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HomeMy WebLinkAboutAPA2352I ;, : ... / �7) ,�/ . 1 ' •i :� ' �r.� I , L. - '' .-· i. ' u t I � i l I •• � l � t .. ;; ! ! l \ l ' L. .. ' i,;;-·�· r ,, < t;4.,..,1 ' ' I � .. llARZA·EUSCO SUSITNA JOINT VENTURE ME.MORANDUM 4-o,tz .. z LOCATION ______ A_n_c_h __ o_r_a�g�e ________________________ __ DATE September 27, 1983 TO Henry Chen NUMBER FROM W. David Augus tine SUBJECT ------�C�oQo�k�I�n�l�e�t�N�a�t�u�r�a�l�G�a�s�---------- The attached information attempts to ansner some of the questions you raised in your September 22, 1983 memo co�'l�erning estimates of gas reserves and und iscovered gas resour ces in the Cook Inlet Area. The Cook Inlet Area is shown in Figure 1. This memo is organized in to four general areas; identified resources on reserves, undiscovered re sources, price elasticity, and recommendations. [}{]£[ffi�&c§[ID£�@@ Sus1tna Joint Venture Document Number cJ 3 Q_:J. ___ � -Please Return To DOCUMENT CONTROL . '' �ro (j c.i docv..V>U2.>1.+ ,. • � do c. v.vv�c..-f C<7><-t.-o( :::;(-:.+e.""' . - l ) I I t I i I I ,, l 1 I ) 1 \ I l I j I � l 'l i I I l ! l l I ' ! i I I I I -l " ! .. <t , I I I I l I l I l I l j ' -J I l 1 I 1 l l I l i I .\ ! J j j I t I I I ! I ! I I j I ' ! I I I i I ' .J ' i i I ... II t = ·= <UW�t;MIC QUi Identified Reso ur ces Identi fied gas resources are tho se resources who se location and quanti­ ty are known or are estimated from specific geologic evidence. Identi­ fied resources can be subdivided into reserves (measured and indicated) and infer red reserves as shown in Figure 2 w�ich has been extracted from the Dept. of the Interior Geological Sur vey Circular 860. Measured reser ves are determined us�ng engineering measur ements, �.e. changes in field pressure caused by production of gas, together wit h geologic evidence from the field (drill cores and seismic data). For th ose fields which have flowing wells and a history (of at least several years) of gas production� a gas equation of the following form �s used: PV = z h R T Where: P = Pressure of the field V = Volume of gas in the field z = A correction facto r (required because the gas does not act exactly like a per fect gas) n = Number of moles of gas R = The gas constant T = Absolute temper ature of the gas. Using this equation, and assuming a field termination pressure� the Alaska OiJ and Gas Conservation Commission (OGCC) can estimate the total vol ume of gas that can be extracted from the field. For those fields that are not producing, such as Fal ls Creek where one well was drilled and then the well A/4/5 1 I I I I I I I J I ' I j 1 was shut-in (1961), the OGCC uses the original well pressure together with an estimate of the field size which is obtained from seismic data. Indicated reserves are th3 additional quantity of gas th at m i gh t be available using improved reco very techniques (see Exhibit 1 for a full definition). For gas, these are probably small and the U.S.G.S. data �n Circular 860 does now show any indicated reserves (or else they are included in the measured reserve nu mbers). Inferred reserves are additional gas that might be recoverd from known fields thro ugh extensions, revisions, and new pay zones. This requires drilling new wells of drilling existing wells deeper. As can b� seen from Figure 2, infer red reserves have less a s sura nce of being recovered thafi indicated reserves which have less assurance of recovery than measured reserves. Estimates of the level of inferred reserves are based on historical experience where the actual amo unts of oil and gas extracted from produ cing fields were usually la rger than original estimates of reserves (see P:�hibit 2 for a more complete discussion). Estimates 0£ inferred reserves by the United States Geo logic Survey (U.S.G.S.) for Alask a are based on experience in the Low er Forty Eight States since Alaskan fields have not as of yet been exhausted. Estimates of Identified Re�ources in Ala ska ha ve been made by the U.S.G.S. and the Alaska Oil and Ga� Conservation Commission (OGCC). The U.S.G.S. made an estimate in 1975 (Circular 725) and 1980 (C i rc u lar 860). The OGCC makes an annual estimated by field and the resu lts are pub lished in their St atis t ical Report. The U�S.G.S. estimates are for total Alaska with onshore and offshore subcategories and by type of gas, i.e. associated and non-associated. An estimate for Cook Inlet by itself is not included in Circulars 725 and 860 and according to the U.S.G.S. (Bob McMullen) a separate estimate for Cook Inlet was not made. A/4/5 2 IF "-"'="""'-"·�"=-�--� ' ' �,, I I ' I .. I \ I I I � I I I I {' I 'j r I l I • - Jl I I 7!'� I, �� .,. : l --· - '"'• ,.-:, ..• �.,;;...�,_,..:;..j::!...;.!;.:.; ... �.�·•·..:,� .. ,�,-��"·' "' ,;. ·-.:·:,• The OGCC's estimate of reserves is, according to Bob McMullen, equivalent to the Demonstrated Rserves (measured plus indicated) of th� U!�.G.S. as shown in Figu re 2. The OGCC's estimate of Alaskan gas reserves as of 1/1/82 are shown in Exhibit 3 and they are designated as associated or non-associated. The locations of the Coo k Inlet fields are shown in Figure 3 and the non-associated (dry) gas fields are circled in red. all other fields are producing associated gas (with oil ). General information, well location, and seismic maps are available from the OGCC's Statistical Report for each gas fiel d. An example of this type of information is at tached as Exhibit 4. The OGCC's estimate of gas reserves in the Cook Inlet Area has changed in the last five years but primarily from producticm. As gas is produced and used, reserves decrease. When productio? is add ed back, the reserve I figures for the last three years show little change as ill ustrated in Exhibi t 5. The rea son that the estimate of reserves has not changed very much is probably due to the fact that prolucers are not drilling for gas. Since there is presently no market in the Cook Inlet Area for additional gas, producers do not wasste money proving up additional gas reserves and any additions to reserves come from wills that ar e drilled for oil, i.e. associated gas. The U.S.G.S. 1975 and 1980 estimates of associated and non-asso ciated gas reserves for all of Alaska are show n in Exhibit 6� The estimate of total measured reserves has not changed much, even when production for the years 1975-19 80 is subtracted from the 1975 estimate of 31.85 TCF (In the 1975 estimate, associated and non-associated reserves were not separated as they were in the 1980 estimate)v In both estimates, the U.S.G.S. has included inferred reserves al though the estimated quanity has decreased substantially from the 1975 estimate to the 1980 estimate (14.8 TCF to 5.5 TCF). Most of the non-associ ated gas reserves in Alaska are located in Cook Inlet, so the U.S.G.S. is es timating that there are inferred reserves A/4/ 5 3 .� .. I 1: I I I . I I I I I I, I I l • I I I I �"'- ,,... -�- >�.-.- ,. in the Coo k Inlet Area in addit i o n to me as ured reserves. Unfor t unatel y , the y do not provide a separa t e estimate for Cook Inlet. A ro ugh estimate can be made however by looking at the: U.S .G .S .'s ratio of inferred reserves to measured reserv e s . These ratios are: As sociated g as Non-associated gas O nsh ore O f f sh ore 2.1 I 26.1 2.3 I 3.5 1.1 I 1.1 = 0.08 = 0.66 = 0.65 Applying the se ratios to the OGCC's reserves provides the following e s ti mat e for Cook I nl e t inf erred reserves: Associated gas Non-associated gas Tot a l (0.330 TCF) (0.08) = 0.03 (3.264 TCF) (0.655)= 2.14 2.17 If t h is rough estimate is in the ba llp ark, the U.S.G.S. would say that in addition to the OGCC proved reserves of 3.6 TCF (as of Jan. 1, 1982) t h ere are in ferred reserves of about 2 TCF in the Cook Inlet area. This may be th e basis for Greg Erickson's "gut fe eling" th a t there are more gas rese rve s in the area than shown by the OCGG re se rves. (The OGCC does not p r ovid e an estimate of "i nf erred reserves ). The OGCC esti ma t e is probably a c onser v ative , but remember that the u.s.G.S. inferred reserves are developed using l ower for ty-ei gh t historical data an d also that there is a ._. prob abi li� associated with the 2 TCF of some t h i ng less than 0.5 (see my memo to fil e -conve rsation with Bob McMullen dated 9123/83). In addition, Russell Douglass, Petroleum Reservoir E n gineer for OGCC, says be wo u l dn't put much weight on the U.S.G.S.'s e�timates of in ferr ed rese rves. Al415 4 '.._ ''-'�. I I I I ll I 1 tl 1 ! . ! I jl i 'I - I I I I I Undiscovered Resources Undiscovered gas resources are resources that would be found outside of know n fields. The resources are estimated using broad geologic knowledge and theory. There are several general methods that are used to esti mat e undiscovered resourc es and these are brie fly described in Exhibit 7. Analysis and �riticism of some of the methods was made in a paper by L. P. (Red) White which is attached as Exhi b i t 8. In the paper, Mr. White al so provides a c omplete description of the "Play Analysis Method". Estimates of total Ala ska and Cook Inlet undiscovered resources have been developed by the U.S.G.S. in 1975 and 1980 and by the Alaska Dept. of Natural Res our ce s in 1983. In its 1975 and 1980 estimate, the U.S.G.S. used a direct sub je c ti ve method where the gas resources are estimated by a team of expertso Geological infoma tion and resul t s from use of other methods (e.g. volumetric-yield, play analysis, etc.) are reviewed and weighed by the experts (Delphi techniques). A full expla nation of their approach is descr i bed in Circular 860. The U.S.G.S. estimates are presented in the form of a 5 t h fractile (Fs), a 95th fractile CFg5), and a mean. The 5th fractile is a value which has only a 5% ch a nce of being exceeded while the 9 5 th fractile has a 95% -:hance of being exceeded. Another interpre tation is that there J.s a 90% cnance that the amount of gas found will be between the 5th and 95th fr actiles (remember that all probab ilities are subje ctive, i.�. estimated by t he experts involved ). The mean, or weighted average value, is the quantity of gas most likely to be found. The U.S.G.S. 1975 and 1980 - estimates �or t o t al Alaska are shown in Exhibit 9. Also shown in E xhi bit 9 is the U. s:G. S. 1 s 1980 e s t imate for undiscovered gas in Cook Inlet. As can be seen, this estimate ranges from 2.12 TCF (Fgs) to 12.44 TCF (Fs) with a mean or expected value of 5.72 TCF. The U.S.G.S. Cook I n l e t Area is shown as areas 24 a nd 67 in Exhibit 10. A/4/5 5 l ( 1 .�p.' t �II ' 'I i ( ' I I I j I c) I ·.1 �� l \ I ' _,;-!' \��-1 ' '.! •I ! J : I \ l :. 1 0 ; '"{ i { ' i I 1 i I l l l 1 1 l ! 1 l I i ! J l \ J 1 ' ' I l l f l l l ! I I I j I ! I l ! I -··· l ' 'f I I I I I I I I I I I I I I I I I I I � )WJII e ;&- .f � L i4A£ I_.. -�!-�.:�?.�.· .. �t .•. 11,, . ..--..�.-�-�.,� .. �-·�·"--·�=-���� .. The undiscovered quanities of gas estimated by the U.S.G.S. are economically reco verable resources. Price-cost relationships and technological trends that �lrevailed in 1980 were assumed, as well as a gas recovery ratio of 80 -90 percent (see Circular 860, p. 7). Onshore field size assumed was the �ize and type of fiel ds that historically have been found, developed, and produced. Offsh ore field size depends on water depth and the guidelines used are presented in Exhi bit 11. The Alaska Dept. of Natural Resources (DNR) developed an estimate in ea rly 1983 of undiscovered gas resources in the Cook Inlet Area as defined by the cross hatched area in Figure 1. The DNR method used was a "Play Approach" which determines the amount of hydrocarbon in a "play" or prosepect through use of reservoir engineering equations taking geologic ri sk factors into account. Inputs for variables are. in the form of estimated probability distributions and Monte Carlo methods are used to develop a probability distribution for the amount of hydrocarbons� The following quot es from Mr. White's paper further explain the method: A/4/5 Among the activities the integrated model explicitly simulates are two of the major ec onomic decisions that, occur repeatedly in the development of a petroleum province. The fist decision involves the determination of whether a particul ar prospect merits testing with an exploratory well; the second, whether the resources contained in a discov ered deposit, or combination of deposits, merit development, production, transportation and distribution to market •••• The exploration process is simulated through the integration of two independent submodels: a geology model that is based upon a probabilistic 6 • l ,, I l ! l I I I I I• .l I I . I ,! I I : I I ,, J I I I I :; I I I I I I I I 1\.l . :::L o\ �J' assessment of the most important geologic parameters in a pro v1.nce, and an exploration model that simul ates the search for oil and gas 1.n the province. The geologic model generates a list of prospects (potential drilling targets) and a resource appraisal of the oil and gas in place using subjective probability distributions developed by experts familiar with the geology of the area. The exploration model simulates the economic evaluati•::>n of prospects by an explorer and the drilling decision, generating a sequence of discoveries that form an inventory of pools to be evaluated for development. These two sub models are integrated i·n a Monte Carlo simulation of exploratory activity over an extended time period. Each Monte Carlo pa ss begins with the geologic submodel sampling from probability distributions for the important geologic parameters . ' to s1.mulate a possible state of geologic nature for the province. This state of geologic nature is composed of a particular number of prospects, some of which are simulated as act ual deposits of oil and gas with the remaining ones dry. After simulating their expected size, these prospects are ranked according to expected volume to form a simulated target list for the discovery process. The discovery process is then represented, on a year by year basis, as the sequential evaluation of prospects on the target list. The status (i.e., a deposit or dry) of the prospects is unknown to the A/4/ 5 7 I J I I "' I I •• �J I I ·t I l ' j . I ,t r· 'i J l j l I I t � I 1 :;;t I ' l 1 I I I - I • ·,I i I I • * IJ I simulated explorer. If the expected economic value of a particular prospect justifies drilling an explorator y well the simulated decision is to test it and determine whether it contains hydrocarbons. This procedure continues each year in the Monte Carlo pass or until all prospe cts have been tes ted. The learning process in exploration is simulated by using the drilling results each year to upd ate the simulated explorer1s perGeived state of geologic naturee The output of the explora t ion mo del each year is a list of dry wells and discovered dep o sits of oil and gas. The discovered deposits are added to an inventory of pools to be considered for de ve l o pment. A large number of Monte Carlo passes are ma de to generate �requency distr ibutions for the important outp ut variables such as total oil and gas resources . place, discovered �n reserves, and production .