Economics and Appraisal of
Conventional Oil and Gas in the
Western Gulf of Mexico
E.D. Attanasi, USGS
J.L. Haynes, Global Marine Inc.
Summary
The oil and gas industry frequently appraises undiscovered
oil and gas resources on a regional basis to decide whether
to start or continue exploration programs. The appraisals
are of little value unless conditioned by estimates of the
costs of finding and producing the resources. This paper
presents an economic appraisal of undiscovered oil and
gas resources in the western Gulf of Mexico. Also
presented are a description of the model used to make the
assessment, results of a Sensitivity analysis, and a discus-
sion of the implications of the results to the industry.
The appraisal is shown to be relatively robust to changes
in physical and engineering assumptions. At $301bbl
[$4.76/m 3 ] oil equivalent (OE) and a 15% required rate
of return (ROR), commercial oil and gas discoveries are
expected to amount to about 15% of the 25.19x10 9 bbl
[4 x 10 9 m 3 ] OE contained in fields discovered before
1977 in the studied area. Hydrocarbons in future
discoveries are expected to be 71 % nonassociated gas,
17% crude oil, and 12% other forms. Moreover, it will
continue to be economically optimal to drill about three
wildcat wells in the Miocene-Pliocene trend for every
wildcat well drilled in the Pleistocene trend. Because the
number of commercial discoveries was found to be quite
sensitive to economic conditions, the analysis has impor-
tant implications in terms of forecasting future industry
drilling and other associated activities in the western Gulf
of Mexico.
Introduction
The petroleum industry prepares regional appraisals of
undiscovered oil and gas to determine the desirability of
starting or continuing exploration programs. However,
to be useful for planning, these resource appraisals should
be accompanied by estimates of the expected costs of find-
ing and producing the resources. Fields of insufficient size
will not be developed, so not all prospects identified by
geologists can be considered economic targets. A model
may be applied to screen prospects or in some way identify
that part of the estimated undiscovered resources that will
be of economic interest. The screening device should be
flexible enough to handle various assumptions and changes
in future economic and technologic conditions easily.
We present an appraisal of undiscovered potential con-
ventional oil and gas reserves along with their associated
exploration, development, and production costs for the
0149-213618410121.1297$00.25
Copyright 1984 SocIety 01 Petroleum eng;_ 01 AlME
DECEMBER 1984
offshore western Gulf of Mexico in waters as deep as 656
ft [200 m]. The study area is shown in Fig. 1. These
estimates are expressed as a function of price and required
ROR. This study complements an earlier set of studies
on the Permian basin 1·3 that demonstrated methods for
explicitly combining economics with petroleum resource
appraisal.
After a brief sketch of the model's methodology and
physical and economic assumptions (a more detailed
discussion is presented in Ref. 4), the reference appraisal
is presented. A sensitivity analysis of the appraisal to
various physical and cost assumptions is presented. These
results provide guidance for model refinement and are also
useful in the strategic planning for industry R&D efforts.
The appraisal results for the study area relate to fields to
be discovered after Dec. 31, 1976.
Methodology
The algorithm estimates the amount of undiscovered con-
ventional oil and gas expected to be commercially profit-
able to explore and produce at various assumed product
prices, costs, and physical field characteristics. This
algorithm uses predictions from a discovery-process
modelS of the size distribution of fields to be discovered
with successive increments of exploration effort.
Discoveries then are classified according to type (crude
oil or nonassociated gas) and by water depth. Computa-
tions are carried out in two stages. First, the after-tax net
present values (NPV's) of the representative fields for
each size and water depth class are computed (1) to deter-
mine which classes of discoveries are commercially profit-
able and (2) to provide data for determining how much
additional exploration is justified economically. The
second part of the algorithm involves imposing an explora-
tion stopping rule on successive increments of explora-
tion effort. Additional exploration is no longer commercial
when the expected after-tax NPV of the commercial fields
identified by the next increment of wildcat wells is insuf-
ficient to cover the incremental exploration costs.
Fig. 2 is a schematic of the cost algorithm. Because
predictions from the discovery-process modelS are fre-
quencies of new discoveries for field-size classes ex-
pressed in barrels of oil equivalent (BOE), the costing
algorithm first classifies new fields into oil and gas,
respectively, and by various water depth intervals in order
to perform the discounted-cash-flow analysis. For all
calculati~ns that follow, 6,000 cu ft [169 m 3 ] gas was
taken to be equal to 1 bbl [0.16 m 3 ] OE oil.
2171
 ,)
(
,, \
MISSISSIPPI

