 1 . Hydrocarbo n Mode l Regions .P. 5

ga s productio n level s fo rfutur e years . Whe n thi s featur e i s employed , th e selectio n o fdrillin g increment s stop s i n eac h perio d whe n enoug h ne wga s i s foun d t o pus h tota l lower-4 8 productio n u p t o th e targete d leve l o fga s productio n fo rth e las t yea ro fth e period . Fo rinstance , th e use rmigh t specif ylower-4 8 pro ductio n a s 1 8 Tc fi n 1990 . I fth e mode l predicte d productio n fro m al l field s foun d befor e 198 5 t o b e 1 6 Tc fi n 1990 , th e mode l woul d ad d sufficien t reserve s i n th e 1986-9 0 perio d t o increas e productio n b y 2 Tc fi n 1990 . Selectio n o fMode s o fOperatio n Dependin g o n wha t question s ar e bein g addressed , th e mode l ca n b e ru n i n severa l ways . Whe n th e use rwant s a simpl e expositio n o fho wpotentia l ga s reserve s i n ne wfield s ar e distribute d wit h respec t t o cost , th e curve-generatin g mod e o fth e mode l i s run . Th e resultin g cost/quantit ycurve s ca n b e ag gregate d i n an ydesire d combinatio n o fregio n an d dept h a s wel l a s b ytota l lower-48 . Thes e curve s repre sen t th e quantitie s o fnatura l ga s tha t coul d b e foun d an d produce d at variou s price s irrespectiv e o fwhe n discoveryan d productio n migh t tak e place . I fth e use rwishe s t o investigat e a n issu e relate d t o productio n an d cos t trend s ove rtime , th e simulatio n mod e o fth e mode l mus t b e run . Her e th e use rca n specif yproductio n quantit yan d hav e th e mode l solv e fo rprices , o rth e use rca n specif ypric e an d hav e th e mode l solv e fo rmaximu m possibl e production . I n th e firs t case , th e use rwoul d specif ya targe t natura l ga s productio n leve l fo rth e lower-4 8 state s fo r eac h period . Th e mode l the n woul d calculat e th e pric e neede d t o brin g o n sufficien t ga s t o mee t tha t leve l o fproduction . I n th e secon d instance , th e use rwoul d specif ya pric e trajector yfo rnatura l ga s an d oil , an d th e mode l woul d solv e fo rdrillin g levels , reserv e additions , an d productio n i n eac h period . Th e majo rdifferenc e i n thes e tw o technique s fo rrunnin g th e GR I Hydrocarbo n Mode l i s whethe ra specifi c productio n targe t o ra pric e wil l constrai n drillin g activit yi n eac h period . I n additio n t o thes e productio n target s an d pric e constraints , th e model' s physica l drillin g limit s (expresse d a s a minimu m an d maximu m numbe ro fwells tha t ar e t o b e drille d i n eac h regio n eac h period ) an d th e expenditur e constrain t (expresse d a s th e tota l dolla ramoun t fo rexploratio n an d developmen t starte d eac h period ) als o ca n ac t a s constraint s o n th e leve l o fexplorator ydrilling , reserv e additions , an d pro ductio n i n th e model . Fo rinstance , th e use rmigh t specif ya productio n targe t o f2 5 Tc ffo r1985 , bu t th e user-specifie d constraint s o n th e maximu m increas e t o b e allowe d i n drillin g of , say , 2 0 percen t pe r yea rmigh t mak e th e targe t impossibl e t o reach . I n tha t case , th e mode l woul d dril l u p t o th e physica l drillin g limit s an d 198 5 productio n woul d no t reac h th e specifie d target .



## Model Logic and Data Sources Th e Discover y Proces s Th e ke yfeatur e o fan yexploratio n an d developmen t mode l i s it s representatio n o fho wexplorator yac tivit yleads t o th e discover yo fadditiona l reserves . Thi s discoveryproces s i s usuall ymodele d throug h "find-rat e equations. " Th e mos t commonl yuse d specificatio n fo rfind-rat e equation s (e.g. , th e Depart men t o fEnergy' s Nationa l Oil an d Ga s Suppl yModel ) relate s footag e drille d t o barrel s o foi l o rMcfo f ga s found . Suc h find-rat e equation s usuall yar e statisticall yfitte d usin g historica l America n Petroleu m Institut e (API)/America n Ga s Associatio n (A.G.A. ) reserv e dat a alon g wit h API/America n Associatio n of Petroleu m Geologist s (AAPG ) aggregat e drillin g statistics . Thes e equation s indicat e that , a s exploratio n i s carrie d ou t i n a n area , th e amoun t o freserve s foun d pe rfoo t ofdrillin g declines . I n developin g th e discoveryproces s fo rth e GR I Hydrocarbo n Model , a majo rconsideratio n wa s tha t th e approac h b e a s accurat e a s possibl e an d tha t i t b e able t o reflec t accuratel yth e cos t offindin g an d developin g oi l an d ga s reserves . Th e majo rconstraint s foun d i n th e conventiona l footage/reserv e find rat e equation s were :

• Th e cos t pe rfoo t fo ra wel l rise s steepl ywit h th e dept h o fth e well . Usin g footag e a s th e independen t variabl e i n th e find-rat e equatio n woul d distor t drillin g cos t whe n deepe rwell s ar e drille d i n a n are a a s th e resource s a t shallowe rdepth s ar e depleted . • Ther e exis t significan t economie s o fscal e i n developin g oi l an d ga s fields , bot h onshore , an d especial ly , i n th e offshor e areas . Th e us e offind-rat e equation s tha t d o no t specif yreserve s foun d b yth e distributio n offiel d size s canno t accuratel ydea l wit h developmen t costs .P. 6



### • Th e API/A.G.A . annua l reserv e additio n dat a ar

e quit e volatil e an d complicat e statistica l analyse s o fth e data , especiall yo n a stat e o ra regiona l basis . T o overcom e thes e constraints , i t was decide d that areas shoul d b e broke n ou t int o dept h interval s an d that th e distributio n o

ffiel d size s withi n eac h dept h interva l shoul d b e modele d usin g modifie d Arps Roberts find-rat e equations . Thes e equation s ar e use d t o predic

t th e numbe ro

ffield s o fa certai n siz e that wil l be discovere d afte ra give n numbe ro fexplorator

ywell s hav

e bee n drilled . Ther

e ar e separate equation s fo reac h siz e clas s o ffiel d (e.g. , siz e clas s 1 0 i s betwee n 0.76 an d 1.5 2 millio n barrel s o

foi l equivalent) withi n eac h dept h interva l withi n eac h region . Th e GR I mode l ha s 1 3 regions , u p t o fou rdept h intervals , an d 2 0 fiel d size s fo ra tota l o fapproximatel y1,00

0 separat e find-rat e equations . Fo rregion s an d dept h interval s wit h substantia l explorator yhistories , thes e find-rat e equation s ar e solve d usin g historica l data . Fo rrelativel yunexplore d areas wher e insufficien t dat a exist t o fi t thes e equations , th e equation s ar

e estimate d b

yanalog yt o matur

e areas . Thi s i s don e b

ytakin g a n estimat e o

fth e recoverabl e resource i n a n are a (e.g. , fro m U.S . Geologica l Surve y(USGS) o rPG C estimates ) an d distributin g i t b

ya n assume d fiel d siz e distributio n fo rth e GR I model . Th e operatio n o

fth e find-rat e equation s i s show n i n Figure 2 . Aleve l o fexplorator

ywell s i s entere d int o th e equation s fo ra give n "area, " i.e. , a specifi cregio n an d dept h interval , t o solve fo rth e numbe ro f discovere d field s i n eac h siz e class . Th e numbe ro fwell s that i s entere d i s th e cumulative numbe ro f well s actuall ydrille d u p t o th e startin g date o fth e mode l simulation , say , 5,00 0 wells . Th e additiona l interva l o fwells , say , 500 , ca n be determine d b yinputtin g th e valu e 5,50 0 int o th e equation s an d com putin g th e differenc e i n th e cumulative fiel d discoverie s betwee n 5,00 0 an d 5,50 0 wells . Th e numbe r o ffield s t o be foun d wit h ye t anothe r500 well s i s foun d b yrepeatin g thi s procedure wit h th e inputte d value s o f5,50 0 an d 6,00 0 wells .