* The discover y process is then repre s ented, on a year by year basis, as the sequential evaluation of prospects on the target list. The status (i.eo, a deposit or dry ) of the prospects is unknown to the s i mulated explorer. If the expected economic value of a particular prospect j us tif ies drilli ng an *White, L.P. 11A Play Approach to Hydrocarbo n Resource Assess ment and Evaluation", Office of Minerals Policy and Research Analy s i s, U.S. Dept . of the Interior May 14, 1979, pp. 4-6. A/4/ 5 8 I I H B I q "� tl tl u I �--·:_ .. I I I I I I A/4/5 �----,. .• ....,-. .:-:�.--�--·-­ .. �......-· ....... ���-- exploratory well the simulated decision is to test it and determine whether it contains hydrocarbons. This procedure continues each year in the Monte Carlo pass or until all prospects have been tested. The learning process in exploration is simulated byusing the drilling results each year to update the simulated explorer's perceived state of geologic nature. The output of the exploration model each year is a list of dry wells and discovered deposits "f oil and gas. The discovered deposits are added to an inventory of pool s to be co nsidered for devel opment. A large number of Monte Carlo passes are ma de to generate frequency distributions for the important output variables such as total oil and gas resources in place, discovered reserves, and production.* The DNR results are presented f o r: 1) total gas in place, and 2) economically recoverable gas. Both estimates are in the form of a cumulative probability distribution with a quanity of gas versus the probability that the amount found will be at least that quanity. The average or expected value is also presented. The DNR es timate ec onomically recoverable gas, the DNR assumed that the minimum commercial deposit size was 200 BCF * White, L.P. 11A Pla y Approach to Hydrocarbon Resource Assessment and Evalu ation", Office of Minerals Policy & Research An alysis, U.S. Dep t. of the Interior May 14, 1979, Pgs. 4-6. 9 I I I I I I I ll ll and that the recovery factor was Oo9. As ca n be seen, expecte d gas in place was es timat ed to be 3.36 TCF and the average or expected economically recoverable gas was 2.04 TDF. The exact plays or prospec ts tha t the DNR analyzed are no t yet available to the public. DNR plans to publish a report on the estimate at an unknown fu ture date and the plays will be discussed in that report. Preliminary talks with Red White of the DNR indicate that most of the plays are at a depth of around 5-10,000 ft. However, one play in the deepter part of the inlet, is at about 20,000 ft. Comparison of U.S.G.S and DNR Estimat es: The economically recoverable expected value of 5.72 TCF fr.:>m the U.S.G.S. es timate (Exhibit 9) is considerably larger than the comparable value of 2.04 TCF from the DNR estimate (Exhibit 12). The exact reason or reasons for this difference are unknow n but development of the estimates differ in at least three major areas. These are: 1) time of estimate, 2) area analyzed, and 3) estimating method empl oyed. The U.S.G.S. stimate was ma de using data available in 1980 while no explora tion for non-associated gas occurred during the 1980·-82 period, oil exploration continued so the DNR had some explora tion information that was not available to the U.S.G.S� in 1980. The Cook Inlet area analyzed by the U.S.G.S. was larger than the Cook Inlet basin analyzed in the DNR estimate. The larger amount con sisted mostly of additional onshore areas on the Seward Penninsula and to the west and north of Cook Inlet. Compare the U.SaG.S. area consisting of parce ls 24 and 67 in Exhibit 10 wit h the DNR area which is the A/4/5 10 I I I I I I I I I I ll IJ IJ cross-hatched area in Figure 1. According to Red White, Operation Research Senior Analyst at DNR, inclusion of the additional onshore area that U.S.G.S. included would not mat erially change DNR's es timate. The estimating methods used by the U.S.G.S. and DNR were different. The U.S.G.S. used a direct subjective method while the DNR used a play analysis approach. Both metho ds requ.ire a considerable amount of subjective probability input as to whether gas will be found, and if so, the quanity. The methods diffe r in that the play approach begins with each individual pot ential hydrocarbon prospect and builds up to a total estimate for the ar ea while in the direct subjective method, the total amount of hydrocarbon is estimated in aggregate after reviewing all information on the ar ea. Which method is superior is of course open to opinion, but R.H. McMullin who worked on the U.S.G.S. estimate and has also utili zed the play analysis method believes the play approach to be superior. Another expert, Dave White, Senior Research Scientist f0r Exxon Corp., al so heavily favors the play approach. (Also note that Gregg Erickson agreed the DNR's estimate of undiscovered re sources was the best to date -memo to file, 3/29/8 3). Price Elast i city For the FERC application, we as sumed that the uncommitted reserves of 1.6 TCF and the 2.0 TCF expected value (0.40 < p < 0.50) of economically recoverable, undiscovered resources would be available for elec tric generati on (and ot her ar eas) at $2.47/MMBtu in 1983 (future prices esc!alated pending on assumed oil price scenario). It is unknown whether this assumption is valid because the prices that producers would be �iilling to accept for existing uncommitted reserves and the price that would motivate them to search for the potential und iscovered resources is known only to them. It is more certain, however, that A/4/5 11 I II I I I I I I I I I I � i . I I ll IJ I] I -"• �"---�· ·-�-- - ··� . """ .<--�-- � they would accpet $2�47/MK�tu for the uncommitted reserves than for undiscovered resources since the recent Enstar sale for $2.47/MMBtu was for unc.��mmitted reserves. An upper constraint on the price for all future sales of Cook Inlet gas would be the trade-off or indifferent cost of using coal for gener ation and that cost is around $3.20/MMBtu. Development of an estimated gas supply curve for the Cook Inlet is possible but according to Red White of the DNR it would be a lengthy and costly undertaking. DNR apparently has a complex computer program (10,000 liner of Fortran code) that could be utilized but does not have available, qualified personnel to undertake such a project at this time (qualified personnel are Red White and 2 to 3 others� all of whom are fully commit ted to other projects and tasks). Even if a supply curve was estimated it would still be highly subjec tive si nce so many of the inputs such as costs, dis count rates, etc. are judgmentalo Short of estimat ing a complete supply curve, one might think of a trigger price that would motivate producers to search for additional gas. However, there is no single price that would cause exploration to commence. The exploration process is very complex, commencing with the acquisition of leases, followed by the decision to drill and then the decision to produce if gas is fo un d. The decision to produce is a marginal decision, i.e. independent of the amount of money previously spent on leases and drilling. In addit ion, ea ch play or prospect would probably have to be treat ed independently whi(.:h is what would be. done in the development of a complete supply curve. A graphical description of the foregoin.� discussion is sh own in exhibit 13. The estimat ed supply curve that could conceivably be developed is shown for illustrative purposes (only). The shape of the illust rative cu rve is smooth but in reality it would probably be lumpy, reflecting the price and quanity of indivi dual prospects. The verticle position A/4/5 12 I I I I I I I IJ of the curve is, of course, also unknown and it could be shifted up or down from the position shown. Recommendations The issues considered in this memo were Cook Inlet reserves, particu larly inferred reserves, estimates of undiscovered gas resources in Cook Inlet, and the development of a Cook Inlet gas supply curve. The following are my recommendations concerning these issues. In our analysis of the availability of gas from the Cook Inlet area, we have used the OGCC estimate of reserve� which does not inlcude what the U.S.G.S6 calls inferred reserves. This approach may be conservative bu t I recommend that we stick wit h it because the OGCC (Russell Douglass) does not believe there are any inferred reserves and the DNR estimate (Red White) of the undiscovered gas resources may include the U.S.G.S.'s inferred reserves such that the sum of the OGCC reserves and the DNR undiscovered gas resources may be the best estimate of total probable gas. If one were to take an optimistic view, an additional l.0-1e5 ( 0.45) TCF could conceivably be added to the OGCC'ds es timate of reserves. These two analyses are presented in Table 1. The best estimate of undiscovered gas resources appears to be that developed by the Alaska DNR. The U.S.G.S. 1980 estimate is out of date and the method employed is probably not as good as that used by the DNR. In addition, Gregg Erickson, a potential critic of gas availability estimates, is of the opinion that the DNR es timate is the best so far. I therefore recommend that we remain with the DNR expected value for undiscovered gas of 2.u TCF with an approximate probability of occurance of 0.45. A/4/5 13 I I I I I I I I I I I I I I I I I} IJ I Development of a Cook Inlet gas supply curve appears to be difficult if not im possible availability. be high, with at the pre sent time due to constraints on manp ower In addition, the cost to devel op a curve would proba bly the res ults highly subjective and therefore controversial. I therefore reconnnend that we not attem pt to develop a gas supply curve. cc: Ned Sesmi ch (w/o attachments) A/4/5 14 I I I I I I I 1: ' 111 Ill I' = 11 aJ I �' I I I / / / / / FIGURE 1 TALKEET .. ,. .. ··- f �;: I • .��" ; .. �� .. " ECONOMIC I MARGINALLy ECONOMIC SUS· ECONOMIC IDENTIFIED RESOURCES UNDISCOVERED RESOURCES Demonstrated I Inferred Measured Indicated I -:.::..:·��0"''"�--'·· •"-"'•//.•" �:-:-�---------�.-::�.;,.-. _,.�..,,·,.::.,...-:: -� ...-:, .. ·._,·""., .... : .... ·.� . ..,.· .�,_.,.,.�., ..... .,_�/·""/,. I W2%?t.fN' ofsc6velil�t:Y�:�;;;?i: Reserves Inferred Reserves 1%>:-' --:-::: •. ·"/;--/:'-':-"-::'�-:/;'���-;/ ·<' � < :� ��ECQVERABLE RESOURCES�--· // ...... � • -•• ' • <"' ... �/' • . . . • jf----I ------r;:..· ··.//._:· ·• �.:-;;;.>.-..-;/":: �--<�-··2......,;:� ·.:::: I f..------------- t( INCPitEASJNC3 <3EOLOC31C ASSURANCE --------- FIGURE 2 -Petroleum Resource Classification (shaded area indicates undiscovered recoverable resources estimated in U.S.G.S. Circular 860). SOURCE: Geological Survey Circular 860, Pg. 6 u - J 0 z 0 u I.LJ (,!) z (/) � w tt: (.) z ... -- -....... � .. " .......... .......... - i ' ): �8111C111ULL ::.:�-� \, 'T 2 s T 3 s T 4 $ !o: 1::! 1::! \.,) 1 RI2W ALASKA OIL AND GAS CONSERVATION COMMISSION ANCHORAGE,ALASKA FIELD AND FACILITY LOCATION MAP • - co 01� Flt•D GAS rltLD OIL LINES __ ,,. __ G.A1 t.UID . . FIGURE 3 I I I )::F:., :::·�;;s {c'5'()ur-�e defi:1.i:��:�� ::>unt!.::i�l:�d by �·�c: '.:.'. .'\Utt=·!.U Jf '·lin�s �tn'"'! :·1t:" ·.:.s. tri;:oLJ�i�,,:. :1ur·:t;!�; .'!�..,:Z.:::..\;t;:·:, t-;!73; .:.s. :.br.;-1u Jf \li-;�s 1'1-i !_,:;, :...:;�,;�..:.1:. Survt:.-, l9;tJ, t9� ) ·u·:t: be�:::"� -:todt:i .. ..:'� :., :1?;>1:: :i�)ecifica.:.� ... � t-..: ..:r·.ljt: ,Jilj :hlt..iCi!. �,::., .H'.J '1J':Jrii ..;l::i i.i:1ui.is. :n sone :.·�s::i:1.::t::.,., J.;�i.:1i::iv:1::> ;''.lbLi-;ncd by .;?: ::.97<}) . .-er"t: used .. ;i::h :;:!Odi::i.::.H:i•)n. "21e ;)rinctpal t.e r-:s ;.�se.i :..•1 tht:! ;>rcBt:!nr. scud:: ,.He je ti:�ed as :.�:.:.1ws, anJ, ,.;nt:!re .l;JPr'.l?riJ.::�, -He iJ.::nttEi.ed "--.' ···"''•:'c'·--C,.H1.;t:!:1tCit:.i-Jn::> ,f ·u::Jr.l::-: lC�urri:1� : i:�uij .)r" �d:;�-J�s a�·dr-JcJ.r�ons �a th= :::ar::..1' s �r'.l::i �, sone ;)cHt •lt ..rhi.:h is .::urr en t !.y ,,r :hJt�!l�i_i:!.·.,� �con.JMi�3.ll.:: �:<.tra�tJ.bl�. � -:} .. ,.;_ .. �.: �� · J·::rr::-:..;'Y)., .. � :;:.· Vl�-:';:;�<.,..,·.'l.;,a.--ihJ'5e res0urc�s, both id e n t if ied �nd �ndis..:avered, that dre economicalLy ex::.r3ctable. �� tn�s ::; :::.