N )

I TEXAS

/
/
/t ~
~~
- ..........

~
"-~~
,
.,,/
/ oc~--------~~-
"" \ /" P \. \ 0 C ENE \::,;.-i-
)J / /',
~_--
-=.tC___ P LEI
/'
10,,------,
C E N E ____ ,---'
S __ --- _____ -'-" v

If// 4'/"-'--- ------'-r

I,'
/ / Y
/ /~
/ c;-
Fig. 1-Geographic locations of offshore geologic trends in study
area in the Gulf of Mexico (from Ref. 5).

FOR EACH • WELLHEAD PRICE reached when operator income is equal to the sum of direct
• RATE OF RETURN operating expenses and production-related taxes. Next,
lKCREftENT OF 200 WILOCAT WELLS the net after-tax cash-flow stream was computed. Well
DISCOVERI ES GENERATED BY 0ISCOVERY PROCESS !!ODEL
I
I cash-flow streams were aggregated to estimate the field
cash flow in a fashion consistent with the assumed field
!,..-OIL OR NON-ASSOCIATED GAS
>
I DETERftlNE FIELD TYPE AND WATER DEPTH !"ONE OF FOUR WATER DEPTHS development profile. Given a price and an assumed return,
if the field after-tax NPV was greater than zero, then all
DETERftlNE
• WELL PRODUCTION SCHEDULE the newly discovered fields of that size and water depth
I===='=t=CO=NO=ft=IC=W=ELI~=L=IF=E=========
• WELL CASH FLOW
class were assumed commercial and were added to total
potential reserves.
'===:G=I ~=~~=6~=a=I:=~=Li=N~I;~=~y=[=~gv=~=E:=~C=~=~8=~t=fE=T0=' For a particular wellhead price of oil and gas, successive
increments of 200 wildcat wells were assumed to be drilled
, DETERftlNE FIELD CASH FLOW AND PRESENT , until the incremental exploration costs, which include
===YA=L=UE=F=OR==IP=Y)=RI~T=E=O=F=RE=TU=RN====== drilling, geologic md geophysical data collection, and
lease acquisition, were greater than the after-tax NPV of
I===A=D=DE=D=TD=T=O=TA=LI~E=SE=R=YE=S========
IF PY , 0 FIELD DEYELOPED AlID RESERYES'
the fields discovered by the associated increment of (200)
wildcat wells. Operators were assumed not to drill prefer-
I REPEAT ANALYSIS FOR EACH TYPE FIELD.
FIELD SllE. ANO WATER DEPTH
I
,
entially for either oil or gas fields.
Because production was to continue to the economic
SUftftATlDN: NET PRESENT VALUES OF ALL ,
I===E=C=ON=Oft=IC==DI=L=ANI~=6A=S=F=IE=LD=S====== limit, the cost of the last increment of oU or gas produced
from a field would be approximately equal to the price.
DETERftlNE TOTAL EXPLORATION COSTS For the economic resources discovered by the last
I OF LAST 200 wILDCAT wELLS
economic increment of wildcat wells, the sum of (1) fmd-
I
IF EXPLOIlATlON COSTS OF LAST INCREftENT OF wlLOCAT
WELLS 6REATER THAN NET PRESENT YALUE OF RESOURCES
FOuND STOP EXPLORATION AND SUBTRACT RESERYES:
I ing costs and (2) development and production costs per
BOE is equal to the wellhead price. For these particular
OTHERWISE CONTINUE EXPLORATION
resources the two sets of costs are the marginal finding
Fig. 2-Schematic of the logical operations of the cost algorithm costs and marginal development and production costs.
used to translate geologic appraisals to estimates of Marginal finding costs are computed by dividing total ex-
potential reserves available at a particular cost (from Ref. ploration costs of the last commercial wildcat well incre-
4). ment by the corresponding commercial resources
discovered. Marginal development and production costs
per BOE are computed by subtracting marginal finding
oduction schedules for oil and nonassociated gas costs from the wellhead price. The next two sections pro-
wells, representative of the field-size class, were generated
vide a more detailed description of various components
to compute the cash flow for the individual well and field.
of the planning model. Following this, appraisal results
After estimating nominal reserves per well (independent
are presented.
of price) and assuming an amount of field reserves typical
of the particular size class, we could specify the number
of wells per field and a field development design. For each Physical and Engineering Characteristics
production well, the economic well life was calculated Field Classification. Fields were classified as either oil
and based on the economic limit. The economic limit is or nonassociated natural gas fields. Fields in the Gulf of