Uni t o f Exploratio n Activity Find-Rate E fo rEac h Fi e

(e.g. ) 

# 50 0 Well s

• \ i 2 3 

# n

/ 1 8

1 9 2 0 quations I d Siz e Distributio n o f Fiel d Discoveries 

# » n * 

# Xm 

# » n > H i t n 

# •i l

~~w feu] W WSM w BU 

### Figur e 2 . Operatio n o

fFind-Rat

e Equations . Dat a Source s fo rFind-Rat e Equation s Th e dat a wit h whic h th e equation s ar e solve d ar

e take n fro m severa l sources . Individua l field-by-fiel d dat a hav e bee n compile d fro m th e Petroleu m Data System' s computerize d field/reservoi rrecor d file s maintaine d a

t th e Universit

yo fOklahoma' s Energ yResource s Center . Thes e record s hav e bee n compil -P. 7



### e d unde rcontrac

t t o th e USG S fro m severa l sources , mos t notabl yindividua l stat e oi l an d gas regulator y agencies . Th e dat a were verifie d an d supplemente d b yEEAfo rth e largest 2,50 0 field s i n th e Unite d State s throug h th e us e o fa Ran d Corporatio n stud yrecentl ycomplete d fo rDOE. ' EE Afurthe rworke d wit h thes e dat a base s t o pu t al l record s o n th e sam e basis ; that is , individua l reservoi rrecord s were combine d int o fiel d records , an d natura l gas productio n an d reserve s wer e pu t int o a standard basi s (14.72 psia , a t 60°F) . Fo rstate s wher

e productio n an d reserve s fo rassociate d gas o rnatura l gas liquid s wer e no t kept , thes e parameter

s were estimated . Th e resultin g "clea n an d consistent " dat a bas e contain s record s fo rnearl y30,00 0 field s discovere d i n th e Unite d State s before 1976 . Th e record s contai n ove r160 piece s o finformatio n o n eac h field . Th e relevan t dat a use d fo restimatin g th e find-rat e equation s i n th e dat a bas e include : • locatio n o

ffiel d (state , county , geologi cbasin , PG C region) , • estimate d siz e o

ffiel d (cumulative productio n plu s reserve s fo rcrud e oil , natura l gas , an d natura l gas liquids) , • yea ro

fdiscovery , • depth , an d

• surfac e are a i n acres . Thes e fiel d record s were summe d b ysiz e i n eac h mode l regio n an d dept h interva l fo rsolutio n o fth e find-rat e equations . Historica l drillin g statistic s fo rsolutio n o fth e equation s cam e fro m severa l sources . Th e mos t importan t source i s a computerize d dat a base o fexplorator

ywel l record s collecte d b yth e AAP G an d th e API . Thi s dat a bas e contain s individua l wel l dat a (e.g. , date , location , depth , successfu l o rnot) fo ral l explorator y well s drille d since 1954 . Thes e dat a wer e supplemente d b

yaggregate d annua l drillin g dat a (tota l numbe r o fexplorator

ywell s an d tota l footage ) fro m th e AAP G Bulletin fo rstat e an d substat e areas betwee n 1937 an d 1953 . Prio rt o 1937 , record s reconstructe d b yth e AP I fo rtota l (explorator yan d development) well s b ystat e bac k

t o th e firs t oi l well s i n 1859 wer e used. 2 

### Explorator

ywell s wer

e estimate d b

yassumin g a consisten t rati o betwee n explorator yan d tota l wells . Mode l Logi c Flo w Th e wa yth e numbe ro

ffield s discovere d a

t differen t increment s o

fexplorator

ydrillin g i s use d i n th e GR I Hydrocarbo n Mode l i s show n i n Figur e 3 i n simplifie d form . Th e numbe ro fne wfield s i n eac h siz e clas s i s firs t broke n dow n int o oi l an d gas field s base d o n geologi coccurrence . (Th e rati o o fgas t o oi l field s increase s wit h dept h a s wel l a s varyin g b

yregion. ) Base d o n th e expecte d price s o foi l an d gas , th e after-ta

xcas h flowofdevelopin g an d producin g eac h fiel d i s determine d t o se e i fi t meets th e re quire d rat e o

freturn . I fnot , that fiel d wil l no t be developed . A

t highe rexpecte d oi l an d gas prices , smalle r field s ar e economi ct o develop . (Se e Figure 4. ) Thi s procedure i s repeate d fo reac h typ e an d siz e o f field . Fo rfield s economi ct o develop , th e result s ar e summe d fo rnumbe ro ffields , reserve additions , an d developmen t cas h flows . Th e cost o fdrillin g th e 50 0 explorator ywell s i s the n adde d t o thes e result s t o determin e tota l after-ta xcas h flowfo rth e drillin g incremen t o f50 0 explorator

ywells . Thi s procedure i s repeate d i n th e GR I Hydrocarbo n Mode l wit h highe ran d highe rdrillin g increment s fo reac h region . I fth e tota l cas h flowfro m a n explorator ydrillin g incremen t alon g wit h th e associate d developmen t an d productio n meets th e require d rat e o freturn , th e nex

t incremen t o

f50 0 well s i s tested . Eventuall yth e proces s o

fresource depletio n cause s th e rat e o fretur n a t som e ver

yhig h numbe ro

fexplorator ywell s t o fal l belo

wth e require d level . Th e highe rth e oi l an d gas price s assume d i n th e mode l run , th e large rth e numbe ro fexplorator

ywell s an d reserve addition s that wil l b e economic . Whe n th e mode l i s ru n i n a simulatio n mode , eac h economi cincremen t o f500 explorator

ywell s i s place d i n th e model' s "Option s Table. " Thi s i s Ste p 1 o fth e overal l logi cshow n i n Figure 5 . Th e Option s Tabl e represents thos e drillin g option s that woul d b e economi cfo rth e oi l an d gas industr yt o undertake . Th e orde ri n whic h thes e option s ar e take n i n Ste p 2 depend s primaril yo n thei rrelative economics . Th e mode l firs t choose s thos e option s wit h th e highest retur n a s measure d b

yth e profi t index , i.e. , th e rati o o fnet presen t valu e t o investmen t presen t value . Th e profi t indexi s use d i n th e mode l becaus e i t i s widel yP. 8

« •Repeatfo rEac h Area : Repeatfo rHighe rIncrement s o fExploratoryDrillin g 4 -

Additiona l Drillin i i n Are a no t Economic ; Mov

e t o Next Area N O 1 . Usin g Fin d Rat e Equations , Estimat e Expecte d Numbe rofField s i n Eac h Siz e Clas s Fro m

Drillin i Incremen t I j 2 . Calculat e Cos t o fDevelopin g Oi l an d Ga s Field s i n Eac h Siz e Clas s an d Projec t Cas h Flow s Fro m Developmen t an d Productio n

3 . Detennin e Whic h Size s ofOi l an d Ga s Field s wil l be Economi ct o Develo p (i.e . Cas h Flo wwil l Meet Require d Rate o fReturn ) Sum Developmen t Cas h Flow s fo rEconomi cField s an d Ad d t o Exploratio n Cas h Flow s t o Get Tota l Cas h Flo wfo rDrillin i Incremen t I j

Doe s Cas h Flo wfo r ExploratoryDrillin g Incremen t lj " Meet Require d Return ? YE S Pu t Incremen t l j Int o Option s Tabl e

an d Mov e t o Nex t Incremen t Figur e 3 . Metho d o fEstimatin g Maximu m Economi c Leve l fo rExplorator y Drillin g i n Eac h Area . Developmen t an d Productio n Costs fo rFiel d Dollar s pe rMillio n Cubi c Fee t

SIZE S MAD E ECONOMI C WIT H HIGHE R PRICE S

1 6 1 8 Field Siz e Clas s Figur e 4 . Base d o n Expecte d Prices , Mode l Calculate s Minimu m Fiel d Siz e Wort h Developin g

Onc e Found .P. 9

Resource Bas e Cost s Financia l Parameters Expecte d Price s an d Take s 

# i Determin e Maximu m Economi c Leve l fo r ExploratoryDrillin g i n Eac h Are a Capita l Constraint s Productio n Target s Industr yInerti a 

# IIi

I fConstraint s are Binding , Selec t Amon g Economi c Drillin g Option s i n Variou s Area s 