·.Jd:.-, pr lee-c o s t re:.J.t i''nshi?s Jnd tec:t:t·.)-L)�i�.l_;_ trends ?revailb-s .1t t'\e ::ime .)f .1ssessnenc ( i9c3\.1} -..1ere assuned. Speci:ic_?_l_:_y excluded .1re q�antities that �ay b� :echnicdlly e:<to..:::J ?_�':.__ l>_uc not eco:1onicdlly s.), :berefore, excbded .1re .1e;:>vsits ::.h1t Jr<: t)') s::�all, C)•) Jis;;ersed n ---- � econ ")ni c., and ::hos e d�?OSits tct;n.:"l•J�us�.::. s �naC!. porti.::>ns >i no:�-extra.:::..ible :.•.a-: �:'-3'YJ·�= � � Yu� a.;�t..,.,·��a • --Idc!lt i eel!. ;lresencl:' economi..:: in d an Eube�:-rzc""ic -nes:uYJ�Gc.--Resvurces ::nat nJve even more r emo te liKelihood )r extra�tion than do ,.,�,.,.::"=�: ::, 8:'�,:��:�� "'<:?S�:�,.,.,e<: • They are c ons i dered ·to be the l ar ge l :• unex::ractablt: por t i on of the ori gin a : ·'.li: and gils i ��;:>lace. Some part e ve n t ual ly may become re covera n �e as l result of major c h an �es in t�chn0l0gy anc economic conditions; �owever, si,:(nificant: por t io -ls may never be recoverable. "'f""..;�VI-.... • :-..,· €.'.; ,.,8 �,...:.,,�s. --Res�Jur�t::S wh�sc !.ocatl�� ·��d-q �a:-ttit:�· ar�-�nown <H dr�.:: t!s::.i::ld:�.:: from specific geologic e vi den ce and ::: .. 1:: inc l �-'!t.: economi c , marginally econonic, and sub.::c,::mv:-:�: c omponents. :dentified resources a:�� .�an �.,. su b d iv id ed (fig. =:_, into »:e:zs�n..:;:) :-.::· � : z : - . ·, and -::�-"'ql'1.,€i Y'es=:�YJ�e�, express inb va r":/:. �� d eg rees .of ge o l og ic certainty. Ye-:zc:lne:i nese.,.,!.'<:?S·--That ?art of tt;t: economi<:: identified resource that is estba:•.'!:! from geologic evidence su pported direc tly !:>" .. '1ea s u r ed rese rv .;:s engineering me a su r emen .. s. . • here are e qu iv a len t tJ �n�re: nesen�qs as defined by API (197b, p. 1). �A1a,.,gi -.,.,�: �� e�onc"'!i� <t?qsouP':£"S. --Resources not presen tly recoverable because of te chno lag i..: and (or) economic fa ctor:>, but that :":lay bec,mE: recove ra b le in the fu::ure. :hey .He thar. 1>art of the resources in:er:nediate bet-.:een thE: economic an d subeconomi c ca tegori es (fi;. ��. ::l'Zi-:.-::�ted. nese.,.�\","' .--i{eserves equivalent t·::. :\PI .,.ese"'!:es, that are def i ned <'.S econ om ic reserves in "�nown pro ductive r E:ser voirs in exist in g fiel d s expected to respond to improved recove ry techniques such as fluid injection where (a) an improved recovery te chn i que has been installed but i ts 8ffect cannot ye t be fully e va l u a ted i or {b) an imoroved techni q ue has not been i ns tal led but knowledge of reservoir characteristics and the re su l ts of a know11 t e chnique installed in a s�iliar s i t uation are available f or use in the esti rnati!'l� pt·ocedure.11 (API, 1976, p.. l, 2. � :Y;-... -:.?n��i .,..,asel'1t'rsc.--That part u: t;:e iden ti f .ied econonic resourc.:: that will be added to i<.no�,o,-n f ie:ds thr ough ex tensi ons , revisions, and new pay zones. (See p. 22 and Ap !)e nd i x F for d e ri va t ion of inferred reserves used in r.his study.} · -.:.i:s�:':�e"Yte:i l'1e:.-a:1-t-n?e.� .--·�esour�s, :>u ts idt of Known fields , estina.ted fr:>::'. broad .seol-..�gi.:: knm.·ledgeai1{ -� theor y .-Als.:> ii1cluced 3 r;;; resources -f r.o"m undiSCOVere:i pools t h at '?CCUr :;IS unre la te d accumulations controlled hy distinctl: se?arate struc tura l features .:1nd ; J.r 1 s:::.ratigrapnic conditions within a.rt::as 1f "-flO'-":\ fie :ds . · ·.. -�...., ,-:�� ... : ..-:-� � 1(':<. --The t.-,-, td l '.) i: ) r nat�ral �as that is in under�r0und reservoir r.J�i\. -..:ith ou t qua!ificati;:�� as tc1 ..:r.a:: por tion may be c �ns id8re d eich�r cu r ren t ly )r oo:entia;.::: extractablt�. )i: ,Jr gus i:1-place is essentially equivalent t0 tata! resources. �:r-:-: .---·\ di s c r t:!t E: �a:.· .. ral ,:tccu��l.Jti�n ,__,r Jr ;as i:1 an undt'r�r ·unJ re s �rv 0 ir , �Jnfined �. "�arr::.ers .1f ...ra�er >r i:::Der'"'lo;:..-:b:"" r.1c�, ,'i:1t:: .;r·Ju��j d�, _)r rr2 :d t.-=:d t.:>, J single i ., .... strati�raohi� f�aturt::. �in�:a fi��j �av be scruc�ura: lnd i. \' ictua: :; e :1a rate ;i vert:icJ.:!..:..:.· �:: i:-:ner\·ivu� �:r3ta �;Jr l�tr:rally oy l1c1l �e0lo�i.: �arrit:!rs. EXHIBIT 1 -Definitions of Oil & Gas Reserves SOURCE: Geological Survey Circular 860, pgs. 6 & 7 I I I I I I I I M I I I � � g I I I ' :... EXHIBIT 2 Estimation of Inferred Plus Indicated Reserves for the United States By D. H. Root Estimates of the amounts of crude oil and natural gas discovered in the United States and Canada are published by the American Petroleum Institute, the American Gas Association and the Canadian Petroleum Association (AP I, AGA, and CPA). These estimates have been updated annually since 19b7 (API and others, 1967- 1979). Ultimate recovery (defined as past production plus proved reserves) of oil or gas in fields discovered in a given year usually increases from one estimate to the next. Increases are proportionately larger for younger discoveries than for older discoveries; The changes in estimates of the amounts of oil and gas discovered in a given year could be due to several reasons: (1) drilling could prove that some fields were larger or smaller than had been thought, (2) production experience could indicate that the assumed recovery factors '.:ere too high or too low, (3) application of improved recovery techniques could change the anticipated crude-oil recovery, (4) a field could be reported to the reserves co mmittee for the first time several years after its discovery, (5) the discovery year assigned to a field could be changed which would shift the estimate of the field's oil or gas to another discovery year, and (6) new producing zones could be found in an old field. The phenomenon of growth in estimates of the amount of oil and gas has been studied by many authors (Arrington, 1960; Hubbert, 1974; �1arsh, 1971; Mast and Dingler, 1975; Pelto, 1973; and White and others, 1975) in an effort to estimate what future increases could be expected. Methods and data used by those authors to estimate future additions to proved reserves from growth of past discoveries are similar to those used here. The. future growth of estimates of ultimate recoverv from fields di scovered before 19/9 ·-is esumat�d fie're-un'derc he--as sumpti Ons that ( 1) w"fle"i1a-n-e1<1 has beetl ktrown-ror· 59· ve1!rs-, Tis iSt'i-;;��d ultimat:e----r'ecove'r'�· will-· �0 lOng'e r cnange, and (2) estimates of recoverab1e 6ii and ga5"'""i n recently discover·ea· fie ids wiTr-·s-how ch e -· ·-.. same percentage growth-w i th similar age as do es timat_!=s for f:leTc!S_ that _were discovered years 'tii2• Annual data (API and others, 19b7-1979) go back only to 19�0; hence, the choice of 59 years 83 in assumption "1." Although this petroleum data series began in 1967 (API and others, 1967), only those books for the years 1971 through 1978 were used to estimate growth factors for recoverable oil. The length of the data series used has an effect on the estimated future growth. Figure Fl shows how varying the nu mber of years of data changes the estimated future ad ditions to reserves from pre-1979 fields. Use of 1971 through 1978 data gives an average amount of growth. The growth remaining in the fields discovered in a given year is calculated by estimating the expected percentage growth for each year of aging until the fields become 59 years old and then accumulating the 1-year growth factors. The calculation of the amount of growth from the first to the second estimate serves as an example. Several estimates of ultimate recovery are available for oil fields discovered in the years 1971 through 1977; they II) 40 ...1 w a: 3!5 a:: <( Q z 0 2!5 ::::i ...J cc "' 0 1!5 z -z" iO ...... � !5 0 a: e,:, 0 13 12 11 10 g B 7 6 !5 4 3 2 NUMBER OF YEARS OF OAT A Figure Fl.--Projected total growth of estimates of the amount of ultimately recoverable crude ·oil in fields disco vered be.fore 1979 in the cc..nterminous United States versus the. number of years of data used. Thirteen years of data are from 1966 to 1978; two years of data are from 1977 to 1978 (American Petroleum Institute and others 1967-1979). I include estimates made at the end of the year of their discovery and estimates made 1 year after that. From these estimates, the expected percen�age increase between the first and second estimate can be calculated. Let w(i9j) be the estimate as of the end of year j of recoverable oil in all fields discovered during year i. The estimated 1-ye&r growth factor from the first to the second estimate is then given by the ratio 1977 :E w(i ,i+1) i .. 1971 = r(l) (1) 1977 � '.Y(i, i) i = 1971 In general, the estimated 1-year growth factor from the n-1 year estimate to the nth year estimate is given by 1978-n :E w(i, i+n) i = max of 1972-n, 1919 = r(n) (2) 1978-n !J w(i, i+n -1) i = max of 1972-n, 1919 For the purposes of these calculations, all fields discovered before 1920 were credited to 1919. The amount by which the estimate of the recoverable oil discovered in the conterminous United States in a given year is expected to increase is obtained by multiplying the 1978 estimated ultimate recovery estimate by all the r( n) from equation (2) where n is greater than the difference between 1978 and the discovery year and is less than 60. The growth factor for an estimate as of Dec. 31, 1978 of recoverable � 75� -------------------------------------� 7 � w 6 ..J <( z a a: 4 0 1.1. 3 0 5 10 15 20 25 30 35 40 45 50 55 60 YEARS AFTER DISCOVERY Figure F2.--The growth of estimates of the amount of recoverable oil discovered in a given year in the conterminous United States versus the number of years after the year of discovery. Data from the American Petroleum Institute and others (1972-1979, v. 26 through 33). 84 oil in fields discovered n-1 years Dec. 31, 1978 is given by R(n), the all the 1-year growth factors, ·c( i) greater than n-1. 59 R(n) •1T r(i) i=n (3) Figure F2 shows how the estimate of recoverable oil discovered in a given year in the conterminous United States is projected to increase from its first estimate to its fj.fty­ ninth estimate. Similar growth curves cim be calculated for individual reporting areas.· The estimated known ultimate production from '1<nown oil fields (inc luding growth) was calcula ��d by applying the growth factors for each rep dr ting area to the corresponding oil-discovery ·�Q.ata. The es timated inferred and indicated reserves are derived from these figures by subtract f9n of API cumu lative production and proved reserves. The results of the individual State calcula.tions are presented in table Fl. Note that the sum of the State estimates differs somewhat from. the estimate calculated for the contermi nous United States as a whole. The American Gas Association estimates of the amount of natural gas discovered in the Unit�d States are divided by geographic location, year of discovery, and whether the gas is associated with crude oil or not (API and others, 19 67-1979). Growth factors for natural gas were calculated in the same manner as for oil. In addition to the growth factors calculated for total natural gas (fig.f: F3), individual growth factors for associated and non-as sociated natural gas also were calculated. Calculations indicated that most of t.h.e-g4.0lotl:.LiD:iiaiY.ii_Cg�s. -:rs· _ e�E�� ted--to be-in non-assaci(ted gas; not m�ch growth in associated gas. Because trends in natural gas !"' �4�-------------------==- � ... --'-�-/�· � 3-<( � � a:. 0 1.1. 0 w .... Q. 1 2 -1 1 I. � 0 ------------_________ ......_. _ __. ::l 0 � 5 10 15 2(1 25 30 35 40 45 50 55 6 0 YEARS AFTER DISCOVERY Figu re F3.--T he growth of estimatEs of the amount of recoverable n.1tural gas discoverd in a given year in the conterminous United States versus the number of years after the year of discovery. Data from the American Petroleum Institute and others (1971-1979, v. 25 through 33). I Table F-1.--�3tiMated infePPed plus indiaatec PesePVes of cPude oil in fields discovePed in the United States excl�.<sive of Alasl(a as of Dec. Jl� 1978 (Tabulated values are compiled from American Petroleum Institute data (American Petroleum Institute an.1 others, 1967-1979). Values shown are in thousand barrels. Asterisk, *, indicates that the offshore is included] Estimated ultimate production from known fields Reporting area (including growth) 1 Alabama.................... 289,977 Arkansas................... 1,701,211 California: *Co astal •••••••••••••••• *Los Angeles basin •••••• *San Joaquin basin •••••. Colorado •••••••••••••••.••• Illinois ••••••••••••••••••• Indiana •••••••••••••••••••• Kansas •••••••••••••••• t?t. ••• Kentucky, Ohio, Pa., W. Va ............... . Lou isiana: North•••a••••••••••••••• *South ••••••••••••••••••• Michigan ••••••••••••••••••• �1ississippi ............... . :!an ta na ••••.•••••.••.••••.. Nebraska ••••••••••••••••••• �ew �texico: �orthwest ••••••••••••••• Southeast ••••••••••••••• �or t h Dakota ..•••.•..••.•.• Oklahoma .•••..••••.•••••• o. Texas districts: RRl •.••••••••••••••••••• *RR2 .•.