2172 JOURNAL OF PETROLEUM TECHNOLOGY

 TABLE 1-PERCENTAGES OF PROSPECTIVE AREAS IN EACH
WATER DEPTH INTERVAL IN STUDY AREA
IN THE GULF OF MEXICO·
Water Depth (ft)
o to 60 60 to 240 240 to 393 393 to 656
Miocene-Pliocene 39.4 52.6 6.7 1.3
Pleistocene 0.0 53.9 38.3 7.S
Total prospective area 30.9 52.9 13.5 2.7

'Data from L.J. Drew. written communication (1981).

Mexico may consist of several distinct reservoirs that in-
clude either oil or nonassociated gas. Thus, it is not ap-
propriate to classify past discoveries solely on the basis
of the specific products present. A classification system
based on the gas/liquid ratio (GLR) (Btu basis) was used.
Crude oil fields had a maximum GLR of 4: 1, and the non-
associated gas fields had a minimum GLR of 4: 1. The
processing equipment used in nonassociated gas fields per-
mits processing of sufficient liquids to bring the GLR as
low as 4:1.
Ratios representing the historical mix between oil and
nonassociated gas fields (according to our classification
criteria) for 1969 to 1977 were estimated and the results
were smoothed across field-size classes. The results were
used to project the mix for future discoveries. Although
natural gas prices did not escalate until the early 1970' s,
many operators began anticipating these price increases
as early as 1969. So, they were less likely to direct drilling
at crude oil prospects to the exclusion of natural gas pros-
pects as they had been in the early 1960's. Therefore, we
felt reasonably confident using 1969-77 data to project
the future mix of discoveries.
The ratio of oil fields to gas fields also was assumed
to be independent of water depth within each geologic
trend. For the Miocene-Pliocene trend, 25% of the
discoveries in each size class are expected to be crude
oil fields. Similarly, in the Pleistocene trend, 36% of the
discoveries in fields containing less than 12.14 x 10 6 bbl
[1.9 x 10 6 m 3 ] OE and 22% of the larger fields are ex-
pected to be crude oil fields.
Discoveries also were classified by water depth. The
fraction of all future discoveries assigned to each water
depth corresponded to the proportions of total prospec-
tive area within sets of water depth contours within each
geologic trend. Estimates of the proportion of area within
water depth intervals of 0 to 60, 60 to 240, 240 to 393,
and 393 to 656 ft [0 to 18, 18 to 73, 73 to 119, and 119
to 200 m] for the Miocene-Pliocene and Pleistocene trends
are shown in Table 1. For purposes of cost estimation,
fields were considered to be in those water depth inter-
vals at the specific water depths of 40, 150, 317, and 525
ft [12,46,96, and 160 m]. The forecasts represent a slight
shift of discoveries to the deeper intervals. *
Field Design. The number of wells needed to develop a
field was determined by dividing the nominal reserves per
well into the nominal recovery per field. Nonassociated
gas field recovery was estimated as the midpoint of the .
particular size class (see Table 2 for size classes). For
example, the nominal recovery from a nonassociated gas
field in Size Class 7 (fields containing 0.19 to 0.38 bbl
[0.03 to 0.6 m 3 ] OE) was estimated to be 0.285 bbl [0.05
m 3 ] OE. For oil fields, the nominal recovery was
estimated as less than the midpoint of the size class
because of the expected recovery of associated gas, which
accounts for 25 to 30% of total hydrocarbons on a Btu
basis. Although the number of oil wells required for oil
field development depended only on oil field reserves and
well reserves, the oilwell production schedule provided
for the production of associated gas.
• Past discoveries classifNKI by lhasa same lour water depth intervals _re distributed
as 40. 48. 11. and 1% compared with the assumed luture distribution 0131. 53.13.
and 3%.