### Ste p On e Ste p Tw o • Oi l an d Ga s Reserv e Addition s an d Productio n Rate s • Drillin g Activit y • Hydrocarbo n Cos t 

### Output s Figur e 5 . Basi cStructur e o fGR I Exploratio n an d Developmen t Model . use d i n th e oi l an d ga s industry, 3 an d becaus e i t i s mor e easil ycompute d tha n th e bes t othe rcriterion , interna l rat e o freturn . A s discusse d i n th e previou s chapter , th e orde ran d timin g i n whic h th e option s ar e exploite d i n th e mode l ma yals o b e constraine d b ysettin g uppe ran d lowe rlimit s o n th e tota l numbe ro fwell s tha t ca n b e drille d i n an yperio d (industr yinertia) , b ysettin g limit s o n th e tota l expenditure s tha t th e industr yca n undertak e (capita l constraints) , o rb ytargetin g a specifi cleve l o fga s production . Dat a Source s fo rCost s Th e ke ycos t parameter s use d i n th e mode l ar e show n i n Tabl e 1 . Wel l cost s b yregion , depth , an d typ e (dry , oil , o rgas ) wer e obtaine d fro m th e annua l Joint Association

Survey. Leas e equipmen t an d wel l operatin g cost s wer e take n fro m th e annua l Energ yInformatio n Administratio n (EIA)/DO E publicatio n Costs and Indexes for Domestic

Oil and Gas Field Equipment

and Production

Operation. Productio n plat for m cost s wer e estimate d fro m dat a i n industr ypublications , particularl yOffshore magazine . Operatin g cost s fo rplatform s wer e take n fro m th e Cost and Indexes annual . Othe rcost s suc h a s leasehol d cost s (geographica l surveys , tes t holes , etc. ) an d overhea d cost s wer e take n fro m th e Censu s report Annual Survey of Oil and Gas. Th e metho d o fta xaccountin g use d i n th e mode l i s derive d fro m Income Taxation of Natural Resources, a n annua l publicatio n o fPrentice-Hall , Inc . Financia l Calculation s i n Mode l Th e metho d use d i n th e mode l t o evaluat e investment s i s net , after-tax , discounte d cas h flow . Investment s tha t hav e a n after-ta xpresen t valu e greate rtha n o requa l t o zer o whe n discounte d a t th e minimu m re quire d rat e o fretur n ar e considere d economi can d ma yb e undertake n i n th e model . I n choosin g amon g economi cinvestments , th e relativ e desirabilit yo finvestment s i s measure d b yth e profi t index : th e after ta xne t presen t valu e o fth e investmen t divide d b yth e before-ta xpresen t valu e o fexpenditure s fo rth e investment . Investment s tha t hav e a rat e o fretur n exactl yequa l t o th e minimu m require d rat e o fretur n hav e a profi t inde xequa l t o zero . Investment s wit h return s abov e th e minimu m hav e profi t indice s abov e zero . I n general , th e highe rth e rat e o freturn , th e highe rth e profi t index . Th e minimu m require d rat e o fretur n use d i n th e mode l i s usuall y1 0 percen t real , after-tax . I fon e assume s a 6 percen t rat e o finflatio n an d a 4 0 percen t averag e incom e ta xrate , th e nomina l interes t rat e woul d b e 27. 7 percen t i fth e investmen t wer e finance d totall yb ydeb t o ra nomina l cos t o fequit yo f16. 6 percen t i ffinance d totall ythroug h equity . Th e translatio n int o deb t result s i n a highe rrat e becaus e a company' s interes t payment s o n deb t ar e ta xdeductibl e an d thu s resul t i n a lowe rafter-ta xcost . I fth e investmen t 8P.1 0

wer e finance d 3 0 percen t b ydeb t an d 7 0 percen t b yequity , th e after-ta xcos t o fcapita l o f1 0 percen t coul d b e translate d int o a nomina l cos t ofdeb t o f1 5 percen t an d a nomina l cos t o fequit yo f18. 8 percent . * Th e ta xrate s use d i n th e model' s financia l analyse s ar e thos e applyin g t o larg e companies . Specia l ta x break s (e.g. , percen t depletio n o n ne winvestments ) accruin g t o smal l companie s ar e no t include d i n th e model . Moreover , al l producer s withi n eac h regio n an d dept h ar e treate d a s a singl e entity . Fo rinstance , a n exploratorywel l incremen t of , say , 50 0 wells plu s al l subsequen t developmen t an d productio n activit y fo ra particula rare a i s evaluate d a s i fa singl e compan ywer e undertakin g thi s activity . Natura l Ga s Resourc e Cos t Calculatio n A n importan t featur e ofth e mode l i s it s calculatio n o fth e "resourc e cost " ofgas . Th e resourc e cos t o f ga s i s define d a s th e pric e tha t woul d b e neede d t o mak e th e producer' s after-ta xrat e ofretur n exactl y equa l t o th e minimu m require d rat e o freturn . Becaus e th e mode l treat s exploratio n fo rbot h oi l an d ga s a s a singl e activity , exploratio n cost s mus t b e allocate d i n som e manne rbetwee n oi l an d ga s i n orde r fo rth e resourc e cost s o fga s t o b e calculated . I n th e curren t versio n o fth e model , exploratio n cost s ar e allocate d o n a barrels-of-oil-equivalen t (BOE ) basis . If , fo rinstance , a n incremen t o fexploratorydrillin g add s 4 0 millio n BO E o foi l an d 6 0 millio n BO E o fgas , 4 0 percen t o fth e explorator ycos t i s allocate d t o oi l an d 6 0 percen t i s allocate d t o ga s i n calculatin g th e resourc e cos t o fth e gas . Othe rform s o falloca tio n coul d b e applie d suc h a s th e "oi l derived " approac h discusse d late ri n thi s paper . Befor e th e 1970 s mos t ga s wa s foun d a s a by-produc t o fexploratoryactivit ydirecte d towar d oil . I n tha t perio d oil , i n effect , subsidize d th e exploratio n fo rgas . I t i s possibl e t o hypothesiz e simila rsituation s i n th e futur e whereb yth e ga s resourc e cos t i s calculate d wit h ga s bearin g onl ytha t portio n ofexplorator y cost s no t recoverabl e fro m oi l revenues . A n exampl e o fsuc h a calculatio n i s show n i n th e followin g sec tio n i n Tabl e 6 . Tabl e 1 . Ke y Cos t Parameter s i n th e GR I Hydrocarbo n Mode l Exploratio n Successfu l Explorator

yWell s Dr yExploratoryWell s Bonu s Cost s Leasehol d Cost s (othe rtha n Bonus ) G&A Developmen t Successfu l Developmen t Well s Dr yDevelopmen t Well s Leas e Equipmen t Cost s G& A Productio n Revenu e Depreciation , Depletio n Allowance s O& M Cost s Royaltie s Severanc e Taxe s Windfal l Profit s Ta

x Incom e Ta

x G& A

*Thi s i s onl yon e o fman ycombination s ofdebt/equit ysplit s an d nomina l deb t an d equit ycapita l cost s equivalen t t o 1 0 percen t rea l after-ta xrat e o freturn .P.1 1 

## Test Results ol Model Resourc e Bas e Assumption s Use d i n Tes t Run s Th e test run s presente d i n thi s repor t ar e base d o n initia l estimate s o fth e resource base an d find-rat e equation s fo reac h mode l region . Thes e run s ar e intende d t o illustrat e th e operation s an d sensitivitie s o fth e mode l an d ar

e not intende d t o be projection s o ffuture hydrocarbo n cost s an d production . Th e initia l assumption s fo rth e resourc e base i n undiscovere d field s wer e derive d b

yapplyin g Arps-Robert

s equation s t o historica l dat a o n cumulative discover yo ffield s b ysize . Th e estimate s wer e develope d so that th e tota l resource base roughl yapproximate d th e USG S mea n estimate . Acompariso n o fth e model' s resource bas e assumption s wit h USG S an d PG C estimate s fo rundiscovere d field s i s show n i n Tabl e 2 . Note that thes e estimate s ar e fo rfield s undiscovere d a s o f1976 , th e firs t yea rwhic h i s projecte d i n th e GR I Hydrocarbo n Model' s operation . T o matc h th e USG S an d PG C estimate s mad e i n 198 1 t o th e 1976 resource bas e startin g poin t fo rth e model , GR I ha s calculate d that som e 43. 6 Tc fo fgas an d 2.2 6 billio n barrel s o

foi l were adde d t o approximat e th e resource s i n ne wfield s discovere d betwee n 1976 an d 1980 . Tabl e 2 . Resourc e Bas e Use d i n Mode l Tes t Run s an d Comparabl e USG S an d PG C Estimate s (Billio n