••••••••••••••••••• *RR3 • • • • • . • • • • • • • • • • • • •• • *RR4 ••••••••••••••••••••• R"RS ••••••••••••••• �•···· RR6 ••••••••••••••••••••• RR7B •••••••••••••••••••• RR7C •••••••••••••••••••• RRS ••••••••••••••• • • .... • RR8A ••••••••••• .,. •••••••• RR9 and 10 •••••••••••••• Utah and Wyomt ng ••••••••••• Miscellaneous ••••••••••••• Total United States e xc l usi ve of Alaska ••••• Gulf of �1exico2 •••••••••••• 5,678,865 8,131,261 11,161,506 1,704,301 3,267,886 548,932 5,710,048 3,640,751 2,482,399 20,997,900 1,782,923 2,150,088 1,439,195 423,121 266,112 5,355,099 905,445 13;749,133 1,274,930 2,554,210 7,640,943 3,079,096 977,621 8,247,950 2,229,344 1,655,041 13,251,172 10,093,575 4,914,207 9,105,129 1,377,139 157,786,510 8,168,899 Cumulative production 200,747 1,446,573 3,156,060 7,152,843 7,789,342 1,230,506 3,100,162 464,690 4,789,712 3,305,658 1, 981,695 13,874,593 769,008 1,636,855 987,950 370,871 171,722 3,223,574 524,969 11,598,031 785,812 2,172,047 6,811,104 2,934,220 923,298 6,584,387 1,665,402 1,434,728 9,111,527 6,196,870 4,385,534 5,074,035 551,344 116,405,869 5,299,088 Proved reserves 33,107 94,038 601,756 879,222 1,990,323 198,012 137�927 26,515 350,367 240,858 208,742 2,684,659 190,164 187,587 140,466 29,291 16,826 468,814 161,213 1,073,469 110,258 382,189 745,558 122,586 54,323 1,512,934 188,922 166,334 2,389,899 1,694,063 322,925 959,938 193,119 18,556,404 1,749,464 Estimated inferred plus indicated reserves 56,123 160,600 1,921,049 99,196 1, 38 1, 841 275,783 29,797 57,727 569,969 94,235 291,962 4,438,648 823,751 325,646 310,779 22,959 77 '564 1)662,711 219,263 1,077,633 378,860 0 84,281 22,290 0 150,629 375,020 53,979 1,749,746 2,202,642 205,748 3,071,156 632,676 22,824,237 1,120,347 1�1isc ellaneous includes: Arizo,-,a, Florida, Missouri, !-levada, New York, South Dakota, Te nnesse, Virginia, and \4ashingr.<:ln. 'I -Gulf of �texico offshore is included in Te�as and Louisiana above, but is also listed as separate entry here to be consistent with American Petroleum Institute practic e. 85 f l t t I I Table F-2.--Estimated infeT'r>ed r>eser>ves of naturo.Z. gas in fieZ.ds discover>ed in the United States exclusive of AZ.aska as of Dec. JlJ 1978 [Ta bulated values are compiled from American Gas Association data (American Petroleum Institute and others, 1967-1979). Values shown are in million cubic feet. Asterisk, *, indicates that the offshore is included] Es timated ultimate production from kno�1 fields Reporting area (including growth)! Alabama................... 1,316,002 Arkansas.................. 6,122,064 California: *Coastal •. � .•......•... : *Los Angeles basin ••••• San Joaquin basin ••••• Colorado ....•.•........... 1<a. nsas •... � .............. . Kentucky ................... . Louisiana: North.� ........•.•.•.. *South ••••••••••••••••• }1ichigan ••....•......•.•.. Mississippi ••••••••••••••• �ton tana ••.•.•..•..•..••... New Mexico: Northwest ••••••••••••• Southeast •••••••• ••••• New York •••••••••••••••••• North Dakota •••••••••••••• Ohio .••.•.•.••• �·········· Oklahoma ••••••• -. e ••••••••• Pennsylvania •••••••••••••• Texas districts: R Rl •••••••••••••• o •••• * RR2 ••••••• ,_ ••••••••••• *RR3 ••••••••••.••••••• o *RR.4 •• o••••••••••"••••• RR5 •• .., •••••••••••••••• RR6 •••••••••• , •••••••• RR7 B •••••••••••••••••• RR7C ••••• "* ••••• ••••••• RR8 ••••••••••••••••••• RR8A-•••• $ ••••••••••• • RR9 •................... RRlO •••••••••••••• ,.�. Utah ••• , •••••••••••••••••• Vi r gi ni a ••••••••••••• �•••• Wyoming ••••••• �····••••••• West Virginia1 •••••••••••• Miscellane ous •••••••••••• Total United ��ates exclusive of Alaska •• �·········•• Gulf of Mexico ••••••••••• 6,379,027 7,695,404 23,484,657 6,405,314 40,041,628 4,612,374 28,098,933 �10�152,586 3,311,682 8,183,810 3,061,443 23,569,883 25,633,059 817,645 11656,389 7,401,222 70,646,599 11,941,277 4,910,716 29,145,776 64,459,134 59,874,283 3, 924,810 24,482,339 6,615,519 9,338,267 46,860,926 7,519,520 6,360,188 57,966,49: 2,613,725 232,347 15,649,368 18,803,430 3,025,407 852,513,245 112,074 ,200 Cumulative production 204,468 3,398,326 4,879,920 6,992,565 16,30ii,916 3,249,739 25,089,559 3,370,691 22,536,432 122,196,727 1,090,611 5,290,880 1,713,400 11,235,671 17,973,482 564,978 832,045 5,502,148 49,145,070 9,20 3,489 2,831,532 20,258,807 39;286,732 39,109,643 2,606,787 16J617,900 4,793,943 5,866,211 30,194,839 5,255,155 4,378,382 47,713,768 1,380,774 99,056 8,195,597 15,060,994 2,321,781 556,749,018 49,744,133 Proved reserves 751,219 1,601,544 643,020 258,729 3,819,537 1,930,275 12,175,595 583,199 2,164,930 47,188,603 1,169,746 1,319,244 834,462 9,641,299 3,592,202 150,213 411,485 1,177,511 11,205,421 1,511,256 ! ,067,071 4,325,822 13,178,205 10,527,441 658,827 4,220,103 836,029 1,677,331 8,294,307 1,075,564 976,416 7,510,570 696,557 79,064 4.262,841 2,301,271 223,741 164,040,650 35,635,006 Estimated inferred reserves 360,315 1,122,194. 856,(187 444,110"�· 3,358,204 •:. 1, 225, 3oo··i: 2,776,474 - 658,484 � 3,397,571 � 40,967,256 1,051,325 1,573,686 513,581 2,692,913 4,067,375 102,454 412,859 721,563 lO '296, 108 1 t 2 2 6 , 53 2 ·� 1,012,113 4,561,147 11,994,197 10,237,199 659,196 3-,644,336 985,547 1,794,725 8,371,780 1,188,801 1,005,390 2,742,154 536,394 54,227 3,190,930 1,441,165 479,885 t31,723,577 26,695,061 1 Miscellaneous includes: Arizona, Florida, Illinois, :tissouri, �ebraska, South Dakota, 'tennessee, and i�ashin gton. 2 Gulf of Mexico offshore is included in Texas and Louisiana above, but is also listed as a separate e nt ry here to be consistent with American Petroleum Institute prac tic e . 86 .� -� E ..... I w w u.. u iil � u .... I! 0 ,..... z z l-� 0 I ' a: 0 I I I � 120 100 80 60 40 20 0 13 12 11 10 9 8 7 6 !5 4 3 2 NUMBER OF YEARS OF DATA Figure F4.--Projected total gro�th in estimates of the amount of ultimately recoverable natural gas in fields discovered before 1979 in the contermi�ous United States versus the numbet" of years of data used. Thirteen years of data are from 1966 to 1978; two years of data are from 1977 to 1978 (American Petroleum Institute and others, 1967-1979). data are too erratic to permit the calculation of growth factors on a State by State basis, the table of inferred reserves for the States (table F2)-was calculated by apply ing the growth factors calculai:"eCi tor fhe conterminous unrted States as a whole -co the--state natural�gas discovery data. tlie-g-r-o'Qtl\· curve �(fig. F4) for recoverable natural gas was calculated by the same method that was used for recoverable oil, except that for gas, nine years of data--1 970- 1978--were used instead of ei,�ht. Figure F4 shows how varying the length of the data series changes the estimate of growth of gas reserves. Again, the length of the data series was chosen to give an average amount of growth. Inferred reserves for natural gas were calculated in a manner similar to that for oil. For both oil and gas, the growth factors were calculated for a particular data series, and to apply the factors to another data series, for example, to individual field data, would be 87 inappropriate. Lote reporting of _discoveries probably is respvnsible for much of th�_apparent grow�!!.·· the ·rirs·t· two or three seaq; af;er discoverv. If this is true, then those fields d1at hav"e be_el!. �7ported gfo�t much fes�_.iQ.�.n the calculated growth curves migJ:lL?L.li.�L i.�.JL.Qrle t,9_p.tij.ev.e:·· -�-----·· REFERENCES CITED American Petroleum Institute, American Gas Association, and Canadian Petroleum Association, 1967-1.979, Reserves of crude oil, natural gas liquids, and natural gas in the United States and Canada [annual volumes for the years 1966-1978]: New York, American Petroleum Institute. Arrington, J. R.., 1960, Size of crude reserves is key to evaluating exploration programs: Oil and Gas Journal, v. 58, no. 9, Feb. 29, p. 130-134. Hubbert, M. l<.., 1974, U.S . energy resources, a review as of 1972, pt. 1, i11 A national fuels and e1.ergy policy sturiy: U.S. 93rd. Congress, 2d session, Senate Committee on Interior and Insular Affairs, Committee Print, Serial No. 93-40 (92-75), 267 p. �Iarsh, G. R., 19il, How much oil are we really finding: ·Oil and Gas Journal, v. 69, no. 14, April 5, p. 100-104. �last, R. F., and Dingler, Janet, 1975, Estimates of inferred + indicated reserves for the United States, in Miller, B. M., Thdmsen , H. L., Dolton, G. L., Co ury, A. B., Hendricks, T. A., Lennartz, F. E., Powers, R. B. 1 Sabl e , E. G. 1 and Varnes, K. L., Geological estimates of undiscovered recoverable oil and gas resources in the United States: U.s. Geological Survey Circular 725, p. 73-78, Pelto� C. R.1 1973, Forecasting ultima�e oil recovery, i� Symposium on petroleum economics and evaluation: Society of Petroleum Engineers, American Institute of �lining and Metallurgical Engineers, Dallas section, SPE 4261, p. 45-52. Wh i t e 1 D. A • , Ga r r e t t , R. W • 1 J r • , Marsh , �. R. , Ba ker, R. A., and Gehman, H. M., 1975, Assessing regional oil and gas potential, in Haun, J. D., ed., Methods of estimating the volume of undiscovered oil and gas resources: American Association of Petroleum Geologists, Studies in geology, no. 1, p. 143-159. U.S. GO\ 7:RNMENT PRINTING OFFICE: 576-034/'117-1962 EXHIBIT 3 -Estimate oi gas reserves in Alaska by the Alaska Oil & Gas Conservation Commission. SOURCE: 1981 Statistical Report. ESTIMATE OF GAS RESERVES IN ALASKA FIELD Beaver Creek Beaver C re e k (�4G) Beluga R ive r Birch Hill (SI) Falls Creek (SI) Granite Point (AG) Ivan River (SI) Kenai Kuparuk River (AG) (ll�tJ )/ry.t " Lewis River (SI) McArthur River McArthur River (AG) Middle Ground Shoal (AG) Nicolai Creek (SI) North Cook Inlet North Fork (SI) Prudhoe Bay (AG)(N _�,. �� 1 E ast Barrow (N·S�p�; So uth Barrow ( N. 5/u ;r: ) Sterling Swanson R iv e r (AG)** Trading Bay Trading Bay (AG) tvest Foreland (SI) Wes t Fork Total Reserves* (BSCF) January 1, 1982 239 ... 1· 742 / 11 13 - 26 26 .. 1,109-'. 206 22 ./ 63. 27 14 17 ._/ 951 .. 12/ 28,778 12 � 23"' 259 � 10 3 20· 6 .,.· 3·2,60l Total A las ka n gas reserves as of January 1, 1982 are almost 33 trillion standard cubic feet . The.se reset:"ves are included in 24 s eparate accum ulations. The largest accumulation is in the Prudhoe Bay Field, Pr udh oe Oil Pool which accounts for almos t 90% of the Total. Close to 650 billion cubic feet of gas was produced alon g �nth t he oil from P ru dh oe Bay Field during 1981. Of this volume of gas almost 600 billion cubic feet were reinjected into the gas cap. The o th er 50 b illion cubic feet were either u se d in the field as fu el or s ol d. Gas reserves in the Prudhoe Bay Field are termed associated gas s ince they are associated with an oil accuD'tulation. This is also true of reserves in s e ve n other fie l ds that have been de s ig na t ed as "AG". Discovered fields that have not produced or are not pr,.!sently producing have be en des.ignated as "SI" f o r shut-·in � 'The remalnder of the r·eserves are termed as dry gas since they are not asso c ia ted with an o il accumulation. * See footnote pilg e .2.3. ** Primarily inj e c t ed gas for pr e ssu re maintenance. -24- BELU�\ RIVER GAS FIELD COOK INLET BASIN, ALASKA CHEVRON U.S.A. INC., OPERATOR DISCOVERY WELL DISCOVERY DATE DEEPEST TEST PRODUCING FORMATIONS GAS POOL TYPE WELL Method of Operation Gas Producer RESERVOIR DATA F l owi n g Shut-in TOTAL Reference Datum -Feet Below Se� Leve l Original Pres s ure -psia Pressure avg. 12/31/81 -psia Gas Specific Gravity Temperature -"F Net Pay Thickness -Feet Porosity - % Swi -% Developed Area -Acres Standard Oil Co. of California Bel uga River Unit 212-35 December 18, 1962 Standard Oil Co. of California Beluga River Unit 212-35 16 ,429' MD,TVD Sterling Undef ined No. of Wells 6 0 6 3300 1635 1540 0.556 94 107 31 37 5115 Beluga 4500 2215 1750 0.556 106 106 24 42 4826 EXHIBIT 4 -Representative Gas Field Data - 23?- I I I I I I I I I I I I I I I I I I I I I ' j I I ·! I I I I .. l I � � m � � � m � � � ' I BELUGA RIVER GA S FIELD COOK INLET BA SIN, ALA SKA CHEVRON U.S.A. INC., OPERATOR DISCOVERY WELL DISCOVERY DATE DEEPE ST TEST PRODUCING FORMATION S GA S POOL TYPE WELL Method of Operat ion Gas Prod ucer RE SERVOIR DATA Flowing Shu t-in TOTAL Reference Datum -Feet Below Se a Level Original Pres sure -psia Pressure avg. 12/31/81 - psia Gas Specific Gravity Temperature -°F Net Pay Thickness -Feet Porosity -% Swi -% Developed Area -Acres Standard Oil Co. of California Beluga River Unit 212-35 December 18, 1962 Standard Oil Co. of California Belug a River Unit 212-35 16,429' MD,TVD Sterling Undefined No. of Wells 6 0 6 3300 1635 1540 0.556 94 107 31 37 5115 Beluga 4500 2215 1750 0.556 106 106 24 42 4826 EXHIBIT 4 -Representative Gas Field Data -237- I I I I I I I I I I I I � r. � f• � � bl Gl " 17 20 • 29 L .6 21 ·; I .5 R 10 W �. 22 27 �233-27 -.'}Z21-23 -' 14 t 2l4-13 R 9 W � 212-18 2.3 ¢1-212-24 -<?-14-19 " :/ /fJ- 18 19 \. T 13 .3C N /, ..._ BELUGA RIVER UNIT / : OPERATED BY CHE'.t;tOH USAIMC· 36 .31 241-34i} �232-4 J.... 244-4 --� .. ........ 9 II ALASK A OIL AND GAS CONSERVATION COMMISSION·:-:. . '� .... ANCHORAGE,ALASKA � Tj 12 N BELUGA RIVER GAS FitLD ·,.�,'\' z ooo' o SCALE '1 �.f�t "·� �· JAN· I, 1982 -..-. ••• .-...... ";� Reserves (1) Production (2) Accumulated Production Reserv� Estimate (3) .�·� . ....,. � -�j!§ ·am � ,_.,...,._.;..,�A� ' --.-;.�, ... .:11 EXHIBIT 5 Cook Inlet Reserves -1978-1982 (Volume in TCF) 1979 3.519 Base 0 3.159 1980 3.785 0.185 0.185 3.97 YEAR 1981 3.594 0.199 0.384 3.98 .iW!Y 11@ J!M 1982 3.422 0.202 0.586 4.01 !¥§ ;ge L'!! (1) As of Jan. 1, of following year. From Alaska Oil and Gas Conservation Commission Statistical Reports for years indicated. (2) Gas pr oduced (and consumed) for indicated yea r. From "Historical and Projected Oil and Gas Consumption, Jan. 1983," State of Alaska, Dept. of Natural Resources, Division of Mineral and Energy Management, table 2.8. (3) Reserves pl us accum ulated production. �Y!I � le:¥1¥§ �� ,:JI!'t!� �� � ..,_ ,. �� � � � '&49 ----·��-J-,_.:___ � ----.,__ --" ,,� ... --..._....' ,:..._.....� ..>.,.,;;.r.-.. ::-.. �-«:1 , EXHIBIT 6 U.S.G.S. Estimates of Alaska Gas Reserves -TCF 1975 Estimate(1) Measured Reserves Inferred Reserves Onshore Offshore Total Onshore Associated Non-AssiQciated Offshor� Associated Non-associated Total 31.70 0.15 31.85 26.1 3.5 0.2 1.7 31.5 14.7 0.1 14.8 1980 Estimate(2) 2.1 2.3 (2) 1.1 5.5 (1) Estimate not divided into associated and non-associated gas (2) Negligible Sources: 1975 -Circular 725; 1980 Circular 860 d!9 :?!'