TABLE 2-DEVELOPMENT WELL, PLATFORM AND PROCESSING EQUIPMENT

CONFIGURATION FOR FIELDS IN THE GULF OF MEXICO

Crude Oil Nonassoclated Gas

011 Equipment Gas Equipment
BOE Number Platform ProceSSing Number Number Platform Processing Number
Size Range of Size Capacity of of Size Ca~aclty of
Class (10 6 BOE) Wells (slots) (BID) Platforms Wells (slots) (10 ftlD) Platforms
--- --- 4 or 12' 15 1
7 0.19 to 0.38 2 4 or 12" 1,500 2
8 0.38 to 0.76 3 4 or 12" 1,500 2 4 or 12" 15 1
9 0.76 to 1.52 3 4 or 12" 2,500 1 3 4 or 12" 15
10 1.52 to 3.04 5 6 or 12" 2,500 1 4 4 or 12" 25
11 3.04 to 6.07 8 9 or 12" 2,500 1 5 6 or 12" 50
12 6.07 to 12.14 13 24 5,000 1 7 9 or 12" 50
13 12.14 to 24.3 23 24 10,000 1 9 12 100
14 24.3 to 48.6 40 24 10,000 2 14 18 100 1
15 48.6 to 97.2 68 24 10,000 3 20 12 100 2
16 97.2 to 194.3 117 24 10,000 5 33 12 100 3
17 194.3 to 388.6 201 42 20,000 5 55 12 100 5
18 388.6 to 777.2 343 40 20,000 9 82 12 100 8
19 777.2 to 1554.4 599 42 20,000 15 163 12 100 16
20 1554.4 to 3108.8 1022 36 20,000 30 303 12 100 32

'For water depths greater than 300 It [91 mJ, 12-81ot platform costs _ asumed.

DECEMBER 1984 2173

 C
~
II:
I!! Ie
'20
110
'00
10
OIl WELL I'IIODUCTION PROFILES
- NON ASSOCIATED GAS WELL
PROOUCT1ON SCHEDULE

~; 10
Z II:
Si 70

a
CJ...
0
10
50

~i :
l 20
'0
OL'~Z~3~4~5-'~7~'~'~'~0:'~'~'Z~'3~'~.~'~5~"~17~,.=,~.&L20
Fig. 3-0il production decline curves for oil wells in the Gulf of Fig. 4-Production curves for nonassociated gas wells in the
Mexico; each curve based on average well for represen- Gulf of Mexico; each curve for representative field in
tative field in each size class (based on data from John each size class (based on data from John Wood, Dallas
Wood, Dallas Field Office, U.S. DOE, written com- Field Office, U,S, DOE, written communication, 1979),
munication, 1979).