Barrel s o fOi l an d Tc fo fGa s i n Undiscovere d Field s Mode l Regio n AEast B FL , MS , A L C Midwes t D N . LA , N.E . TX , A R E S . LA , Onshor e G S . TX , Onshor e H I West J N Mi d Continen t J S Permia n Basi n L Pacifi cCoas t Onshor e EG O Gul fOffshor e L O Pacifi cOffshor e

' Tota l Lower-4 8 Hydrocarbo n Oil 1. 2 4. 0 2. 2 2. 6 0. 6 1. 3 18. 1 6. 3 3. 8 7. 2 3. 9 4. 1 55. 5 Model 3

Ga s 37. 6 19. 6 4. 9 43. 6 30. 5 58. 5 198. 5 74. 7 41. 3 25. 5 91. 4 6. 9 633. 4 a s o f1975 )

USGS b Oi l 0. 9 1. 7 2. 2 4. 0 1. 5 2. 9 24. 1 4. 7 4. 0 4. 5 5. 5 4. 4 . 60. 4 Ga s

21. 6 10. 1 9. 0 29. 5 • 48. 0 67. 5 140. 5 47. 6 34. 7 14. 9 87. 2 7. 3 517. 9 PGC C

Ga s 45. 3 16. 9 4. 1 46. 4 18. 5 26. 3 155. 7 111. 1 36. 3 24. 3 75. 2 17. 4 577. 5

a The resource

base in the model is an estimate

of resources

recoverable

from all undiscovered

fields. It is not equivalent

to the economically

recoverable

resources. Adapted from mean estimates

in "Estimates

of Undiscovered

Recoverable

Conventional

Resources

of Oil and Gas in the United States." U.S. Geological

Survey. Circular

860, 1981. c Adapted

from possible and speculative

reserve estimates

in "Potential

Supply of Natural Gas in the United States. " Potential

Gas Committee, 1981. 

### I n additio n t o reserve addition s fro m ne w(i.e. , post-1975 ) fields , th e modefals o track s th e growt h i n reserve s fo rexistin g (i.e. , pre-1976 ) fields . Th e ultimat e amoun t o freserve appreciatio n fo rth e pre-197 6 field s i s modele d a

s 19 2 Tc fo fgas an d 22. 0 billio n barrel s o foi l base d o n USG S an d PG C estimates . Th e rat e a

t whic h reserve s ar

e adde d t o existin g field s i s base d o n th e observe d trend s o freserve addi tion s i n existin g fields . I n th e perio d o f1976 t o 2000 , som e 14 6 Tc fo fgas (76 percen t o

fth e total ) an d som e 17. 9 billio n barrel s o foi l (8 1 percen t o

ftotal ) ar e bein g modele d a

s adde d t o reserve s i n pre-197 6 fields . Th e oi l figure s includ e som e addition s t o reserve s expecte d throug h enhance d oi l recovery .

1 0P.1 2 _



### Th e hydrocarbo n resource bas e use d i n th e GR I Hydrocarbo n Mode l i s summarize d belo w(billion s o

f barrel s o foi l an d Tc

fo fgas) : Oi l Ga s Existin g Field s (pre-1976 ) Ne wField s (post-1975 ) Tota l 22. 0 55. 5 77. 5 192. 0

633. 4 825. 4 Cos t Distributio n ofNewFiel d Resource s Th e cost distributio n o

fth e ne wfiel d resource s i n th e lower-4 8 state s ca n bes t be displaye d throug h us e o fth e curve-generatin g for m o fth e model . Thi s for m o

fth e mode l displays th e tota l quantit yo fth e gas resource bas e that ca n be found , developed , an d produce d a t variou s price s regardles s o fwhe n suc h activitymigh t take place . Figur e 6 show s suc h a curve fo rth e reference cas e assumptio n o f1 0 percen t real , after-ta

xrat e o freturn . Al l costs ar

e i n 1980 dollars . I n generatin g th e curve , a cutof fpoin t o fapproximatel y$10.00/Mc fi s used . N o gas wit h a resource cost abov e that poin t appear

s o n th e graph . Simila rcurve s ar e als o show n i n Figure 6 fo rsensitivit

ycase s wit h 5 an d 1 5 percen t real , after-ta xrate s o freturn . Note that th e reductio n i n th e assume d minimu m require d rate o fretur n fro m 1 0 t o 5 percen t reduce s th e resource cost o fa give n quantit

yo fgas b y2 0 t o 25 percent . PRIC E I N DOLLAR S PE R THOUSAN D CUBI C FEE T

GA S I N TRILLIO N CUBI C FEE T 

### Figur e 6 . Ne wFiel d Resourc

e Cos t Curve s (Lower-4 8 States) . I t i s importan t t o note that th e quantit yo fgas that i s exploitabl e a t o rbelo w$10.00/Mc

fi s onl ya portio n o fth e tota l resource bas e assume d t o exist i n field s undiscovere d as o f1975 . I n th e 1 0 percen t rat e o fretur n case , fo rinstance , approximatel y30 0 Tc fo fgas i s economi ca

t $10.00/Mc

fou t o fth e 633 Tc

f assume d undiscovere d resource base . Whe n th e assume d rat e o fretur n drop s t o 5 percent , th e amoun t o fgas economi ca

t $10.00/Mc

fincrease s t o approximatel y345 Tcf .