!!! Total 46.40 0.25 46 .65 28.2 5.8 0.2 2.8 37.0 111!1111 ..._ � .ffS ;.;....;..;,;;.� , ...... ...,;!'� ... �-� J " ' l l � "1 •• ,r l ll ! If, pt,, � I \ j �ETHODOLOGY OF RESOURCE APP��ISAL Review of general methods Many methods have been developed for estimating undiscovered petroleum resoui:ces. The methods differ greatly with respect to strengths, weaknesses, amount of informc:ttion needed, and applicability of results. Thc'e are various amounts of overlap between the methods and sometimes several methods are used in conjunction. The five major categories of resource appraisal methods are as follows: II. These �ethods use statistical procedures to predict future discoveries by extrapolation of past performances. The most commonly used historical statistics are finding rates, that relate the d1scovered volume oE hydrocarbons to the exploratory footage drilled, or the number of exploratory wells, or time. Hubbert (1974) and �loore (1966) used techniques of this category. These methods involve the calcul ation of amounts of discovered hydrocarbon per unit area or volume of rock in well-explored dist�icts and application of these ratios to areas or volumes of rock in le ss-explored districts. Variation among these approaches is due pri�arily to different assumptions conc�rnl.:1� dbtrict� • ·lnd Kle::�me !:!le .t:-�u!•)£ies between . ·:eer<:s (1951!), Hendricks (t965) 96 1i di.:>CU$S :he!?e procedures.' v. This i.s ,1 specL1l type or volumetric method in ;..:hich �stim a tes .1re made oE the amounts .,f hydr<Jcarbon generated, migrated, and traj)ped. ThL; dpproach has b een utilized 'lluinl.y by Soviet "5eologists (for example, �:eruchev, 1964), In these methods the amount of hvdrocarbon in .:1 13lay or prospect is det"ermi ;ed . by u �e t)[ a rese r'voir engineering equation, taking into dccount--ge.ologic.r"isk faCtOrs. Often the input for each variable (such as thickness-of reservoir rocks and porosity) of this equation is in the form of a ?robdbility distribution. that is known ·or eSITffiate<f:·-:tonte Carlo methods commonly are used to-generate a probability distribution for the amount of hydrocarbon. The study of the �ational Petroleum Reserve in Alaska by the U.S. Department of the Interior (1979) used a play analysis. ::i"'ea.t Sub,iea.tive .4ssessr:ent \!ei�ods In these methods, the quantity of resource is estimated directly on a subjective basis by an expert or team of experts. Geological information, and, generally, results of analyses by one or more of the other four methods, are reviewed and weighed. Delphi techniques commonly are employed. A di�t subjective assessment method was used in the pr.esent report, as well as in �tiller and n.thers (197;?). EXHIBIT 7 _Methods used in estimating undiscovered gas resources. ... �1 � I} Pt ,: ,, � su:&.$4 EXHIBIT 8 A Play Approach to Hydrocarbon Resource Assessment and Evaluation L. P. White Of fice of Minerals Policy and Research Analysis I. Introduction U.S. Department of the Interior May 14, 1979 This paper presents a methodology developed by the U.S. Department of the In terior to simulate oil and gas exploration activity for petroleum provinc es. The analytical construct ls an integral part of a larger microeconomic si mulation model of petroleum exploration, development, production, transportation, and distribution activities which will be us�d to evaluate public policy al ternatives for the National Petroleum Reserve in Alaska. The N&tiona.l Petroleum Reserve in Alaska (NPRA ) is an area of approximately 37,000 square miles located on the northern coast of Alaska west of Prudhoe Bay. The Naval Petroleum Reserves Production Act of 1976 requires the Pres ident to conduct a study to determine the best overaJJ procedures to be used in the development, production, transportEl­ tion, and distribution of any petroleum ·resources in the Reserve and the - I ' . �- l �� ' i �' ' l .,. �-;-�---·-·----·-- 2 ec ono mic and environmental consequences of alternative procedure s. The Office of Minerals Pol icy and Research An alysis has been dire-cted to develop an economic and policy analysis in support of the legislative requ irement and has des igned a pe troleum process and decision model wh ich probabilistic ally sim ulates th e major activities involved in oil and gas explorat ion, deve lopmen t, productio n, transportation, an d distribut ion. Public policy alte rn atives are te sted by the model to eva lu ate their econo mic consequences over an ex tended ti me period (e.g., 50 year s). The modeling philosophy is process and decision or len ted ln order to captu re the important inte rdepe nde ncies among the va rious petroleum activit ies and the sensitivity of economic dec ision making to various public polic ies. 1 The model allows partitioning the surface area of la rge basins or provinces into ac tivity areas (delinea te d surface areas of arbitrary size, shape and numbe r) that serve as the bas ic geograp hic frame of reference for analyzing petroleum or oth er land use activ ities in th e prov ince. The size, shape, number, lan d use classif icatio n, connect ing transportatio n co:l"ridor�, and availtibBity sequence of activ ity areas are majo r public policy optlo'ls for which a.!ternat ive policies and pr ocedures may be te!:ted. For examp le, a province may be divided into two sets of activity areas1 one set represent ing areas closed to petroleum act ivity and the other set repre ... sentlng areas that could be opened for petroleum activity acc ording to a particular sche dule. (Figure 1 presents an example se t of activity areas for the National Petrole um Reserve in Ala ska.) - �T"' f .;; 'ii \! �� ,;! '1 4 ':I ;�1 � I l I I , .. ·� i..2-----.��---1 A R c T I c c._ ........ ... I, · ·· . ..... . r i .... .... 0 IV ·-· '"(_ ... -\ -· \ :.: . ::::.... •• 4 i.'1 ''\·.-. � \.,,,._ ·-.... ''- •• .... ! . . . .. I I I D . I . ..... ! 8 ·�-�.-: \ :·�lh ;;:;;..-,.....,... ····--:..· ) t .• -.• \ t • ... ·I .--t .. t 1,-�-r :; y�� I •. i . . . I � ·t I I I I I I I I I I I J "--• I I I ,.� I-"· .._. I ·�":" l I I • c .• .�· .. r�----·-···_· __ -_.-..Jj'"--, ;�· .. I I I l: - ··. .. , ...... . . . . ..... ....... .. � I .. . ...... ····· . ..... •• t:":· f � . .• ! . i . (.ool••' .. ...... ·. ..... '· ,. l' , ...... , ..... o. ··�·· 1 I I 81 •••• ....... . r. ' .. ., . . J ... } I I I I' .. / ,-l r•·:. -r. · , ..... ..;'," •, .. . : ,. ·• .... . .. k . �. l .· I ' I � • • . I I \ � : ·:· r ::� .�.-:. ... ,.� L-'t:::r�,� \ I .•• I I I . . I • I • 1 .\ • r"' � .\ .i\ ! , ..... , '.r.l 1 !I ! \ -\ ) n 1 \ ' •J{ 1 I :! I : -···· I l • ! r ... 1\ :· '. \ \ l ' ·-f \ t .I \ I f \ I . I . .. ., le • • 'I" .i f l 1 :r -1 \ . .A' ' 1-· • i I II • I l------.JI-�.�-�� . -t-... � I I I : ... 'j: � ... !",_ I I � ..J •r· .. •·• • •• 't .A�··" : ·.\ .. r=· I .. ,!11'_ . . , fir� ! I l' I I I • I .•. I .. L .. L I •• �t:+ ·:·_ .... . . . J 'I I I .•• I I ..... ! � I • I ! '• •• • I I J I • I I I ····'\ , ' " . -� ... � I -*" I I I I : I • • • • •• '1: .. =··:I : . I �I �-II I i 1 • • ' , I i. ..... )•..... I J .J/-'.__. ....... / 4 r-L-�--��--------� �,�, • •. . I I I l:' • ': -t l. I I : I • : 11 • .._., .. . . • • \ t ' � I I . ·::::-+ ' I .. I I ', f•· \"1, .N.� ..... ! ... ·� I i '' :i I i .> ! I ·.�-·· ..... I : ' I ... , I ... ' ' ' � ' ' :i •••,... tG•u -:-,!:!�-----!:":1 :!!:" •• : : .. .•• •••• • I �: I -; • : 'I• I l ! ......... ! ·�····j i ' I II t'! I 1 • � !t -·�:� 'l • I ! I • • -... � f � • ;.., 1 I . I I I . • ··�. � � ...,. ' o .4 • ...., .,. .I -/ ., o &.• "' r1 • ,.., t' , I Q I ' I I • .... . / -.. -'O.J,..�D -" -.r,,_,, '.., •.. · .• -,. ! I ::. 1 .. . I /, .. . i �� B ..... . 0 ·�. 0 I( \ ) � l I .. . � I · I . I I I ; •.. := . Jlflil � S ��,,���--� l r� • '! ���1�:�-��;:::;lt::.:jl :! Activity Area� for Oil and 0.: � 'J;;+Fi W-I • ... ... �.). I ·-41"-. 'ill ·--R A V . _ .• ! :E I :! Anlxample - ....... , ... , .,· ... .i.it t, �. t. ��. ·_:�;,..,_. I ' , • 1: I I • u �-I . I ���-.. --==.a-=�-�,�--------�----Bn--�--��·�------------- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - w 1: I J j I I f I J I' f �-J J!' �·· � . If:). ! ,:' ,�. ,: F� [,' r.J ��t 1(1 r. �'i ': l i i "--�� 4 Among t h e ac tivities the in tegra te d model explicitly �imu1ate s are two of the major economic decis ions that occur repea tedly ln the develop­ ment of a petroleu m province. The first decision involves the determina­ tion of whe ther a particular prospect merits testing with an explora tory well; the second, wheth er the reso urces contained in a dis covered de posit , or combination of depos its, merit developmen t, produ ction, tran sportation and dist ribution to market. This paper addresses the procedure s developed to simulate the ex plorat ion decis ion. In the following sections an overvi ew of the play app roach is presented, followed by a discussion of alternative approaches. A geology model and an explorat ion model ba sed on the play approa ch are then developed. II . Overview of the Play A pproach The explora tion process is simulated through the integration of twc indepe ndent subm odels: a geology model that is based upon a probabilist ic assessm ent of the most important geologic para meters l n a province, and an explorat ion model that simulates the search for oil and gas in the p rovince. The geologic model genera tes a list of prospec ts (poten tial dri lling ta·:-gets) and a resource appraisal of the oil and gas in place us ing �ub jecti ve probability distrib utions devel opeti by experts familiar wlth the geology of the area. The ex plo rat ion model si mulates the economic evaluation of prosp ec ts by an explore r and the drilli ng de cision, generating a sequence of di scoveries that for m an inven tory of pools to be evaluated for de velop ment. - ) , ,, r· r, Jr··.· \\ ' r, �·-��, J1-: \1 'l _.J 5 These two sub models are i n t e g r a ted in a Mon te Carlo simulation of ex plora Lory act i v ity over an ex tended ti me p e r i od. Each Monte Ca rlo pass begins wit h the g eol o g ic submodel sa mpH11g fiom proba bi li ty distributions . for the i m p o r tan t g eolog i c p ara m e t e rs to sim u la te a poss ible state of g e o l o gic na ture for t h e provi nce. Th is s t a te of g e o l o g i c nature is composed of a part i c ula r number of pro spects, so me of which are s i mula te d as actual deposit s of oil and gas with th e re m aining ones d r y . After s i mula ti n g th e i r e x p e c ted size, these prospects are ranked accord ing to e x p e cte d volu me to form a simulated target list for th e discovery process. The discovery process is t h e n represen t ed, on a y e a r by year basis, as the seq uen tial evaluation of prospects o n the ta rget list. The st a t u s (i.e., a deposit or dry) of the pro spects is unkn own to the si m u la te d ex p lo re r . If the expec ted economic val ue of a p art i c u l ar p r o sp e c t just i fies d r i lli n g an expl o r a to ry well the si mulated decision is to test it an d de termine whether it con tains hy drocarb ons. This proc edure con tinues each year in the Monte Ca rlo pass or un til all p ro s p e cts have been teste d. The lear ni n g process in ex ploration is simul a te d by using the d rill i n g re sults each y ea r to u p da t e the simula ted ex plorer's perc e i ve d state of g e o l o g ic natu re. The output of the explora tion m o d e l each year is a list' of dry we lls and discov ered depos its o f oi l and gas. The discove red deposits are a dde d to an inven tory of pools to be c on s i d e red for develop ment. A l a rg e nu mber of Monte Ca r l o passes are made to gene rate f requ e ncy distribut ions for tne i mpo rtant r - , i i ; � I ,, l ·' � l '· " ·t ,. ! �· ' ,f �I �1 � q , i :.f ;j f (t 1 l � � i I i ! � ·-· JJ , Jl , J " , , . r r ,�.! \', ,�. j 1 ' { ; �--! j . �� �1� 'l d -.. J 6 output variables such as to ta l oil and gas re sour ces in pla c e, dis cov e re d reserves, an d p r odu ct i o n . III. Existing A pp r oa c h es to Resource Appra isal and Exploration Modeling · Ex isti ng ap p r o a c hes to resource appr a isa l and ex p l o ra t ion m o deling g en e r ally fall into one of t h re e ca te g o r ie s. A brief desc r ip t io n a n d discuss ion of their usefulness to situa t io n s similar to the National Petro- leum R e s e rve in Alaska (NPRA) follows. Historically , volu metric an alysis has been th e prim ary assessment p r oc e dure app lie d to a la r g e province. First, an area t ha t has received s u b st a n t i a l e x plor atio n and develop ment and that is geologically an a log o us to the area of in terest is identif ie d. T h e n, the results of the an a l o g area per unit of se d i m ent a ry volume are used as a su rro g a te for the hy drocarbon p o te nt ial per unit volume in the area of i n ter es t . A good exa mple of the v olu m e t ric app roach may be found in J o n e s (1975). Two shortcomings exist with this a p p r o ac h when used to estimate the econo mic valu e of the pot e n t i a l resources of a frontie r p r ovi n c e such as the NPRA. F i r s t, since t he d egr e e to whi�h the a n a log area m a tc h e s the target area is difficult to assess, it is diffi cult to quantitatively estimate the geo l ogi c uncer taJ:"ty an d, in turn, the economic u nce rta i nty for the area of intere st. Second, the level of g e o logic informa tion is far too - I' j, �' ,J l , . •• jl r ,, ,. f1 � i� G ,, ,j ;j � ·� :J .i j j ·i 1 ,·""'"1 ! I ' ! �t , J; ' , r ' ,t ' r < r ' r, f', ' ,�, ,, r� . :, r:: l t ... , .