MMS ENVIRONMENTAL STUDIES PROGRAM:  ONGOING STUDIES

MMS OCS Region:

Gulf of Mexico

Title:

Planning Area:

Gulfwide

Total Cost:  $167,110

Period of Performance:  FY 2006 - 2009

Conducting Organization:

Coastal Marine Institute, Louisiana State University

MMS Contact:

Description:

Background:  Marginal production is an important source of onshore domestic supply in the U.S. One of every six barrels of crude oil produced in the country, and about eight percent of its gas production, is delivered from marginal (stripper) wells. The Gulf of Mexico (GOM) is a mature producing province and, throughout its shallow waters, oil and gas production is in steady, but slow, decline. Thus, marginal production is an important economic and environmental issue for the MMS and will play an increasingly important role in the years ahead.

Marginal fields are governed under different economic and business models than large fields, require different recovery techniques, and tend to be produced exclusively by small independents and sole proprietorships. A marginal well operates on the lower edge of profitably and its economics and the decision to continue operation depend on factors such as the commodity price, service cost, willingness to operate, bonding levels, tax incentives, royalty rates, and accounting requirements. These factors are not as well understood for offshore operations as they are for onshore operations.

Objectives:  The purpose of this study is to provide an empirical assessment of marginal and lost production in the GOM and to inform policy makers of the role of marginal production through a comprehensive economic, environmental, and regulatory analysis. Study objective include:

• categorize GOM producing structures and leases relative to their marginal, economic, and subeconomic status;
• estimate and forecast the role of marginal production in the Gulf to total production;
• examine the factors that impact operating decisions in marginal production in the Gulf;
• estimate the amount of production and reserves lost from early decommissioning due to recent Gulf weather events;
• review and synthesize the industry structure of marginal operators in the Gulf, and the business models and developing technologies associated with their marginal production;
• describe the environmental issues that arise in marginal production; and
• examine end-of-life royalty relief programs in the GOM relative to their frequency of use.

Methods:  The methods to be employed in this study will involve primary data collection, statistical analysis, and model development. A review of the literature on the economic, environmental, and legislative issues surrounding marginal producers will also be performed. The analytic framework will be supported by statistical modeling, building upon and extending the work previously performed by the investigators in modeling structure removal processes.

Products:  A final report publication with annotated references.

Importance to MMS:  The GOM is a mature producing province and throughout its shallow waters, oil and gas production is in steady, but slow decline. Marginal production is an important economic and environmental issue for the MMS and will play an increasingly important role in the years ahead. It is therefore important that MMS expand is knowledge about the issue.

Current Status:  The Final Report cleared MMS technical editorial review and is currently in final review.

Final Report Due:

Publications:

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.

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