1 1 jg jP.1 3

Compariso n o fMode l Result s i n Simulatio n Mod e t o Historica l Dat a Th e reasonablenes s o fth e result s obtaine d b yth e GR I Hydrocarbo n Mode l ca n b e teste d b ycomparin g th e result s o fth e mode l t o historica l dat a fo ra simulate d period . Sinc e th e model' s firs t projecte d yea r i s 1976 , thi s ca n b e don e rathe reasily . Th e righ t sid e o fTabl e 3 show s th e result s o fa mode l ru n fo rth e perio d 197 6 t o 197 9 fo rth e tota l quan tit yo foi l an d ga s i n field s "discovered " b yth e mode l i n tha t period . Th e oi l an d ga s quantitie s represen t th e reserve s tha t ultimatel ywil l b e foun d i n thos e fields—no t jus t tha t portio n foun d an d booke d i n tha t four-yea rperiod . Th e tabl e als o show s estimate s o fth e ultimat e recoveryfro m 1976-7 9 field s base d o n thre e dat a sources . Th e firs t sourc e i s th e ultimat e recoveryb yyea rofdiscoverytable s i n th e API/A.G.A . "Blu e Book " fro m 1979. 4 Th e figure s i n tha t sourc e wer e adjuste d upwar d b yso-calle d "alph a factors " t o accoun t fo rth e expecte d futur e reserv e addition s i n thes e fields . Becaus e mor e growt h i s expecte d i n th e younge rfields , th e alph a facto ri s larges t fo rone-year-ol d field s an d become s smalle ra s th e ag e o fth e fiel d increases . Th e secon d sourc e i s th e annua l ne wfiel d discoverydat a take n fro m th e Blu e Boo k fo rth e year s 197 6 throug h 1979 . Thes e dat a ar e th e amoun t ofreserve s booke d i n th e firs t yea rofdiscovery . T o conver t thes e figure s int o ultimat e recovery , the ywer e multiplie d b yth e alph a facto rfo rone-year-ol d fields . Th e thir d estimat e o n Tabl e 3 i s fro m th e annua l ne wfiel d discoveryserie s fro m EIA. 5 A s wit h th e simila r API/A.G.A . series , thes e figure s wer e multiplie d b yth e alph a facto rfo rone-year-ol d fields . Becaus e th e EI Abega n collectin g reserv e dat a onl yi n 1977 , i t wa s necessaryt o creat e 197 6 dat a con sisten t wit h th e EI Aseries . Thi s wa s don e b yassumin g tha t th e relationshi p betwee n th e API/A.G.A . serie s an d EI Aserie s observe d betwee n 197 7 an d 197 9 coul d als o b e applie d t o 1976 . Fo rinstance , i fEI Areporte d ne wfiel d discoverie s ofoi l i n 1977-7 9 i n a certai n are a a s 12 0 percen t o fthos e reporte d b yAPI/A.G.A. , th e API/A.G.A . ne wfiel d discoveryo foi l i n 197 6 wa s multiplie d b y12 0 percen t t o ex trapolat e th e EI Aserie s bac k t o 1976 . A s see n i n Tabl e 3 , estimate s o fultimat e recoveryfro m ne wfield s discovere d betwee n 1976-7 9 vary considerabl yamon g dat a sources . Generally , th e API/A.G.A . ultimat e recoveryb yyea rofdiscovery(col umn s 1 an d 2 ) an d th e API/A.G.A . annua l ne wfield s serie s (column s 3 an d 4 ) ar e similar . Th e EI Adat a fo roi l i s simila rt o bot h API/A.G.A . series , bu t th e EI Aga s figure s ar e i n man ycase s muc h highe rtha n eithe rofth e API/A.G.A . estimates . I n general , th e result s obtaine d fro m th e GR I Hydrocarbo n Mode l i n term s o fbarre l o foi l equivalen t o f oi l an d ga s fal l withi n th e range s observe d i n th e publishe d data . Th e model , however , woul d appea r t o overstat e oi l discoverie s relativ e t o gas . Mode l Result s Tw o set s ofmode l result s ar e presente d i n thi s paper , on e fro m th e "producer " perspectiv e an d th e othe r fro m th e "ga s purchaser " perspective . I n th e "producer " perspectiv e mode , th e GR I Hydrocarbo n Mode l calculate s trend s i n natura l ga s productio n an d cost s base d o n "producer " expectation s o foi l an d ga s sellin g prices . I n th e "ga s purchaser " perspectiv e mode , th e mode l calculate s natura l ga s productio n an d cos t trend s whic h resul t whe n purchaser s see k t o obtai n a particula rleve l ofnatura l ga s suppl yunde r a particula rse t ofproduce rpric e expectations . I t mus t b e stresse d agai n tha t th e result s presente d her e ar e no t intende d t o b e projection s o fnatura l ga s o roi l productio n an d costs . Rathe rthes e ar e result s o ftes t run s chose n t o illustrat e th e operatio n ofth e mode l an d th e interrelation s betwee n oi l an d natura l ga s productio n an d prices . I n discussin g th e result s o fth e GR I Hydrocarbo n Model , on e cavea t shoul d b e kep t i n mind . Th e oi l productio n trend s calculate d b yth e mode l d o no t includ e an yoi l productio n fro m enhance d oi l recovery (EOR ) o foil-in-plac e beyon d tha t indicate d b yUSG S estimate s an d DO E reserv e estimates . Becaus e th e futur e recoverabilit yofoil-in-plac e wil l probabl yincreas e ove rtha t estimate d b yUSG S an d DOE , th e impac t o fincrementa l EO R activitie s o n oi l productio n trend s coul d b e significant . Fo rexample , ac cordin g t o GR I calculations , i n th e 1970 s ove rhal fofth e lower-4 8 oi l reserv e addition s resulte d fro m increase d recoveryo foil-in-place . I t i s reasonabl e t o expec t tha t th e inclusio n o fincrementa l EO R ac tivitie s beyon d thos e implie d b yUSG S an d DO E estimate s woul d resul t i n highe rproductio n tha n tha t calculate d b yth e GR I Hydrocarbo n Model . GR I plans t o includ e th e effect s o fincrementa l EO R activitie s o n th e trend s i n hydrocarbo n productio n an d cost s i n th e 198 3 Hydrocarbo n Mode l developmen t program . Th e introductio n ofEO R int o th e GR I 

### 1 2- i .



### • '

Tabl e 3 . Compariso n o fUltimat e Recover y o fField s Discovere d 1976-7 9 fro m Mode l Result s an d

A B C D E G H I J N J S L Variou s Dat a Source s

Mode l Regio n East FL , MS , A L Midwes t N . LA , N.E . TX , A R S . LA , Onshor e S . TX , Onshor e West Mi d Continen t Permia n Basi n Pacifi cCoas t Onshor e EG O Gul fOffshor e C O Pacifi cOffshor e

• Tota l Lower-4 8 Tota l Lower-4 8 BO E X 10 6 Ultimat e Recovery b yYea ro fDiscovery API/A.G.A . Ga s (Bef ) 1,07 5 1,52 0 92 8 3,49 0 2,06 0 3,42 0 3,74 0 2,51 5 1,02 0 20 5 14,59 0 30 0 34,88 0 Oil

(Millio n bbl ) 7 4 9 12 9 15 0 4 3 6 6 45 2 14 0 12 6 2 8 23 6 32 6 1,75 2 7,75 1 Annua l Ne wField s API/A.G.A . Ga s Oi l (Bef ) (Millio n bbl ) 22 5 1 0 1,89 5 5 6 1,15 5 12 7 3,03 5 18 4 2,98 9 ' 4 0 3,64 0 6 3 2,86 5 41 2 2,01 0 20 9 1,40 0 14 2 28 5 8 0 14,20 0 44 0 42 5 92 5 34,12 0 2,68 8 8,55 6 Extrapolate d

EI AAnnua l Ne wField s Ga s Oi l (Bef ) 63 5 1,27 5 1,20 5 2,65 5 7,12 0 5,26 5 5,83 0 6,89 0 3,05 5 34 0 22,37 5 50 5 57,15 0 (Millio n bbl )

1 0 7 5 20 7 8 5 5 5 9 1 43 6 24 9 19 4 2 0 83 5 21 9 2,47 6 12,30 5 •

Mode l Result s Ga s (Bef ) 47 3 1,04 7 30 0 2,69 2 3,66 6 3,56 5 5,60 5 3,01 8 1,11 8 47 3 13,99 5 27 6 37,00 0 Oi l

(Millio n bbl ) 2 8 22 4 23 0 18 5 7 8 15 1 58 1 32 0 31 4 17 4 67 7 18 3 3,14 5 9,50 9

-P.1 5

Hydrocarbo n Mode l wil l increas e lower-4 8 oi l production , but , becaus e th e pric e o fhydrocarbon s an d pi l i n th e mode l ar e se t b yth e margina l ne wfiel d resourc e discoveryan d expecte d worl d oi l prices , th e inclusio n o fEO R i s no t expecte d t o impac t eithe rresourc e o roil-base d prices . Producer

Perspective

Results Th e targe t price s fo roi l an d ga s use d i n th e tes t run s t o represen t th e produce rpric e expectation s ar e show n i n Tabl e 4 . Th e lo woi l pric e trac k i s consisten t wit h recen t reduce d expectation s o fworl d oi l pric e trends , whil e th e hig h pric e trac k i s base d o n th e mid-rang e Nationa l Energ yPolic yPla n I V study . Ther e ar e tw o differen t ga s pric e track s use d fo reac h oi l pric e trend . Th e ga s pric e track s ar e se t at 5 5 percen t an d 7 5 percen t o fth e expecte d oi l price . Tabl e 4 . Targe t Hydrocarbo n Price s Hig h Oil Price s 

### 198 0 198 5 199 0 199 5 200 0 Lo wOi l Price s 

### 198 0 198 5 199 0 199 5 200 0 Oil Pric e (1982$/BBL ) 34.8 0 32.5 0 42.5 0 51.3 3 62.0 0 34.8 0 29.9 7 33.0 9 36.5 5 40.3 4 Ga s Pric e (1982$/MMBtu ) 5 5 Percen t 3.3 0 3.0 8 4.0 3 4.8 7 5.8 8 3.2 9 2.8 4 3.1 4 3.4 7 3.8 3 7 5 Percen t