• l 7 limited to be usefu l for econo mic analysis . Many of the geo log i c characteristics critic al in deter mining econom ic value are lo s t (e.g., number of deposits, sizes of deposit s). Prospect analysis, a se c on d app roach to th e a s se ss men t of an area, involves the identif ication and relatively detailed ev aluation of all the p o t e n ti al targets for ex p l o r a tory drilling th a t exist in an area. This ap proach is widely used and well developed approach; see for exa mple Wansb rough (1976) or Ne we ndorp (197 5). Again, there are two shortcomings in applying this tech nique to an area s u c h as the Nat ional Petroleum Reserve in Alask a. First, t he levels of effort and data req ui red in a prospect a n a l y s is are substantial and gen eralJ y are not av ailable for the initial econo mic ev aluat ion of pr ovinces or bas ins. Second, prospect analy sis typicall y treats each prospect i n dependent ly and . ignores any r eg ion al cor relation of geo l o g i c cha racterist ics across pros- pects. The probability that a particula r prosp ect is act u a ll y a depo si t -t h e dry hole risk facto r--is co m monly used to in dependently risk �ach prospec t. In essence, this i m p li e s that the presence of oil or gas in on e prosp ect is totally in d epen de nt of its presence in other deposit s , even though the I prospects exist in a reJa tlv ely homogeneous geologic setting. Therefore, while p r o spe c t analysis is app r op r i a te for certain appl icat ions, t h e amount of infor mation necessa ry for its appli c a t i o n and the fact that it i g no r e s regional geologic c�:-relat ion make it unatt ra ct ive for the assess men t of la r ge areas such as the NPR A. f - ' ,, " I ,, � ' i JJ ,, �··. 7 li m ited to be usefu l for econo mic an alysis. Many of the geologic characteristics critical in deter mining ec onom ic value ar(� lost (e.g., nu mber of deposits� siz es of deposits). Pr ospect an alysis, a sec ond app roach to the asse ss ment of an area, invo lves the identif icat ion and relat ively de tai led evaluation of all the potential targets for exploratory drilling tha t exist in an area. This approach is widely used an d well developed approach; see for exa mple Wansb rough (1976) or Newendorp (197 5). Again, there are two shortcomings in applying this techniq ue to an area such as the National Petroleum Reserve in Alaska. First, the levels of effort and data required in a prospect an alysis are su bstantial and generally are not av ai lable for the init ial econo mic evaluat ion of pr ovinces or basin s. Second, prosp ect an alysis ty pic ally treats each prospect independently and . ignores any regional correlation of geologic characterist ics across pros- pects. The prob ability that a particular pros pect is actually a deposit-the dry hole risk factor--is com monly used to independently risk �ach prospect. In essen ce, this lmplies tha. t the presence of oil or gas in one prospec t is totally in dependent of its P' ese nce in other depos its, even thou ;,h the prospects exist in a relatively homogeneous geologic setting. Therefore, while pro spe ct an alysis is appropriate for certain applicat ions, the amount of infor mation necessa ry for it s application and the fact that it ignores region al geologic correlation make it unatt ractive for the assessment of large areas such as the NPRA. r - rr�� ... �-�,.�·���:.. .. --fS..--UiU ...... ftt ..... -1£.. -�-. 'J �J?4L�,··.� . J. a .... }'@ l '' '• j ,. j '\ f 'f I fJ � � ,". ' I r 8 A more recent app roac h to modeli ng the exploration process uses the early resu lts of e�.plorat ion to es timate the returns to future drilling. In general, initial discoveries are used to estimate the para meters of a statist ical model of the discovery process. Two examples of thj� ap proach may be found in papers by Kaufman (197 9) and Drew (197 9). A shortcoming of this a pproa c h, in its pre s ent state of development, is that is req�ires information that is no t av ailable un til after some actual discoveries have been made in an area. IV. A Geologic .\11odel Based on the Play Approach The geologic assessment procedure developed fo r app licat ion to the National Pe troleum Reserve ln Alaska focuses on the play--a st ratigraphic unit of relat ive ho mogeneous geology--as the basic unit of geolog ic analysis. 2 A fundamental assumption is that the geologic characteristics wtthin the play are signlf lcantly co rrelated but show substantially le ss corre lation ac ross plays. In particula r, if all the reg ior.a l geologic cha racteri st ics necessa ry for the occu rrence of trapped hy t.koca rbons are present in th e play area, it ' is li kely that the play will contain deposits of oil or gas. How ever, if one or more of these regional cha racterist ics is . m1ssmg or unfavorable, it is likely that all the prospects within th e play will turn out to be dry. 3 The play approach divides th e geolo gical characteristics of a paten- . tial depos it into three categories : play specific, pro spect specif ic, an d .... I I !, I I r l 1 re servoir specific attr ibutes. Play sp ecific attributes con sist of geologic characterist ic.s co mmon to the play as a unit and include h�rdroca rbon source, timing, mig ration, reservoir rock, and the number of prosp ects. T h e occur rence of these attributes is a neces sary, but not s uff icien t , condition for the ex istence of oil or g�s deposit s in the play. Pro spect speci fic att ributes are the geologic characterist ics co mmon to the ind ividual prospects within the play and inclu de the ex istence of a trappi n g mech anism, minimum ef fective poros ity, an d hy droca rbon accu- mulation. Cond itional on the ex iste nce of the necessa ry play characte r- iMics, the si multaneous occurre nce of these th ree pro spect attributes results in the presence of oil or gas in a prosp ect. Reservoir specif ic attributes are the reservoir characterist i cs of an individual deposit of oil or gas in the play and inclu de the area of closure, reservoir th ickness, ef fect ive poros ity, trap f.ill, rese rvoir depth, water satuiation, and hydr ocarb o n ty p e (i .e., oil or dry gas). These reservoir attributes joi ntly determine the volume of oil or gas present in a depos it. Probab ility judgments concerning eac h of these three sets of charac­ terist ics for the play are developed by exper ts fam illar with the g e o l o gy of the area of interest. The experts first iden t ify the major p la y s within the basin or provi nc e, review all ex isting data re !t:van.t to the ev aluat i on, an d then make sub jective probab ility judgments conc:erning the three s e t s of attrib utes for each ide ntif ied play. 4 f - ---�-,_, _ __,., _____ �-----·- - -( . j l 1 ! I ! � � �� � r � r Jl ,j �J The play specific attr ib u te s are assessed in the follow ing manner. Firs t, a pr obability distribution is developed for the number of potentially drillable prospects that may ex ist in th� play area. Second , a prob ability of existence or occurrence is assigned to each regional play cha racterist ic. For exam p le , the probab ili ty that a hy drocarbon so urce ex ists for t he p lay may be assessed as .7 5, t h e probability that timing in the play area has been favorab le at .8, th e probability that hy drocarbons could have su ccess- fully migrated from the sou rce to traps in the play at .9, and the probability that tr1e play contains reservoir grade rock at .84. The product of these four pr obabilit ies is t e r m e d the marginal play probabi lity--the joint prob ability that all the regional geologic characteris tics necessary lor the accumulat ion of hy droca rbons in the play area are simultaneously favorable. For th e above e x a m p le th e marginal play probabili ty would eq ual .4 54. The s e c o n d se:t of probab ility judgments re quired for t h e assessm ent concerns the likelihood that each of the three prospects at tributes is presen t in a prospect. These prob a bility judgments are made on th e con dit ion that all of the play speci fic attr ibutes are favorable. The produ c t of the three prosp ec t sp ecific attrib ute probabilities is the joint pr obab ility that a prospect is a depos it an d. is called the conditional dep osit probability (conditiona l on favorable play geo logy). f 10 - ·· , '1!.1 l ·�· f '·1 J l I t l I I fJ � � ' ' ' j The third set of probability judgments req uired involves assessments of the range of values for the reservoir cha racte ristics of an individual deposit within the play� Given that a prospect ac tually contains oil or gas, each cha racteristic is assessed as a probabilb:y distribution, with th-= exception of the hy droc arbon mix which is assessed as a point estimate of the likelih ood that a deposit is oi l ra ther than dry gas. These three basic sets of prob ability judgments are made for each of the identified plays and co mprise the bas ic geologic input data to the geologic model. Fig ure 2 presents an example data form for recording these judgmen ts for a particular play. At the beginning of each Monte Carlo pass the geology model uses the three sets of probabilit ies for each play tv simulate one poss ible state of geologic nature. The geolo gic model proc eeds in the foil owing manner for each identif ied play in each pass. Step 1. The probability distribution for the number of potentiallr dri llable prospects is sa mpled to determ ine the number of prospects that wilJ be si mulated as existing in the play du ring the particu lar pass. Step 2. Each of the reservoir volume dist ributions is sampled fo r each of the prospects to simula te the amount of oil or gas present should the prospect be a simulated depos it during the pass. r 11 l - ! . . • l I i. �1 f·"· i i . ! ' I;� , � . . � £j F:� r f: r r' ""• [: �; �� rr �L Re d White tV ALUA!O R: ------------- P-4 !t IVALUA 'tt!J : _5;_/_1 3...:/_7..;..9 ___ _ _ _ --·----------------------------��P�R �0�5 -.-0�F��,�--------------.�---------------AT!Rl BUT! . !;" VO RAt LE · bR PRZSENT ��·-----''--'� ----------�·---t---�-+....-.. _______ _, ______ -l HYDROCARB ON SOURCE .iS -- .80 tl') � TH!ISG � l = � t\ICRA!l Q�; .90 ·� -I t: I .84 l I ., )oo PO!EST IAL RESERVOIR FA CIES s c.. NARG INAL PLAY PROBAB ILITY .454 --1 I I I • 9 0 i V.�------------------------�------·---·�--------------- ----- -------� f-- � . I � : : : £fFEC'!IVt POROS ITY (�3�} i .:5(1 I l '-c:: .,___ ____ , ______ __ ----7---·-··----)'-·---·-------..-----·.J c.r.-I I ,. c c:: H":"DROCAR.30:; ACC r>:�'LATlC:: ?L·: a::. t-I I ���C-0�-.·o_I _ T _ I_ON -.A-L � D-EP ._ O _ S _ I _ T _ P _ R _ O _ B _ A _ BI _ L _ I _ T _ Y _. , ------···��---------------- � 1 • 315 _ I �==��=========·��======�=======�===--�·--======-====·==-====-=··====�' P.!SER\'O!R LI'IHOL0G:.' i SA�L· l X.\ I t 1 .. Cf) c:: w � I:: � < r... LiJ $ ...1 Q > - -0 = < u 0 D: c 2:: - .. H'iDROC AABO� UlX �C A-R-�-0 -i ;_A_'!_-t.�--� --�j --·-------·---·------4 I ;. .i I --bAS . i) OIL j . 25 �----�----P -ROB . r-F EQu AL !0·--t.-----I · OR CR!A!ER ��\ � 100 95 75 50 25 ; 0 f. .,_...;..;..:;...:...;_.;;;..;;...;;_;;_;;;;...._ __ �.;.=..;....:.....+-��,-��, :;;.;;;_� �-��-'.-·· ---·------ ·------ARJ:.A Or CLOSt.TR.E (xl03 ACRtS) 2 10 25 so 75 12�1 5 0 1 t----------+---+-+---+--+-+-�--i------..-----------··' RESERVOIR THICK­NESS/VERTICAL CLOSURE (FT) RES ERVOIR DEPT H (xlol Fr) 5 NUMBER OF DRILLABLE 30 32 SB PROSPE CTS (Play Attribute J 35 45 55 60 F=========�====::::::::::::::b:�:::i·� .. --.. :;:c;::a;:;:;:; ·�.:.:, PR0\'1:0 RESERVE S (xl06 BBLS ; TCF) 0.0 l FIG URE 2 r I -' ' -1-·-.'. . l ; � ' j ' , � I . r -·-..... ,. I> 13 S t e p 3. The marginal play p r ob abil ity is sam ple d to de te r m i n e w he t he r o r n o t t he p l ay will be s i m u la ted as d ry or a s po t e n t ial l y p r o d u c t i v e dur i n g the pass. St ep 4. For e ac h prosp ec t in a p r o d u c tiv e play the c on dit iona l d e p osi t probability is sa m p le d to de te r m i ne whether it will be simulated d urin g the pass as a d ep o s i t or as dry. All p r o spec ts in a dry play are simulated as dry. The p a r t ic u l a r state of g e o l ogi c nature dete rmined in each pass in the geology model ls not made known to the si mulated ex plorer, who must p r oce e d with an e x plo r at ion d r i lli ng progra m in or d e r to le arn the st atus of the in d ividu a l prospects and th us make discoveries. An imp o r ta n t i n p u t to t h e ge o logy mod el is the percentage of pro spects from each play that are likely to fall w i t hin e a c h a ctiv i t y area. It may be dir ect l y assessed by the g e o l o gist or it may be e st im ate d as the percent of t h e play covered by the a c t i v ity area. The geology mode l uses . this estimate to a ss ign eac h sp ec ific p r osp ect g en e rate j at the b e g i n n i n g of a Monte Carlo pass to a p art icula r a c t i v i ty area. The r e s u lt is a projection of the three dimensional geologic colu mr� in which p l a y s are vertically stacked into a t w o dimens ion al re a liz a t io n at the su rface, with each ac tiv i ty are a assigned the numb e r of p r ospec t s estimate d to unde r li e it. 11 I ,. ' �� ' ,, , , J , J; r� \ J � "••�"<,-�, ,-.. -.,,-,>>', -�••"f'.<ee-<'t •,r;;-,.;=-:.-..,'>'""'-'•\.'-=.>..�-=-·,-; .• )'l�J�?::::--::::::-;;;:;.,'l;:"��� .• �� .. 