Associate Editor, SPE Journal of Economics & Management Professor of Petroleum Economics & Director of Energy Information Division

Transcription

1 Modeling Deepwater Exploration and Development Prospectivity in the U.S. Gulf of Mexico Region Professor Omowumi Iledare, Ph.D. Senior Fellow, Fll US U.S. Association for Energy Economics Associate Editor, SPE Journal of Economics & Management Professor of Petroleum Economics & Director of Energy Information Division

2 Presentation Outline Background Data Overview & Analysis Modeling Framework Specifications Model Results Economic Interpretations Conclusions 2

3 Study Overview Industry analysts once thought that the GOM Region could no longer attract big investors Today the GOM has re emerged emerged as the key focal point of oil and gas activity Why the turn around? Technical advancements Changing structure t of the OCS oil and gas industry Government regulatory programs and fiscal incentives Global l market fundamentals 3

4 Factors Affecting Deepwater Operations Role of Technology(IEA, 2008, pp215) Resource Accessibility 4

5 Factors Affecting Deepwater Operations Role of Price Pi Price is a signal that induces oil producers to find and produce oil and consumers to buy it. It establishes output and methods of production. Oil price is determined by the fundamentals of supply and demand Factors affecting supply & demand: intensity of oil use, extent of oil exploration, growth in productive capacity, and technology innovation. Global Reserves and Price 5

6 Factors Affecting Deepwater Operations Capital Investment Flow Investment Distributions (IEA, 2008) 6

7 Deepwater Efforts: Cumulative Leases Issued 7

8 Data on Deepwater Drilling Outcomes Discovery Rate 40% 35% 30% 25% 20% 15% 10% 5% 0% Slope Deep Ult. Deep 8

9 Deepwater Drilling Output OE rves, MMBO Reser Discovery Year Slope Deep Ult. Deep 9

10 Data on Deepwater Drilling Outcome Discovery Size, MMBOE/Well Slope Deep Ult. Deep 10

11 Deepwater Drilling Productivity 11

12 Data on Deepwater Drilling Outcome Discovered Reserves, MMBOE Slope Deep Ult. Deep 12

13 Modeling Deepwater Discovery Process Model assumptions Resource availability Economic and policy incentives Technology h l Stochastic nature of drilling outcomes Generalized petroleum discovery process assumption 13

14 Model Specifications A hybrid modeling frame work Assumes profit maximization As output price changes, a competitive firm will alter its drilling effort to satisfy an optimality condition: Marginal value of reserves added equals the cost of an additional effort The returns on drilling and development investment are to be maximized 14

15 Identity Equation ΔR = y (t) * x (t) * z (t) ΔR (t) = gross new reserves discovered in year t. y(t) = average discovery size x(t) = drilling rate z(t) = average discovery rate. 15

16 Drilling Rate Equation ln w = β 0 + β 1 ln W (t) () + β 2 ln P(t) () + β 3 T + ε 1 w = number of wells drilled to look for and develop hydrocarbon reservoirs over a given period P = the expected value of new reserves W = cumulative total well drilled at the beginning of time t T = a proxy for technical progress ε 1 = the random error term β i = constant parameters to be estimated for (i=0,1,2 ) 16

17 Discovery Size Equation ln y = α 0 + α 1 W (t) + α 2 ln P(t) + α 3 T + ε 2 y = the finding rate of petroleum in thousand barrel equivalents per successful well. P= current posted price of oil in dollars per barrel the random error term. T = time trend, a proxy for technical change α i = constant parameters to be estimated ( i = 0, 1, 2, and 3) ε 1 = the random error term 17

18 Technical Discovery Rate Equation ln Ω (t) () = λ + λ 0 1 W (t) () + λ P(t) + λ 2 () 3 T + ε 3 Ω (t) = (z (t) / (1 z (t)), the logistical transformation of the success rate z (t). W (t) = cumulative number of wells, a proxy for resource depletion at the beginning of t P= current posted price of oil in dollars per barrel the random error term. T T = a proxy for technical change λ (i: i=0,1,2..), = constant parameters to be estimated. 18

19 Estimation Method To evaluate the impact of petroleum reserves discovery the identity equation was applied. Equations estimated using pooled lease squares Cross section section seemingly gy unrelated regression Corrected for cross section section heteroskedacticity Corrected for contemporaneous correlation 19

20 Estimation Model Results The corresponding coefficients of the determinants of each component are applied to calculate the elasticity The data reported estimates relative to the mean values The estimates are calculated in accordance with the functional form adopted to specify each component of the petroleum reserves addition model. 20

21 Drilling Rate Equation Results Variable Coefficient Prob. Slope Dummy, D * Deep Dummy, D * Ultra Dummy, D * DWRRA Dummy, DU Real Oil Price, log(po) Real Gas Price, log (PG) *** Cumulative Wells, log(w) * Technology Index, (TK) * R squared Mean Dependent Variable Adjusted R squared S.D. Dependent Variable S.E. of Regression Sum Squared Residual Durbin Watson

22 Discovery Size Equation Results Variable Coefficient Prob. Slope Dummy, D * Deep Dummy, D * Ultra Dummy, D DWRRA Dummy, DU * Real Oil Price, PO *** Real Gas Price, PG *** Cumulative Wells, w * Technology Index, TK * R squared Mean Dependent Variable Adjusted R squared S.D. Dependent Variable S.E. of Regression Sum Squared Residual Durbin Watson

23 Discovery Rate Equation Results Variable Coefficient Prob. Slope Dummy, D * Deep Dummy, D Ultra Dummy, D * DWRRA Dummy, DU Real Oil Price, PO * Real Gas Price, PG * Cumulative Wells, w * Technology Index, TK * R squared Mean Dependent Variable Adjusted R squared S.D. Dependent Variable S.E. of Regression Sum Squared Residual Durbin Watson

24 Economic Interpretations 24

25 Economic Interpretations One percent change in real gas price Base line level drilling increased by.715 percent. Lowered discovery rate by percent Improved discovery size by percent Discovered reserves may increased by percent 25

26 Economic Interpretations One percent change in real oil price No significant change in base line level drilling. Improved discovery rate by percent Lower discovery size by percent Discovered reserves may fall by percent 26

27 Concluding Remarks Deepwater production currently accounts for more than 70 percent of oil production Leases awarded from represent 45 percent of total leases One out of 25 leases granted were declared productive For a dollar increase in natural gas prices, reserves can increase by 228 MMBOE in the slope 1,254 MMBOE in the deep 414 MMBOE in the ultra deep 27

28 Concluding Remarks Similar increase in real oil prices reduces reserves by 15 MMBOE in the slope 91 MMBOE in the deep 31 MMBOE in the ultra deep. Model results show the impact of resource depletion is mitigated with technical progress. The estimated net impact of technology growth and resource depletion is 1,355 MMBOE for the slope 7,858 MMBOE for the deep 2,822 MMBOE for the ultra deep 28