4.5 0 4.2 0 5.5 0 6.6 4 8.0 2 4.5 0 3.8 7 4.2 8 4.7 2 5.2 2 Th e effect s o foi l pric e expectation s o n lower-4 8 hydrocarbo n productio n trend s whe n ga s price s ar e expecte d t o b e a t 7 5 percen t o foi l price s o n a Bt u basi s ar e show n i n Figur e 7 . Th e followin g genera l observatio n ca n b e mad e abou t Figur e 7 :
• Natura l ga s productio n ca n remai n ove r2 0 Tc fthroughou t th e 1980 s fo rbot h th e hig h an d lo woi l pric e cases . Thi s i s a resul t ofth e dominatio n ofnatura l ga s productio n b yga s field s discovere d throug h 1980 . Natura l ga s productio n decline s steepl yi n th e 1990 s a s productio n fro m th e pre-198 1 field s decline s an d th e find-rate s fo rne wga s field s fal l a s th e resourc e bas e i s depleted . • Whil e ther e i s les s tha n a on e qua d differenc e betwee n th e tw o natura l ga s productio n trend s b y1990 , th e differenc e widen s t o almos t thre e quad s b y2000 . Thus , natura l ga s productio n i n th e 1980 s ap pear s relativel yinsensitiv e t o produce roi l pric e expectations . I n th e 1990s , however , natura l ga s pro ductio n i s quit e oi l pric e sensitive . • Th e trend s i n oi l productio n (wit h n o incrementa l EO R productio n included ) throug h 199 0 sho wvery littl e sensitivit yt o oi l prices . Whil e oi l productio n i n th e 1990 s i s mor e sensitiv e t o produce roi l pric e expectations , i t i s no t a s sensitiv e i n thi s pric e rang e a s natura l ga s production . • Th e stee p decline s i n oi l productio n estimate d b yth e GR I Hydrocarbo n Mode l indicat e tha t incremen ta l EO R wil l b e a verycritica l facto rfo rfutur e oi l production . Th e exten t t o whic h th e declin e i n oi l productio n ca n b e slowe d wil l depen d o n th e economi cattractivenes s an d technica l succes s of incremental-EO R activitie s t o increas e recoveryo foil-in-plac e abov e tha t currentl yestimated . I t i s apparen t fro m Figur e 7 that , give n th e exploratio n activit ytrend s sinc e th e mid-1970s , th e hydrocar bo n industrycoul d produc e fa rmor e natura l ga s i n th e 1980 s tha n man yprojection s indicat e ga s market s woul d absorb . I fga s productio n wer e constraine d b ylac k o fdemand , thi s implie s som e slowin g i n th e rat e o fdevelopmen t an d productio n o fga s field s discovere d throug h 198 2 and/o ra slowin g i n explora tio n activit yt o discove rne wfields . 

### 1 4P.1 6

PRODUCTIO N (QUADS

) 24.0- f

22.0 '

20. 0 —

18. 0 —

16. 0 —

14. 0 -

12.0 -

10. 0 -

8.0 - Gas Productio n

Oi l Productio n 

# i

197 5 1 ^

1980 

# T

1985 1 ^

1990 1 ^

1995 2000 Figur e 7 . Effect s ofOi l Price s o n Hydrocarbo n Productio n (Ga s Price s = 75 % Crude) . Th e trend s show n i n Figur e 7 ar e base d o n produce rexpectation s tha t ga s wil l b e sol d a t 7 5 percen t o fcrude . Wellhea d ga s prices , however , migh t hav e t o b e a s lo wa s 5 5 percen t ofcrud e price s t o main tai n ga s competitiveness . Lowerin g th e producerexpectation s fo rga s price s wil l no t onl ylowe rnatura l ga s production , bu t i t wil l als o lowe rcrud e oi l productio n becaus e bot h crud e oi l an d natura l ga s find s pa yfo rhydrocarbo n exploration . Lowerin g th e expecte d ga s pric e lower s th e economi ccut-of fpoin t fo r ne wga s fiel d developmen t an d lower s th e rat e ofretur n o n exploratio n activity , thu s reducing th e amoun t o foi l an d ga s reserve s an d production . Figur e 8 show s th e effect s o flowerin g producerexpectation s fo rlower-4 8 natura l ga s price s fro m 7 5 percen t o fcrud e price s t o 5 5 percen t ofcrud e prices . I n bot h case s th e hig h oi l pric e trac k i s assumed . Th e followin g observation s ca n b e made : • Lower-4 8 natura l ga s productio n begin s t o declin e befor e 198 5 a s a resul t oflowere d producerga s pric e expectations . I n th e 1990s , natura l ga s productio n i n bot h case s decline s b yalmos t th e sam e amount .

1 5P.1 7



### • Fo rth e rang e o

foi l an d gas price s considered , th e sensitivityofnatura l ga s productio n i n th e 1980s i s essentiall yth e sam e whethe rth e produce rexpectation s chang e fo rgas price s o rfo roi l prices . I n th e 1990s , natura l gas productio n i s mor e sensitive t o th e chang e i n expecte d oi l price s tha n t o th e chang e i n expecte d gas prices . • Th e lowere d gas pric e expectatio n result s i n a productio n declin e o fabou t on e qua d b

y1990 ; be twee n 1990 an d 200 0 there i s virtuall yn o additiona l incrementa l loss . • Becaus e o

flowere d produce rexpectation s fo rgas prices , oi l productio n decline s b yabou t 100,00 0 barrel s pe rda

yb y2000 . • Th e productio n trend s fo roi l sho wa greate rsensitivit

yt o produce rexpectation s fo rga s price s throug h 1990 , bu t a greate rsensitivityt o produce rexpectation s fo roi l price s i n th e 1990s .

PRODUCTIO N (QUADS ) 21. 0 - f

22 0

20. 0 —

18. 0

16. 0 —

1 4 0 -

12. 0 -

10. 0 - Oi l Productio n 

# i

1975 I

1930 T

198 5 199

0 199

5 200 0 

### Figur e 8 . Effects o

fGa s Price Expectation s o n Hydrocarbo n Productio n (Hig h Oi l Prices) . Th e figur e indicate s that oi l an d gas producin g companie s collectivel ymust be viewe d a s hydrocarbo n producers . B

ydepressin g gas prices , a produce rmigh t enhance hi s abilityt o sel l gas , bu t b yreducin g hi s gas revenue , hi s rate-of-retur n o n exploratio n woul d decline , thu s reducin g hi s oi l productio n an d revenue s a

s well . Thus , i t woul d appea rthat producer s woul d see k

t o maximiz e hydrocarbo n revenue s b ysellin g bot h oi l an d gas , no t on e i n preferenc e t o th e other .

1 6

### Reserv e addition s fo rne

wfiel d discoverie s ar

e sensitive t o price . Tabl e 5 summarize s reserv e addition s i n ne wfield s (i.e. , thos e discovere d fro m 1976 t o 2000) fo rnatura l ga s an d oi l i n th e fou rpric e scenarios . Note that th e quantit

yo foi l reserv

e addition s i s dependen t no t onl yo n th e expecte d pric e o foi l bu t als o o n th e expecte d price o

fgas . Amon g th e scenarios , oi l reserve addition s i n pos t 197 5 field s rang e fro m 16. 2 billio n barrel s t o 20. 3 billio n barrels . Reserv e addition s o

fnatura l gas rang e fro m 17 4 Tc ft o 24 0 Tcf . Tabl e 5 . Pric e See "Lo w55 " "Lo w75 " "Hig h 55 " "Hig h 75 " Lower-4 8 Reserv e Addition s i n

>nario b Post-197 5 Field s (1976-2000 ) a Natura l Ga s Oi l (Tcf ) 17 4 20 3 22 0 24 1 66 3 (Billio n bbl ) 16. 2 18. 0 19. 5 20. 3 Natura l Ga s

a s Percen t o fTota l Oi l an d Ga s Hydrocarbons 0

64.8 % 66.0 % 66.0 % 67.2 % Underlyin g Resourc e Bas e Assumptio n

55. 5 66.0 %

a Excludes

94 Tcf of gas and 10.8 billion barrels of oil projected

to be added in this period from pre-1976

fields. Refers to the percentages

of expected

gas prices relative to expected

world oil prices on a Btu basis. c Calculated

on a Btu basis. 