14 The l ist of p r osp ec ts f o r e ac h ac t i v it y area is the primary output of t he g e o l og ic sub model; a s ec ond m a j o r output, af ter completion of all Monte Carlo passes, is an apprai sal of the oil and ga s reso urces for the ar( .:1. The resource a p p r a i s a l is g e n e r a ted by cumulating the simulated deposit s for eac h Monte C a rlo pass, over a la r g e nu mber of p a s s es, to I deve lop a pr ob a b i li t y distribution for oi l a n d gas resources. F i gure 3 presents a flowchart of the Geology Model. V. _t.n Exploration M ode l Based on the Play Approach The explorat ion model simulates the sea rch for oi l and gas deposits as a dy n a m i c discovery process, i n tegra t i n g the im p o r t a n t ele ments of both the geo logy and the econo mics ap p r o pr i a te to t h e province. The pri mary func tion of the ex ploration m o del is to take the prospects gener a t e d by the geology m o d e l at the b eg inn i n g of e a c h Monte Ca rlo pass and simulate their evaluation and drilli n g by an explore r. E x p l o r a t i o n is modeled as a decis ion process under uncertain ty in that t h e s i m u la ted ex p l orer does not know prior to drilling if a p a rticul ar prospect has been simul ated as a depos it or as dry by the geology mode l. That is, perfect information about the si mulat ed sta t e of the geologic wo rld is not available at the ex plora tion decision poin t. Rather, the evaluation o:£ a prospect and the dec i s ion whether or not to te st it with an ex p lor a to r y well are based on an impe rfect percep tion of the geology derive d fro m the origin al probability distributions. Given that his decision is to test a particular prospect, the r ... 1,,, J ,"f l .. ; • II II . � P:! R J:J f ,1 ' ' � l " rn ' ' " GEOLOGY MODEL [ lEG IN A MONTE CARL(' PASS. SELECT A 'LAY. SAM,LE ONCE FROM THE NUMBER OF PROSPECTS DISTRIBUTION TO I&M ULAT E THE NUMBER OF PROS· 'ECTI IN THE PLAY. SIMULATE THE CONDITIONAL ,..--.-4�VO lUM E FO R A PR OSPECT BY SAMPliNG ONCE FROM EACH OF TH E R£SE�WO IR DISTRIBUTIONS AND CALCU L.TING THt '!OLUME. NO I ·a tfiiAL PLAY PR OIABILITV AND LAI!L fMI 'LAY AI PRO DUCTIVE fl DIIV. <'!. • ·-. ,., ... -.. -" .. IUM THE VOLUMES OF THE DEPOS. ITI FO R USE IN GENERATING A . RES OURCE APPRA �SA l. NO TH E PLAY �E EN LAB ELED'f �; NO SA MPLE ONCE AGAINST THE CON· DITIOi'IAL DEPOSIT PROBA BILITY AN D LAB EL THE PROSPECT AS A DEPOSIT OR AS DRY. SELECT A PROSPECT. YES FIGU RE 3 ALLOCATE TH PROSPECTS TO ACTIVITV AREAS • 15 - IEGIN T>!f EX"-OAATiO r4 MOCel. LAIEL A&.L PROSPECn AS DRY. ! -"" --- . � l, ,. ' : ,, , F ri l i r ' ' [n.i i' 'i L·"'.' ·' ' ['1 ,, ---'fo1-�· cost of an exploratory we ll is char g ed and the st atus of the prospec t (a depos it or d r y) i s r e v eale d to the ex plo r e r . The discovery process continues each year unti l all prospects p e r - 16 ceived to be economic hav e been tested or until the ter m ination yea r for the particular Monte Ca rlo pass has been re ached. The ou tco m e, in terms of d i sc o v e ries and dry p r o spec ts, represents the returns to ex ploratory drilling for o n e particular re aliz ation of g e o log i c and econ o mic cunditi o ns. A la rge n umb e r of such passes are made, each time using the ge o l o g i c model tv gen erate a p o ss i ble state of g eolo g i c natu re against which the exp loration m o d e l simulat€5 the discovery p roces s . Outcomes of interest (e.g., total oil and gas in place, to tal oil and gas discovere d) from each pass may be accu m ulated and frequency distribut ions deve lope d as outputs of the Monte Carlo simulation. Once a p ar t i cula r g e olo g i c st ate of nature has been generated for each activ ity area in the geology m o del the year by year ex plo r a t i o n process for the particular Monte Carlo pass is simulated in the ex ploration model. Associated with each act ivity area is the year that ex plo r a t io n is scheduled to com mence. More than one a c ti vty area may be s c h ed u l e d for initial exp l o rat i on in the same year while so me activity areas may never be scheduled for exp lora tion. This flexibility pe rmits test i ng the ec onomic consequences of alternat ive configurations f o r Fede ral lease sa les in a province. I I I -1 . l I . r �l ! i . rl 1 [l � : l 17 The e x p loratio n model fol lows a four step procedu re simulating the discove ry p r oc ess over time in activ ity areas o pen to explo rat ion (F i gu r e 4 presents a more detai led flow chart). Step 1 -A target list con t a i ning all untested prospects in ac tiv ity areas open to ex ploration is for med by rar.l<ing the !)r e sp ects accord- ing to e x pec ted (risk ed) volume. St ep 2 -Prosp ec ts on the ta rget li st are economic ally evaluated, taking into a ccou nt the pe rceived g e o logi c risks (the ma rginal play and condit ional deposit probabilities) . Step 3 -The decis ion on w h ic h prospects, if any, to test with an explorato ry we ll is made based on expecte� v alu e , drilling .c.?st s , and an ex plorat ion bu_Qg_�L�PQ�_�rain t. -- Step 4 -The explore r's g eo l o g i c perception is updated� by re vising the marginal play probabi lities he uses in esti mating expected volume an d econo mic value, to reflect p r evi ous drill ing re sults. The four steps are repeated each y e a r that exp l o rat i o n is allowed until either the te rmination year is reached or all of the p r o s p e c t s perceived to be economic have been t e sted. r - . I l'l r r r , f r r . ' � J.: r., · .. r� ' J r. J I ' r· #) 1 r. !.,, ' . ' . t J··�, l ' . ·'I 18 EXPLORATI ON MODEL IEG IN THE NEXT YEAR IN TH E MOWTE CARLO PASi. AGC ftEIATE THE UNTESTlD PMlln:cTI F O R AI.L ACTIVITY IAft�:· OPEN TO IXPlO RATI ON. � /�, /�HE�� ArtY NO ( UNTESTED >---� �ROIPECTS7 COMPUTE T H E EXPE CTED VOLUME FO R !ACH UNTEST ED PROSPECT IY Rtlr.IN G TH E CONDITIONAL VOLUME IY IT'S MA RGINAL PLAY AND CONDITIONAL D EPOS IT PROB· AI IUTIES. CO�Si "t;CT A TA"GET L I ST 8,. O�DERING THE PROSPECTS BY EXPECTED VOLUME. CALC ULATE THi CONDITIONA� (UN JUtK EO) tCOHOMIC VALU! Of 'tHE ���IT UNTIITEO ftROIPECT o• jH t TA ftiE1 LilT. ----=·· ---· ' DETERMINE WH ICH DEPOSITS IN TH E PO Ol I NVE NT O R Y TO PRO· DUCE AND TRANSPO RT. RECORD THE RESU LTS FO R ALL ACT IVITIES IN TH E CU RRENT PE R IOD. EXPLO RATION IS FINISHED FO R TH E CU RRENT P E R I O D : UPDATE THE MA RG INAl. PlAV PROIA BILI· TIES. YES NO f= YES CTOfl �0 DO ANY UNTESTEu REMAIP47 / /· . I LABEL TH E PROSPECT AS TE¥TIT;l AN D SUBTRACT TH E COST OF AN f EXPLORATO RY WE LL FROI.\ THE i BUDGET CO NSTRAINT; If A b!S·I COVERY, PLACE IN ntE fiOOL i INV ENTO RY. i YES iSTH E� ' EXPECT ED VAL\J£:""' GREAT ER THII.� .. ". THE COS1 OF . // AN EXPLORATOftY/ WELL? ,/ / _, --___ !;. ......... ' j . ·-t J FIGURE 4 ,.. _ .... _...,..4 ..... . .... . ... � .. '. ., ! ' r� ·" l I r �." ! ' -- r ,, � '1 r • I ; � ' ' r I � � l.' j' � r 1 l f< r� . ; ; ' . �� .. ' ·' [1 ; j ' �� l r· I .. ' r, J;i j r, 1 ! 'I r· ' d ·) r ·:·: �.�; J �'l . -'! � I i -. ... J. , ... aw..... .YB t 19 Step 1 in the explora t ion model is the formation of a ta rget li st. All the untested prospects allocate d to activity areas open to ex ploration are aggregated and the expected volu me of petroleum for each is computed by risk ing the con dition al volume with the appropriate margin al play an d condit iona l deposit prob abilities. The ta rget list is formed by ra nking the pro spects according to expet.::ted volume an d represents the order in which the prospects will be ev aluated for exploratory drilling in Ste ps 2 and 3. Figure 5 presents an example. Step 2 involves the econo mic evaluation of a prosp ec-t on the target lis t. The expected ne t present value of the pro spect, conditional upon its actt:ally being a deposit of oil or gas, is estimated by using a production model, a t r a nspo r t a tio n model, and a distribution model. The production model estimate s a sim plifi ed time profile of production condit ional on the pro spect 's beco ming a developed discovery. The tran sportation and distri- bution models estimate the cost of moving oil or gas to market, conditiona l on any ex ist ing transportetion network serving the area. The transporta- tion model dyna mically de velops a pipeli ne network for the area as discoveries are made and placed in production. Field deveiopment7 transportation, and dist ribution costs are est imated by the production, transpor tat ion, and distrib ution models to ·arrive at a time profile of the costs that must be incurred to mark�t the oil or gas that the prospect mlght contain. The associated revenue stream is generated by matching the potential produ ction profi le with a time profi le of market prices (an - ... Prospect Rank Play Activ i�y Area l 2 3 4 5 6 7 8 9 �o ,\ . Alpha Beta Al pha Al pha Alpha Beta Alpha Beta Beta Alpha 1. Margina! Play Probability 2. Condit ional Deposit Prob abil ity H A B B H F A H F 1\ >, • -- -�--'-' ·-..--,-<---�.-4 �.-.---�--··"-•-·<<<•<��·�,.., .......... """""'�-----------�··-;.____.,_.,__�.� -��""".-"-�U�--·'""• � --�-·--,_,_. __ .. �.•-<<-«�> . ..-,,_ �-----�� ............... � ---,-�-�·�·-·· · ' � - - . <••'---��-.....___-< •--.�-. -' ,-·-·�--------�--"" � -�:;;....::..._� EXAM PL E TA RG ET LIST Condit iona l Volume MPP l ---- 2000 .4 511 3000 .650 1500 .4 54 1000 .11 5ll 700 .11 54 1200 .6 50 600 .4 511 900 .6 50 850 .650 400 .4 511 Fi gure 5 CDP 2 ---- .31 5 .120 .3 15 .3 15 .3 15 .120 .3 15 .120 .120 .3 15 �xpected Volume 286 234 215 143 100 94 86 70 66 57 Status Dry Dry Deposit Dry Dry Dry Deposit Dry Dry D r y N 0 J f r f r f � • . .... '::� ' •• -. . "' • • .• ' f • : • . . .. • • \, � • .• � •.• ··: � . +"' • .;. • • .. . .... • •• "' • ' ' 21 exogenous input to the model) a n d the p re sen t value of net revenue is computed us ing an a p p rop r iate <ll scount rate. It ls necessary to inco r porat e geologic risk into th e e c o n o mic calculations since up to this p o i n t the p r o s pect has been economically evalu ated conditional that it is a deposit. The geologic ri sk consists of two componen ts: the risk that the r e g i onal geo logy of a play is unfavorable and the risk tha t, even in cases in which the overall play ge olog y is favo rab le, the geo logy specif ic to t h e particular p r o sp ect is flawed. T h e r e for e , it is necessary to risk the prospect by multiplying i t s conditional net presen t value by the marginal p la y p r·';)b abllit y and the approx imate conditional d epos i t probabi lity. The r:;-sl�!• ls the ex p e c t ed economic value of the p r o s pec t . Step 3 in the explor a t i o n model is the application of a decision rule to de termine w he the r or not a prospect merits testin g with an ex ploratory well. The decision rule uses a c om par i s o n of expected net present val u e s and a budge t constrain t. The budge t c o nstrain t se ts an upper bound on the nu mber of exploratory we lls t h a t may be d r i l l ed ln any particula r p e r io d . The expected economic v a l u e of the prospect is compared to the cost of a n exploratory we ll and on l y if the e x p ecte d val ue equals or ex cee ds the cost of testing the pro spect will an ex p lor a to ry well be simulated as dri lled. .. •• 01 ' ' �r � !; < >: ,, � � ! � � � fl ri r· [' . � J 'l r: [T r J .. ': r �·· r·� f.,': 22 During e ach time per i o d the process of comparing pro$pect expe<.:ted values with exp loratory well costs continues dow n the ta rget list ':Inti ! one of the following th ree even ts occurs: ex ploration in a particular year ceases when the sum of the co sts :ior wi Idea t wells exceeds the budget const raint; a prospect is reached for which the wildcat we ll costs ex ceed its expected ne t present v a lu e ; or when no additional prospects remain on the t a r get list. At t h is point the d rillin g decis ions are assu med to be implem en te d, ex ploration co sts reco rded, an d the results of the dri lling revealed. Any discoverle$ are placed in a p ool in ventory to await a deve lopment decis ion in following periods. Step 4 involves upda t i n g the ex plorer's geologic perception to reflect the re sults of ex plorato ry activ ity in the cur ren t year. Results from all we-.ds are assu med to b e com e av ailab le simultaneously at the en d of th e p e riod. Pro spects that have been te sted with an e x p lo r a t o ry well during the period are re moved from the target list, reduc ing the nu mber of av ai lable prospects f or explorat ion cons ideration in follow ing periods . Further, an atte mpt to capture some o f the learning· that takes place du ring the discove ry process can be made by tak ing advan tage of the way in which the geo logic risk has been fac.tored into two components. The marginal play probability fc.lr each p lay in which o n l y d r y pro spects have been dr illed is revised ac c ordin g to Bayes formula; each t1me a dry prospect is drilled in a p lay 7 the marginal play probability is reduced as - f <" l � 1: I ,: ' I J < 1: ' ( < [ r � � < r < [r <: ' r t� [ u r -c r .. L, c ,.