TABLE 3-DRILLING AND COMPLETION COSTS Configurations for development wells, production plat-
(IN 1984 DOLLARS) forms, and processing equipment were devised so invest-
ment and operating costs for the representative field (in
Drilling Completion
each size class) could be calculated. The approach we used
Fixed-cost items 580,000· 475,000··
Time-sensitive items, per day 13,300 t 3,420*
in constructing the field development scenarios was to
minimize development costs subject to a degree of excess
• Includes mud logging, drive pipe, hammer CfffW, casing CfffW, su~ casing,
capacity (i,e., extra platform slots and processing equip-
conductor pipe, and intermediate casing . ment capacity) normally observed in the Gulf of Mexico.
•; Includes production facil~ies, perforating, production casing, and wellhead.
Includes bits, mud, fuet, waler, dispatCh, boals, aviation, truck, cement CfffW, Field development strategy was assumed to be insensitive
rentals, supervisors, and others. to the wellhead price of oil and gas. Moreover, because
*Includes fuel, boats, water, and dispatch.
the cost algorithm is computer based, the configurations
were subject to an additional degree of standardization.
Field development profiles reflected the assumption that
for oil fields larger than Class 13 and gas fields larger
TABLE 4-RATES FOR DRILLING RIGS
than Class 14 (see Table 2), approximately 10% of the
Mobile Drilling Rig~: field development wells would be drilled and completed
Water Depth Rate with mobile drilling rigs and the remainder of the wells
(ft) ($/day) Type would be drilled and completed with platform drilling rig,·
40 $20,000 jack-up For small fields a larger proportion of the wells were
150 $28,000 jack-up drilled by mobile rigs. We also assumed that for every
$40,000 50% jack-up 100 successful productive wells, 20 dry development wells
317
$50,000 50% semisubmersible would be drilled-a well success ratio corresponding to
525 $50,000 semisubmersible
that experienced for offshore Louisiana during 1976-79.
Platform Drilling Rigs
Modular Production Schedules. Production schedules for oil wells
Barge setup costs (7 days) $420,000 and nonassociated natural gas wells in the Gulf of Mexico
Rig setup costs (14 days) $171,500 were developed by the Dallas Field Office of the U,S.
$591,500 DOE. * These production schedules, published in Ref. 6,
Drilling daily rate (per day) $ 14,000 were derived from data from offshore Louisiana and
Leapfrog Texas fields. The schedules were assumed to represent
Rig setup costs (24 days) $242,000 a typical well for an average field within each field-size
Drilling daily rate (per day) $ 11,500 class. Figs. 3 and 4 present several production profiles
of oil and nonassociated gas wells, respectively. Yields
• Setup costs for mobile rigs assumed to be $230,000. for natural gas liquids from nonassociated gas in the
Miocene-Pliocene trend were estimated as 17.5 bblll0 6
cu ft [2.9 dm 3 llanol], and for the Pleistocene trend,
yields were estimated as 14.7 bbl/l06 cu ft [2
Nominal recovery per well for crude oil and non- dm 3 llanol]. Data used in the preparation of these
associated natural gas fields was obtained from historical estimates were from a geologic resource appraisal of un-
data on well productivity 6 or by calculating reserves per drilled prospects in the Gulf of Mexico prepared for the
well using the well production schedule (see next section) U.S. DOE.**
and a current price. Table 2 presents well configurations
'Wood, John: written communication, U.S. DOE, Dallas ('979).
for oil and nonassociated gas fields for each field-size
class. ""Farmer, Richard: written communication, U.S. DOE, Dallas (198').

2174 JOURNAL OF PETROLEUM TECHNOLOGY

 TABLE 5-ESTIMATES OF PLATFORM FABRICATION TABLE 6-GULF OF MEXICO OIL AND GAS
AND INSTALLATION COSTS (size vs. water depth) PROCESSING EQUIPMENT
FOR THE GULF OF MEXICO· CAPACITIES AND COSTS·