### Directionalit

yo fdrillin g betwee n oi l an d ga s i s show n fo rth e fou rcase s i n Tabl e 5 . Whe n gas i s price d a t 55 percen t o

foil , gas makes u p 64 t o 66 percen t o fth e hydrocarbon s discovered . Whe n th e gas pric e rise s t o 7 5 percen t o foil , th e portio n o fhydrocarbo n reserv e addition s mad e u p o fga s increase s t o 6 6 

### t o 6 7 percent . B

ywa yo fcomparison , th e underlyin g resource bas e develope d fo rth e mode l i s 66 percen t gas . Tabl e 5 woul d appea rt o indicate that , ove rth e rang e o fprice s considere d i n thes e fou rscenarios , th e directionalityo

fhydrocarbo n exploratio n i s determine d mor e b yth e distributio n o

fth e remainin g un discovere d field s betwee n oi l an d gas tha n b yth e relative price s o

foi l an d gas . Determinin g th e wellhea d price fo rnatura l gas i s a highl ycomplexprocess . Withi n th e contex t o fth e targe t price s (produce rexpectations ) an d th e resource cost fo rne whydrocarbo n discoveries , a wid e rang e o fnatura l gas wellhea d price s ca n be derived . Tabl e 6 show s thre e concepts fo rdevelopin g natura l gas price s usin g relationship s i n th e GR I Hydrocarbo n Model : 1 . Th e targe t oi l an d natura l gas price s whic h th e produce rexpects t o get befor e undertakin g th e nex

t incremen t o

fexploratio n activity . 2 . Th e resource cost , whic h i s th e averag e pric e th e hydrocarbon s discovere d i n th e nex t exploratio n incremen t (oi l an d gas ) woul d hav e t o sel l fo ri fth e produce ri s t o realiz e a 1 0 percen t rea l rat e o f retur n afte rtaxes . Th e resource cost o fgas i s calculate d wit h gas sharin g exploratio n costs wit h oi l i n proportio n t o th e relative amounts foun d o feac h hydrocarbon . 3 . Th e "oi l derived " natura l gas price , whic h i s th e pric e o fnatura l gas sufficien t t o provid e th e "desired " produce rretur n whe n oi l price s are set equa l t o th e highe ro fth e targe t oi l pric e (derive d fro m a pro jecte d worl d oi l price ) o rmargina l resource cost . I n thi s scheme , oi l absorb s a s muc h o fth e explorator

y costs a s possible , give n th e market price fo roil , an d th e gas pric e ca n be les s tha n th e oi l price . Th e oil-derive d gas price als o ca n be viewe d fro m two differen t perspectives , whic h represen t th e rang e o fgas price s unde rdifferin g contractin g procedures . The yare : 1 . Marginal

price. Thi s i s th e weighte d averag e margina l pric e o fgas fro m al l field s discovere d i n that year . I fthi s wer

e use d a s th e averag e price fo rnatura l gas , i t woul d impl ythat al l contracts include d a "mos t favore d nation " claus e permittin g price s fo rflowin g gas t o escalat e annuall yt o th e margina l pric e o fne wgas fields . 1 7P.1 9

Tabl e 6 . Natura l Ga s Price s (198 2 S/MMBtu ) Scenari o "Lo w55 " 198 5 199 0 199 5 200 0 "Lo w75 " 198 5 199 0 199 5 200 0 "Hig h 55 " 198 5 199 0 199 5 200 0 "Hig h 75 " 198 5 199 0 199 5 200 0 Natura l Ga s Price s Targe t Oi l 5.1 7 5.7 1 6.3 0 6.9 6 5.1 7 5.7 1 6.3 0 6.9 6 5.6 0 7.3 3 8.8 5 10.6 9 5.6 0 7.3 3 8.8 5 10.6 9 Price s

Ga s 2.8 4 3.1 4 3.4 7 3.8 3 3.8 7 4.2 8 4.7 2 5.2 2 3.0 9 4.0 3 4.8 7 5.8 8 4.2 0 5.5 0 6.6 4 8.0 2 Resourc e Cost s

3.4 5 4.1 9 4.8 1 5.1 9 3.8 8 4.7 2 5.4 6 5.9 2 3.8 2 5.0 9 6.3 3 7.2 6 4.2 0 5.7 1 7.0 6 8.2 2 Oil-Derive d Price s

Margina l 2.6 3 3.3 3 3.9 1 4.0 9 3.2 7 4.2 0 4.9 8 5.3 2 2.9 6 3.9 0 4.9 6 5.3 2 3.5 5 4.9 2 6.1 4 6.7 3 Vintag e

2.4 8 2.6 8 3.0 4 3.4 4 2.6 7 3.0 9 3.6 9 4.3 3 2.5 7 2.9 3 3.5 9 4.3 1 2.7 6 3.3 9 4.3 3 5.3 2 2 . Vintage. Thi s pric e assume s tha t ga s fro m eac h newl ydiscovere d fiel d wil l continu e t o b e sol d unti l depletio n a t th e rea l margina l pric e prevailin g fo rtha t fiel d a t th e initiatio n o fproduction . I fthi s wer e use d fo rth e averag e pric e o fnatura l gas , i t woul d impl ytha t n o escalatio n i n contrac t price s woul d b e allowe d i n exces s o fth e inflatio n rate . Tabl e 6 show s tha t th e resource-base d pric e o fnatura l gas—tha t is , th e pric e base d o n th e hydrocarbo n resourc e cost—i s consistentl yabov e th e targe t ga s price . Becaus e th e resourc e cos t i s wel l belo wth e targe t oi l price , however , th e ne woi l discoverie s ca n b e use d t o cove rsom e o fth e ga s exploratio n costs . Th e resultin g margina l oil-derive d ga s price s i n th e hig h oi l pric e scenari o ar e generall ybelo wth e targe t ga s price s i n th e hig h oi l pric e scenario . Thi s indicate s that , i n th e hig h oi l pric e scenario , i t woul d b e possibl e t o kee p margina l ga s prices , o n th e averag e nationwide , betwee n 5 5 an d 7 5 percen t o fth e targe t oi l price s an d achiev e th e expecte d productio n trends . I fga s suppl ycontract s wer e vintaged , however , th e averag e oil-derive d ga s pric e fo rflowin g ga s coul d b e kep t belo w5 0 percen t o fexpecte d oi l prices . Th e lo woi l pric e scenarios , however , ar e a differen t story . Althoug h oi l revenue s ca n "subsidize " ga s price s throug h 200 0 whe n targe t ga s price s ar e 5 5 percen t o foil , th e oil-derive d margina l natura l ga s price s excee d 5 5 percen t o foi l price s fro m 199 0 on . By200 0 i n th e lo woi l price , 5 5 percen t ga s pric e scenario , th e oil-derive d margina l natura l ga s pric e i s a t 5 9 percen t o fth e targe t oi l price . I n th e 7 5 per cen t scenario , th e oil-derive d margina l ga s price s als o excee d th e 7 5 percen t targe t pric e afte r1990 , bu t b ya ver ysmal l amount . However , vintagin g th e pric e o fflowin g ga s coul d kee p th e averag e ga s price s wel l belo wth e targe t ga s prices . Tabl e 6 indicate s tha t merel yviewin g natura l ga s price s fro m th e perspectiv e o fmargina l price s coul d significantl yoverestimat e th e trend s i n th e averag e pric e o fal l flowin g gas . Whil e i t i s unlikel ytha t con tract s ca n b e signe d wit h th e perfec t vintagin g show n i n Tabl e 6 , i t i s equall yunlikel ytha t contract s wil l b e signe d wit h 10 0 percen t "mos t favore d nation " clause s whic h woul d allo wcontinua l upwar d escala tio n o fflowin g ga s price s t o th e pric e o fne wga s contracts . Th e margina l an d vintag e price s i n Tabl e 6 indicat e a rang e ove rwhic h flowin g ga s price s coul d vary . "Marke t out " provisions , moreover , migh t limi t th e escalatio n ofprice s fo rflowin g gas . Th e siz e o fth e rang e indicate s tha t th e ga s contractin g procedure s coul d hav e a majo rimpac t o n th e futur e trend s i n ga s prices . 

