A Model For Evaluating The Impact Of Federal Policy On Offshore Oil And Gas Recovery
Authors: Brashear J.P. , Morra F.P. , Murphy F.H. , Ciliano R.P. , Hery W.J. 
Published: October 2008

ABSTRACT
Domestic offshore oil and gas production represents one of the few available possibilities for offsetting increasing dependency on imports. The rate at which these resources are exploited is highly sensitive to the policies of the Federal government price, leasing schedule, bonus, royalty, profit sharing, and taxation. This paper describes the concept and implementation of a model that projects offshore oil and gas production as affected by these policies. The approach uses disaggregated geologic data in a novel prospect-by-prospect evaluation of full and marginal costs, with explicit treatment of risk.

INTRODUCTION
This paper describes the concept of and current progress in building a model to simulate the development of the Outer Continental Shelf of the United States.
The model will have the capacity to estimate future reserve additions and production of oil and gas from both current reserves and undiscovered resources in the Outer Continental Shelf. The user of the model will have the capacity to analyze the impact of alternative Federal policies (leasing schedule, variable or fixed lease bonus, variable or fixed royalty, profit share, work commitment and combinations of these). Concurrently, the model will emphasize the uncertainties associated with the resource base, providing a statistical range of outcomes for each policy scenario being modeled.
The model covers lower-48 offshore areas from the surfline to 1000 meters water depth. The offshore areas of Alaska are currently being modeled by another working group. All categories of hydrocarbon resources producible with conventional means are incorporated. Production from proved reserves are projected by historic decline curves; and inferred reserves are added by a Hubbert-type statistical model and similarly declined. Production from undiscovered reserves, however, is the principal focus of the study. These are treated by a stochastic approach to resource estimation coupled with a deterministic evaluation of the economics of exploration, delineation, and development. The forecast period is from 1979 through 2000, with special emphasis on the period 1979-1990.
The model architecture is directed towards an explicit representation of the economic and decision making aspects of hydrocarbon exploration and development. Engineering and cost factors and the decision making process of producing firms are modeled directly (as opposed to being tacitly summarized in regression equations). To the maximum extent possible, actual geologic data will be employed to build a resource estimate from records of actual seismic anomalies (as opposed to working from gross distributions). Where this information is unavailable, aggregate estimates from public sources will be used.

MODEL APPROACH AND CONTRAST WITH PREVIOUS STUDIES
The model relies on established statistical techniques for projecting production from discovered fields. In general, the study employs an extrapolation of historic rates of decline accompanied by a Hubbert-type analysis of the process of reserves addition through extension drilling (the "inferred reserves" of USGS Circular 725). Included are mathematical refinements to the prior work of Hubbert (1967), Root (1976), and Mast and Dingler (1974). In "hindcasting" existing data series, the model of inferred reserves achieves notably closer precision than any of the preceding studies.