Platform Water Depth (ft) Oil Field

Size 40 150 317 525
4-slot 2.962
-3.61&
- Petroleum Liquids
Capacity·"
Natural Gas
Capacity Cost
6-slot 3.239 4.001 (BID) (10 6 cu ftlD) (10 3 dollars)
9-slot 3.655 4.579 1,500 10 585
12-slot 4.071 5.157 8.867 17.957 2,500 15 698
18-slot 4.902 6.313 10.466 20.362 5,000 25 810
24-slot 5.733 7.469 12.065 22.767 10,000 60 1,080
36-slot 7.395 9.781 15.263 27.578 20,000 120 1,238
4O-slot 7.949 10.552 16.329 29.181 Gas Field
42-slot 8.226 10.937 16.862 29.983
300 15 630
"Millions of dollars: costs are at start of 1984. Cost estimates were 550 25 680
generated with the following regression equation where C is 1,000 50 958
the cost in thousands of dollars, D w is water depth in feet, ~nd 2,500 100 1,440
N. is the number of slots in each platform. 4,500 200 1,710
For water depths less than 300 ft: 'CosIS include installation al start of 1984.
C. =2,375.00+0.020883 (Dw)2 + 118.809 (N.)+0.49240 •• Pelroleum liquids capacity excludes waler; water is assumed to
(Dw) (N.). be on 8 1: 1 ratio 10 petroleum liquids so that actualliqu~ng
capacity (including waler) is double the pelroleuon-liquids capacity.
For water depths of 300 ft and qreater:
C. = 1,379.1 +0.0426929 (Dw) +61.706 (N.) + 0.64602 (N,)
(Dw)'
TABLE 7-ESTIMATES OF PLATFORM
OPERATING COSTS (size vs. water depth)
IN THE GULF OF MEXICO·
Economic Assumptions and Costs
Platform Water Depth (ft)
Field Development Costs. Field development costs in-
Size 40 150 317 525
clude drilling and equipping production wells (including
4-slot 2.1n 2.186
dry holes), production platforms, and oil and gas process- 6-slot 2.223 2.234
ing equipment. t All development costs were ultimately 9-slot 2.290 2.309
put on a per-well basis. 12-slot 2.358 2.382 2.473 2.676
A predictive model was prepared to estimate drilling 18-slot 2.493 2.529 2.666 2.971
24-slot 2.628 2.676 2.858 3.265
costs from drilling rig day-rates, costs of items charged
36-slot 2.898 2.971 3.243 3.854
on a daily basis, and the costs that are independent of time 40-slot 2.988 3.069 3.372 4.051
and water depth. All wells were assumed drilled to a depth 42-slot 3.033 3.118 3.436 4.149
of 11,500 ft [3505 m]. Table 3 presents a summary of "Millions of dollars; costs at start of 1984. Cost estimates
these charges. We assumed 30 days to drill a production were generated with the following equation, where C is
well (40 days for a wildcat) and another 15 days to com- cost in ~ollars, N. is the n~mber of slots in the platfC:rm,
plete a successful well. These times were independent of and D w IS the water depth In feet.
C~ = 1.64911,265,821 + 13,554.993 (N.) + 0.058798 (N.)
setup charges and did not depend on water depth. Table
(Dw) 1
4 presents our drilling rig day-rates.
Some platform cost data were obtained from vendors.
A regression analysis was performed on these data, and
the resulting model was used to estimate the costs of plat- Platform abandonment costs were estimated to be 50%
forms in sizes for which cost data were not available. Plat- of the original platform installation costs. The present
form costs used in this study are presented in Table 5. worth of the amount of the estimated abandonment costs,
Processing equipment costs for various standard sized at a 15% discount factor, was added to initial platform
packages also were obtained from vendors (Table 6). investment costs.
Operators generally would buy standard-capacity equip-
ment packages (that could result in substantial excess fluid- Production Costs and Production-Related Taxes. An-
processing capacity) rather than designing and ordering nual operating costs were estimated on a production-
unique equipment configurations. No attempt was made platform basis. These costs, similar for oil and
to estimate costs for nonstandard packages. For the rated nonassociated gas production platforms of similar size and
liquids capacity for crude oil and nonassociated gas proc- water depth, were estimated from data in Ref. 6. The costs
essing equipment, we assumed that equal amounts of water were adjusted to beginning 1984 dollars using projections
and product liquids would be processed. Consequently, of historical indices published in Ref. 7. Table 7 presents
the total liquid-product-processing capacities of the the platform operating costs used in this study. The costs
packages shown in Table 6 are understated-particularly include overhead, insurance, personnel transportation and
for natural gas fields, where the ratio of product liquids other services, well workovers, and maintenance. The on-
to water may be as high as 10:1. ly taxes tied to production were federal royalties at the
assumed rate of 16.7%.
tcoslS for tying platforms to a trunkline wHh a 15-in. [3IH:m) pipe _re estimated and
added to fl8ld development coalS. The average pipeline length required varied wHh
water depth; at 40 II [12 m); 3 mi [4.8 km) of pipe, at 150 It [45 m); 5 mi [8 km), at Exploration Costs. We assumed that all wildcat wells
31711 [97 m); 8":,i [13km), and at 51511 [180 m); 10mi[16 km) of pipe_re required.
The correspondIng ~ used _re estimated to be $1.9 million, $3.3 million, $5.1
were drilled to a target depth of 11,500 ft [3505 m] with
mIllIOn, and $5.4 million. mobile drilling rigs. Drilling time was assumed to be 40
DECEMBER 1984 2175
 TABLE 8-EXPLORATION EFFICIENCIES. AREAL EXTENT. AND EXPECTED REMAINING NUMBER OF FIELDS FOR VARIOUS SIZE
CLASSES IN THE GULF OF MEXICO·