### 1 8P.2 0



### Ga s Purchaser

Perspective Th e previou s calculation s i n al l scenarios resul t i n trend s fo rnatura l ga s productio n i n th e 1980

s significant l yhighe rtha n manycurren t projection s o fpotentia l gas consumptio n i n th e 1980s woul d appea rt o re quire . Deferrin g som e o

fthi s "gas bubble " t o th e 1990 s woul d ten d t o moderate th e long-ter m declin e i n lower-4 8 natura l gas productio n as wel l a s th e ris e i n gas price s i n th e future . Accordingly , a ru n was mad e fro m th e "gas purchaser " perspective , targetin g gas productio n alon g a mor e conservative path . Th e targe t oi l price s use d i n th e ru n ar e fro m th e lo

wpric e scenari o show n i n Tabl e 4 . Ga s price s ar

e targete d a

t a ver yhig h level—onl y$3.0 0 pe rBO E belo woi l prices—unde rth e assumptio n that thi s i s th e maximu m pric e o

fgas relative t o oi l a

t whic h gas coul d conceivabl ymaintai n its competitiveness . Figur e 9 show s th e trend s i n hydrocarbo n productio n fo rbot h perspectives . Th e produce rperspective ru n show s that lower-4 8 natura l gas productio n remain s ove r2 0 quad s throug h 199 1 an d decline s steep lyafte r1990 . B

y2000 , productio n i s projecte d t o declin e t o 14. 6 quads . However , th e gas purchase r perspective scenari o i s constraine d t o yiel d a stead ydeclin e i n productio n fro m 2 0 quad s i n 1980 t o 1 6 quad s i n 2000 . Constrainin g exploratio n t o eliminat e th e potentia l "gas bubble " i n th e 1980 s result s i n simila rtrend s i n oi l production .

PRODUCTIO N (QUADS ) 24.0- i

22.0 -

20.0 -



### Figur e 9 . Lower-48 Hydrocarbo n Productio n Trend s (Produce rvs . Ga s Purchase rPerspective) . 1 9P.2 1



### Figure 1 0 show

s th e trend s i n margina l resource cost s fo rbot h perspective s alon g wit h th e targe t oi l prices . I n th e earl yyears , th e resource cost i s generall ylowe rtha n th e targe t pric e (assume d market price ) o foi l fo reac h scenari o i n Figure 10 . Becaus e o fth e effec

t o fresource depletion , th e hydrocarbo n resource cost rise s and , b yth e mi d t o lat e 1990s , overtake s o rexceed s th e assume d market pric e fo r oil . I fth e hydrocarbo n resource cost wer e se t equa l t o th e targe t oi l price , th e producer' s rat e o fretur n woul d fal l belowth e 1 0 percen t set i n th e model . 198 2 DOLLAR S PE R MMBT U 9.0 0 -p-BB__a-B_ M

1.00 -

7.0 0 —

6.0 0 —

5.0 0 —

4.0 0 —

3.0 0 •

2.0 0 -

1.00 -

0 - J Targe t

Oi l Pric e

Produce r Perspectiv e Resourc e Cos l Gas Purchase r Perspectiv e Resourc e Cos !

I 197 5 198 0 198 5 199 0 1 ^ 1995 r

200 0 

### Figur e 10 . Hydrocarbo n Resourc e Price Trend s (Produce rvs . Ga s Purchase rPerspective) . Figur e 1 1 shows th e trend s i n th e margina l an d th e vintag e natura l ga s price s fo rbot h perspective s alon g wit h th e targe t oi l prices . I t als o indicate s that : • I n th e 1980s , constrainin g ne wexploratio n activityi n orde rt o reduce gas productio n wil l resul t i n a significan t decreas e i n margina l natura l gas prices . • I n th e 1990s , however , as exploratio n activityi s accelerate d t o hol d th e declin e i n lower-4 8 natura l gas productio n steady , th e margina l natura l gas pric e i n th e gas purchase rscenari o begin s t o ris e ver ysteeply , until , b

yth e mid-1990s , i t exceed s th e margina l natura l ga s price i n th e produce rscenario . Thi s come s abou t becaus e th e exploratio n activitie s i n th e ga s purchase rscenari o require th e 2 0P.2 2



### discover y o fmor e ne wga s field s t o maintai n ga

s production a

t 1 6 Tc fi n 2000 than would hav e t o b e discovere

d i n th e producerscenario . 198 2 DOLLARS/MMBT U 9.00- f

1.0 0 •

7.00 -

6.00 -

5.00 -

4.0 0 -

3.00 -

2.0 0 • Targe t

Oi l Pric e



### °-T 1975 MARGINAL : Weighte d averag e pric e o fal l field s discovere d i n give n year . Uppe rlimi t fo rflowin g ga s prices correspondin g to 100 % mos t favore d natio n contracts . VINTAGE : Newl y discovere d ga s continue s to be sol d a t origina l rea l margina l cos t unti l depletio n o

ffield . Lowe r limi t fo rflowin g ga s price s correspondin g to n o escalatio n o fcontract price s i n exces s o finflation . i 198 0 198 5 l 199 0 I

199 5 200 0 

### Figur e 11 . Lower-48 Hydrocarbo n Prices (Gas Purchase rvs . Produce rPerspective : Intermediate Oi l Prices) . 

## Additional

Work Planned

with the GRI Hydrocarbon

Model Thi s pape rha

s outline d th e basi cstructure o fth e initia l for m o

fth e GR I Hydrocarbo n Mode l an d ha s presente d test results . Ove rth e nex t year , severa l improvements wil l be mad e i n th e model' s structure an d data . • Th e find-rat e equation s use d i n th e mode l wil l be modifie d t o bette rreplicat e exploratio n experience . EE A ha s develope d a modificatio n t o th e Arps-Roberts equatio n that incorporate s improvements i n th e theor ybehin d th e equation s an d tend s t o fi t th e observe d dat a mor e closely . Th e equation s use d i n th e mode l wil l b e modifie d usin g thi s improve d find-rat e function . 2 1P.2 3



### • Th e GR I Hydrocarbo n Mode l wil l b e integrate d int o th e EEANationa l Pipelin e Integratio n Model . • Thi s wil l allowth e trackin g o f"old " price-controlle d ga

s productio n an d pricin g ove rtim e an d wil l enabl e th e mode l t o conver

t regiona l wellhea d price s int o delivere d end-us e price s b yconsumin g sector

s an d regions . • Currently , exploratio n constraints i n th e mode l ar e exogenousl yspecifie d based o n pas t drillin g trends . Developmen t drillin g i s derive d fro m exploratio n success , that is , th e well s necessar yt o develo p wha

t i s discovered . I n 1983 , exploratio n an d developmen t drillin g activitywil l be explicitl ylinke d t o th e industr ycas h flows i n th e model . Thi s wil l provid e a mor e realisti cframewor k

fo rmodelin g drillin g constraint s base d o n industr ycapita l limitations . • Th e costs t o develo p natura l gas i n tigh t sand s wil l be explicitl ycalculate d withi n th e GR I Hydrocarbo n Mode l framework . Thi s wor k wil l utiliz e th e result s o

fth e Tigh t Ga

s Analysi s Syste m currentl y bein g develope d b

yGRI . Currently , th e mode l characterize s field s a s eithe roi l o rgas . Th e modifie d mode l wil l hav

e thre e fiel d categories : oil , conventiona l gas , an d tigh t gas . • Oi l productio n resultin g fro m incrementa l EO R activitie s wil l be include d i n th e calculation s o fth e trend s i n oi l productio n an d cost s i n th e GR I Hydrocarbo n Model . Thes e calculation s wil l depic t bot h economi ccosts o

fthi s productio n a

s wel l a s assume d trend s i n EO R technolog ydevelopment . I n additio n t o thes e change s i n th e model' s structure an d data , th e mode l wil l be mad e mor e accessibl e t o intereste d parties . Thi s wil l be don e b yaddin g a preprocesso rt o th e mode l t o allo wsomeon e wit h limite d compute rexperience t o set u p an d ru n th e model .

2 2P.2 4 

## References •t/ 

### 1 . Richar

d Nehring , The

Discovery

of Significant

Oil and Gas Fields in the United States. Santa Monica , CA : Th e Ran d Corporation , 1981 . 2 . America n Petroleu m Institute , Petroleum Facts and Figures. Washington , DC : API , 1971 . 3 . A.W . McCray , Petroleum Evaluations and

Economic

Decisions. Englewoo d Cliffs , NJ : Prentice-Hall , Inc. , 1975 . 4 . America n Petroleu m Institute , America n Ga s Association , an d Canadia n Petroleu m Association , Reserves

of Crude Oil, Natural

Gas Liquids, and

Natural Gas in the United States and Canada as of December

31, 1979. Washington , DC : API/A.G.A. , 1980 . 5 . Unite d State s Departmen t o fEnergy , EnergyInformatio n Administration , U.S. Crude Oil, Natural

Gas and Natural Gas Liquids Reserves. Washington , D.C : DOE , 1982 .

2 3