�:� 23 sp ec i f i e d by the formula. (An e xam p le is p rese nt�d in t h e Appendix.) The first t i me a p ro sp e c t in the p l a y is tested and revealed t o be a s i m u la ted dep o s i t of oil or gas, the m a r g i n a l p la y p r o b ab i li t y for that play is set e q u a l to one p e rma n ent l y to refle ct the fact t hat all of the reg i o n a l p l ay characte ristics must be f a v o r ab l e for an oil or gas deposit to e x is t . T h ese re vis ions .in the pe rceived m a r g i n a l play prob a bili ty do not af fect t h e simulated st ate of geologic nature sin ce it has been fixed at the beg i n n i n g of the Monte Ca r l o pas s; the revisions only inf l u e n c e ex pec t a tio n s , th e p erc e p tion of nature, and th us simulate the l e arni ng process that will take place over time during ex ploration. T h e r e v i sed m a r g i nal prob abilities influence e x p l o r a t b n decisions in future periods th r ou g h their imp act on the e x p ecte d volumes an d ne t present values c o m p u t e d .in St e p s 1 and 2. In the case of a play tha t is y i e l ding an i n it ial series o f dry pro spects the marginal p r ob abil i ty i s continu ally re vised dow n w a rd . T h us, after a s e r i e s of c!ry we l ls, t h e ex p e c t e d values of the remaining pro sp e c ts in the play can become too small to justify fu rther e x p l o r a t i o n in t h e play even thou gh so me of them may be s i m u la t e d depos its an d c o mme r c i a l if di scove red by the explore r. In th e case of a play in which a prospect has been te sted wit h an ex plorato ry well an d de monstrated to be a simulated d e p o s i t , the risking of re m a i n i n g prospects in the pla y is based on l y on the conditional d epos it pr obability since the marginal play pr ob abili t y is eq ual to one. Re maini ng prospects will have, therefore, higher ex pec ted val ues than would be the case if there had been no d i sc o v e r i e s in t h e play. - Fi . . i '1 IJ (I ·, t"l I r r r ,., ._,, � r r· 24 The oil and gas discoveries genera ted by the explo ration model form an invento ry o f p<>ols that repre sents the input to the developmen t decision. These poc,ls are econo mically evaluated .for possible production, transportation, and dis tribution an d those combinat ions of pools expected to be commercial are sim ulated as being produced, transpor ted, and distributed to ma rke ts. VI. Conclusion The procedu re s de veloped here have been designed to achieve an analytical melding of geology and econom ics; the objective has been to de velop a resource assessm ent and ec onomic evaluation methodology for a la rge area, under conditions of substantial uncer tain ty, and in a manne r conducive to policy analy sis. A play app roac h to re source assessment and ev alu ation for la rge bas ins or prov inces has been selected for several reason so First, it pr ovides a direct assess ment of the geolo gical cha rac terist ics and uncertain ty for the area of interest. While analogs are cer··:a inly of great use to the geologist in develop ing his judgments conce rning an area,, his fi nal judg- ments are tai lored ex pHcitly to the information an d pe rceptions of the target art::a. Second, the le vel of geologic deta il provided by the play approach is rich enough to support meaningful econom ic analysis. Further- more, the re sults of actual exploration in an area are quite easily inco rporated into the play for mat. Third, while the play approach treats - 25 ex plora tion as a proce ss of prospect evaluation and de cision, it does not r eq u ire expl i c it identif icat ion an d substan tial de tail f o r each prospect. Fourth, the play approach re cognizes a regional component to the geo logy within a play that causes pro spects to be geol o g i ca l ly co rrelate d. In essence, the play approach di vides the traditional dry hole risk fac to r into two co m ponents. The first component is the risk th a t is com mon to all prospects in the play because they share a common poten tial for source material, migration, t i m ing , and reservoir rock. The second co mponen t is the risk that an in div i dual prospect may have a geo logi c a l flaw speci fic to it and i n d ep e n den t of other pro spects in the play. Fin ally, the ap proac h does no t req uire actual discoveries in a play for assessment pur pose ; judgments may be based on wha tever da ta ex ist and can exp licitly ref lect the uncertainty in the data. Initial efforts to advance the an a l y s is will focus on the s i m pli f ica­ tions that curre n t ly exist in the exp loration m o d e l . For ex ample, the target list is f o r m e d by ra nking the prospects ac cording to e x pecte d volume an d only a few prospects are fully evaluated to dete rm ine e x pecte d economic value. The number of prosp ects fully evalu ated is a func tion of the budget constraint. In princip le, the ta rget list shou ld be based on econo mic value b u t volume is used as a surrogate to save computation . time. Alternative approaches that more closely ref lect econom ic v a lu e (e.g., pt·oduction rate) without a dding sub stantially to the computation time are being investigated. The use of a budget const raint to l i m it the numbe r - I 1.; I ·J I I r r 25 ex p loration as a process of prospect ev aluation and decision, it does no t require explicit iden tification and substantial detail for each prospect. Fourth, the play approach re c og n i z es a regiona l component to the geology withi r. a play that causes pro spects to be geologi�a lly c<..,rrelated. In essence, the play a p proac h divides the traditional dry hole risk factor into two components. The first c�m ponent is the risk t hat is co mmon t o all prosp ects in the play because they share a com mon potent i a.! for so urce m a t erial, migration, timing, and reservoir rock. The second component is the risk that ar. individual prospe'Ct may have a geolo gical flaw s p ecifi c to it and in depen den t of o t he r prospects in the p lay . Finally, the appr oa ch does no t r eq uir e ac tual d iscoveries in a pla y for assessment purpose; judgme n ts may be b ase d on wha tever da ta exist and can explicitly ref lect the uncerta int y in the data. Initial efforts to advance the an alysis will focus on the simp lifi ca- tions that curr en tly exist in the exp loration model. For ex ampl e, the target list is formed by ran king th e p ros p ec t s accordi ng to ex pected volume and only a few prospects are fully eva luated to de termine expected economic value. The number of prospec ts fully evalu ated is a f u n c t i on of t h e b u dg e t constralnto In princip le, the ta rget list should be based on economic value but volume is used as a su rrogate to save c o mputatio n . time. Alternative appro aches that more closely ref lect econom ic value (e.g., producti on ra te) without adding substan tially to the computation time are being invest igated. The use of a budget const raint to limit the number - I I I I I I � � [ r ;i J -� . I 26 of exploratory we lls each period is a second simp lification that can be improved-perhaps with a more explicit model of the invest ment pr_ocessc - � •'::· -j APPEND IX Bay esian Revi sion of the Margi nal Play Probabi li ty: An Examp lP. Marginal Play Probabi lity = P [favorable play] = 0.454 Conditional Depos it Probabi lity = P [discovcry ,favo rable pl ay] = 0.315 P {dry we l l J favo rab l e play] = 1.0 -P [discovery,favorable play]� 1.0 -0.315 = 0.685 P [dry we llf unfavorable pl ay ] = 1.0 P [unfavorable pl ay] = 1.0 - P [favorable p l ay] 1.0 -0.454 = 0.546 P [favorable playJ a dry wel l] = P [dry w:llJ tav�rable play ] *P �favorabl e play] + P [dry ho lefunfavorable pl ay] *P [un favorabl,e pl ay ] p [favora ble play J one dry we ll] ::sa (. 68 5) (. 4 54 ) = .311 = 0.363 (. 685 ) (. 4 54 ) + (1 .0) (.546) . 31 1 + . 54 6 (. 685) (. 363) = .249 = 0.281 p [favorable pl ayf two dry wel ls) =(.685) (.363 ) + (1 . 0) {. 637 ) .24 9 + .637 P [fa vora ble play Jthr ee dry we lls] = �����(�.6�8_ 5_)��(._2�8_1�)��� (.6 85) (.281 ) + (1 .0) (. 719) = .192 = 0.211 .192 + .719 P [fa vo rable playJ a discovery) = 1.0 - I I I I I I � � � rn r: ..;J, c ( (� [� CJ r, �. [� c: 28 FOOTNOTES 1. The Office has benefited from nu merous discussions with Professor Gordon Kaufman of M.I.T. over the last several years; fo r a more detai led discussion of the .relative merits of a proc es s oriented approach see K auf man (1975) and Eckbo (1978). 2. Our selection of the play as the appropriate geologic u ni t was in large part the result of the work of, and discussions, w i t h the Energy Subdivis ion, Institute of Sedimen tary and Petroleum Geology of th e Geol ogh::al Survey of Canada. In particular, the NPRP, Study Team is much indebted to Dr. Robert McCrossan and Dr. Richard Proctor; see Roy (197 5). 3. The im por ta nc e and im plications for modeling of regional geologic correlation was brought to our attention by Gil Mull of the Alaska Branch, Geologic Division of the U.S. Geological Survey. 4. For example, the U.S. Geological Survey is responsib le for the probability judgments for the Nat ional Pe trol eum Reserve i.n Alaska. - I I I I I e � � 0 D D rJ 29 REFERENCES 1. Drew, L. J., Attanasi, E. D., and Root, D. H. (1979) "I m p or tance of Physical Parameters in Petroleum Supply Models," The Economics of Exploration for E ne rgy Resources Conference, May 17-18, 1979, New York University. 2. Eckbo, P ., Jacoby, H., and Smith, J. (1978) "Oil Supply Forecasting : a Disaggregated Approach," Bell Journal of Economics, Vol. 9, No. 1, Spring 1978, pp. 218-235. 3. Jones, R. W ., (197 5) "A Qu anti t ative Geolo gi c A pp r oac h to Predic- tion of Petroleum Resou rces," AAPG Studies in Geo l ogy No� 1, pp. 186-195. 4. Kaufman, G. M., Balcer, Y ., and Kruyt, D. (197 5) "A Probabilistic Model of Oil an d Gas Discovery," AAPG Studies in Geol ogy No. I, pp. 113-142. 5. Kaufman, G. M., R u ngg al dle r, W., and Livne, z. (1979) "Predicting t he Time Rate of Supply From a Pe trole um PJay,u The Economics of Exploration for Energy Resources Conference, May 17-18, 1979, New York University. 6. Newendorp, P. D., (197 .5) De cisio n Analysis for Pe troleum Explor!: tion, Petroleum Pub!ishing Company 1 Tulsa. .... '4 .... • •• • � ... .. ... - I I I I rn I > r L r t��, [ [ 7. 8. 30 Roy, K. J., Procter, R. M., and Mc Cr ossa n , R. G. (1975) uHyd"rocarbon Assessment Using Subjective Probability", AAPG Research Sympo- slum, Probability Methods !r!, Oil Exploration, Stanford University, Aug 20-22, 19751 pp. 56-60. Wansbrough, R. S., Price, E. R., and Epple r, J. L. (1976 ) "Evaluation of Dry Hole Probaqility Associated with Exploration Projects," 51st Annual Fall Technical C onfere n ce and Exhibition of the Society of Pe tr o l eu m E ngi n eers of AIME, New Orleans, Oct 3-6, 1976, SPE Paper No. 6081. - -,_, j f J . f ! ' i 1 r ! l .,,..._.,_� h . _I Total Alaska Onshore O f fshore Total Total Alaska Onsho re Offshore Total Cook Inlet(3 ) Onshore Offshore Total (1) Circular 725 (2) Circular 860 (3) Open File Report 82-666A EXHIBIT 9 U.S.G.S. Estimate of Undiscovered Alaska Natural Gas (TCF) 1975 Estimate (1) __ ___;.....;..,;� Fgs Fs 16 57 8 80 24 1 3 7 1980 Estimate (2) 19.8 62.3 33.3 109.6 53.1 172.0 1.27 7.41 0.85 5.03 2.12 12.44 .. - Mean �� . l<' 32 44 76 i p ' 36.6 64.6 101.2 3.53 2.19 5.72 ., ltw Unltrd Sl at•• ��� �t<tl fl'•ttlw"'' I i" off •IM•u• •oUIMierl•• •lth c1tlwr Statt-11 ,.,_. .. rnt·d. Tlw llno•fl nn thl• ct .. rt •r• fnr pt�rt•n•o•ll ,.f llh1 .. 1 r.ot lun Dnly1 e114il 4n 110( -t'C'tl!tarUw fe•fl�rot lhl" rmoltlun tar wlrv• of 1M Unlrr .. Stah•• with '''"'""''' t" lho• •o..larw lnvulwtrol. 16 63 r­ ,--' r� .� I .. r-' ' \ "L.__,_, 66 ' Flaure I.--Index -.p of Alaaka •hovtna province• aaeeeaed. Shading denote• of f •hore •helf areaa; naaea of provinces are llated by nu•ber In the table. EXHIBIT 10. � !,_ __ . _c,, 'J'' Table 2.--�stimates of mini�� economic field sizes offshoPe [Gas-field sizes for the Gulf of Mexico and all oil-field sizes were provided by D. E. Kash, Conservation Division, U.S. Geological Survey, 1980, in a written communication. Non-associat ed gas-field sizes other than for the Gulf of Mexico were derived fr om the oil-field sizes by using a British thermal unit (BTU) equivalent of 6000 cubic feet of gas to one barrel of oil] Water Offshore areas Alaskan waters depth Gulf of Atlantic Ocean Pacific Souther r Be ring Chukchi Beaufort (meters) Mexico South Middle North Ocean Alaska Sea Sea Sea Oil (million barrels) 3-30 0.6-1.0 3-15 10-30 20-50 6-20 40-70 40-100 75-150 100-200 30-100 1.0-2.0 5-25 20-80 30-100 10-45 50-100 50-125 100-200 150-300 100-200 2.0-5.0 20-80 40-100 75-125 20-65 75-150 75-200 150-400 200-450 )200 5-50 80-200 60-500 100-600 )30 125-250 125-300 )300 >400 No n-associated gas (billion cubic feet) 3-30 2-5 18-90 60-180 120-300 36-120 240-420 240-600 450-900 600-1200 30-100 5-15 30-150 120-480 180-600 60-270 300-600 300-750 600-1200 900-1800 100-200 15-30 120··480 240-600 450-750 120-390 450-900 450-1200 900-2400 1200-2700 )200 30-200 480-1200 360-3000 600-3600 )180 750-1500 750-1800 )1800 )2400 1Gulf of Alaska, Kodiak, lower Cook Inlet, <"'lelikof Strait. EXHIBIT 11 .. - Probability Average or expected 99 95 90 75 50 25 10 5 1 (2) EXHIBIT 12 DNR Estimates of Undiscovered Gas In The Cook Inlet Basin (FCF) (1) Gas in Place .47 .93 1.24 1.98 3.07 4.38 5.84 6.93 9.06 3 .. 36 (1) From letter to Mr. Eric P. Yould, APA from Ross G. Schaf f, DNR, Feb. l, 1983 (2) Probability that quanity 1s at least the value shown. Economically Recoverable Gas .00 o22 .43 .9 3 1.76 2.78 4.04 4.90 6.83 2.04 - u r LJ c � f f , L' 1 r� I ' l i u L . ...� L . ...� f L. IIBZA·IIASCO SYBJF.CT ---------------FIL! NO. ---- DATE ----SUSITNA JOINT VENTURE ----------------------------- I'll 0.0 0'- ......... I � � ltl � � � I Q) l) . ... � � I I ! I (;.{))j I I I I I ! s:ooi l I l l I I I l 4.60! J,()O 0 COMPUTED --------CHECKED ---- EXHIBIT /3 Cook IrJ let Fleet r-/c G e ne.ret.f:/o¥7 Net iur-01. I Cas Sv?p/y I.JS', 0.'a·.s Prt'ce. I I I I I I I Vn Ct>w.l t Led I UY·d/.scove�red I I .K: e s e. r ve. S' I R.. eso urce.s I (/, C, TCF) I ( �, 0 TCJ:" @ f ::CJ,ts) I I I /. 0 �.o .J.O (i?va.vu'-6y -TcF t-:;;l'iil<l;ri.•4"'-·.:'1!1'�;1C·���· : ··,-·-��"· "" " . ,.I\,..�'.; .. • , ;:::;r. �...!., -·· . ,,: X'-·- PAGE -OF _ PAGES 7 � / �I I ( VGt-tJc/e 1por1'£t'o'1 UP1k�10f.vV�) / //1 / 7 D •