Miocene-Pliocene Trend Pleistocene Trend

Fields Number Fields Number
Size Size Range Exploration Area Discovered of Fields Exploration Area Discovered of Fields
Class (10 8 BOE) Efficiency (sq miles) by Jan. 1, 19n Remaining Efficiency (sq miles) by Jan. 1, 19n Remaining
7 0.19 to 0.38 1.83 0.61 2421.0 0.61 976.6
8 0.38 to 0.78 2.24 0.74 1468.0 0.74 591.9
9 0.76 to 1.52 2.65 0.92 24 864.4 0.92 9 349.7
10 1.52 to 3.04 2.65 1.18 27 512.2 1.18 11 206.4
11 3.04 to 6.07 2.65 1.58 27 299.7 1.58 20 111.8
12 6.07 to 12.14 2.65 2.17 35 183.0 1.66 17 62.9
13 12.14 to 24.3 2.65 3.09 50 70.3 2.58 21 30.3
14 24.3 to 48.6 3.40 4.55 42 23.9 4.03 26 13.9
15 48.6 to 97.2 4.15 6.93 43 7.7 4.28 9 1.4
16 97.2 to 194.3 4.89 10.91 25 0.8 9.79 8 0.2
17 194.3 to 388.6 5.64 17.17 17 0 15.26 3 0
18 388.6 to TT7.2 5 0 1 0
19 TT7.2 to 1554.2 2 0
20 1554.2 to 3108.4
5
• Aftar Drew at 81. and J.H. Schuenemeyer, written commun,cation (1981).

days per well. The wells were allocated to the different
water depth intervals in the same proportion as the
percentage of total prospective area associated with each
water depth interval (see Table 1). Explorationists were
assumed not to search preferentially for either oil or gas.
Exploration costs associated with each increment of 200
wildcat wells included expenditures for geologic and
geophysical data collection and lease acquisition.
Expenditures for geologic and geophysical data collec-
tion were estimated on a per-wildcat-well basis using up-
dated data from 1979. In that year, estimated expenditures
were $196.5 million. 8 According to Ref. 9, the Gulf of
Mexico accounted for approximately 74 % of the total
geophysical crew months for the lower 48 states offshore.
In 1979, 280 wildcat wells were drilled in the Gulf of
Mexico, so costs per well totaled $519,000. This value
was increased by the estimated drilling cost escalation fac-
tor to $732,000 to arrive at a per-wildcat-well cost of
geologic and geophysical data collection.
Lease acquisition costs for each wildcat-well increment
were estimated by mUltiplying the quantity of commer-
cial resources discovered by an assumed in-situ value of
the resource. The in-situ values were adjusted for cost
differences of operation at the various water depths. The
adjustment was derived from an analysis of the differences
in the after-tax NPV of marginal fields at different water
depths and was expressed as a proportion of the after-tax
NPV of the same field in the 0- to 6O-ft [0- to 18-m] water
depth interval. These factors are for the 60- to 240-ft [18-
to 73-m] water depth interval, 0.9; for the 240- to 393-ft
[73- to 119-m] water depth interval, 0.7; and for the 393-
to 656-ft [119- to 200-m] water depth interval, 0.35.
Assumptions for present value calculations include the
following.
1. Estimated costs were based on those prevailing at
the beginning of 1984, so the analysis assumed constant
1984 dollars. *
2. Federal royalty rate of 16.7% on all production was
assumed.
3. Federal income tax rate of 46% of taxable income
was assumed.
"Costs _ _ _i_eel 110m an eerIIer venIion oIlIIis paper 10 rellecllIIe general
coats axperienced al the beginning 01 1984. W. tried to edjual price quoI" we
receNed, whiCII_ oIMouIIy 81 disIras lewis. eo Ill8lI11e -.nent would retIecI
Iong-run induatJy _ .
2176
4. No time limit on the carryover of losses for income
taxes was assumed.
5. The investment tax credit of 10% of all depreciable
investment costs was assumed.
6. Depreciation was calculated by the unit-of-
production method.
7. Cost depletion was applied when determining the
depletion allowance for federal income taxes. The basis
of cost depletion was geologic and geophysical data col-
lection costs and lease acquisition costs.
8. Expensed drillings costs were 70% of the costs of
drilling successful wells and all costs of dry wells, whereas
tangible drilling costs, well-completion costs, platform
costs, and processing-equipment costs were capitalized.
Prediction of Future Discoveries
Predictions of future discoveries by BOE-size class from
a discovery-process model presented by Drew et al. S
were used as input to the cost algorithm. Drew et al. ap-
plied the analytical structure originated by Arps and
Roberts, 10 who assumed that for a field of any class size,
the probability of discovery is directly proportional to the
number of undiscovered fields and the ratio of average
area (for fields of that size) to the effective basin area.
The analytical form of the model implies that a rate of
discovery in a given size class declines exponentially as
drilling continues. Specifically, the cumulative number
of expected discoveries for fields in a specific size class,
after drilling w cumulative wildcat wells, is predicted by
Fj(w)=Fj(oo){I-exp[ -(CjAjw)IB1] , ......... (1)
where
Fj(w) = cumulative number of fields expected to be
discovered in size class i by drilling w
wildcat wells,
Fj(oo) = ultimate number of fields in size class i,
B = basin area,
Aj = average area of fields in size class i, and
Cj = discovery efficiency for fields in size class
i.
JOURNAL OF PETROLEUM TECHNOLOGY
 TABLE 9-FIELDS PREDICTED TO BE FOUND BY THREE I- 25% 15% 5%
GROUPS OF 20 SUCCESSIVE INCREMENTS OF 200 en 50
WILDCAT WELLS IN THE MIOCENE-PLIOCENE TREND AND 0
(,)
IN THE PLEISTOCENE TREND 45
I-
Z
Miocene-Pliocene Trend Pleistocene Trend w 40
Size Wildcat Well Group· Wildcat Well Group· :I
Q.
W
Class I II III I II III 0 0 35
-'
w CD
7 202.90 184.58 167.95 178.51 144.11 116.31
8 172.37 149.79 116.48 132.30 100.63 76.56 >
w a:
Q
w 30
9 141.33 114.99 93.53 99.09 69.16 48.25 Q.
10 102.12 78.38 60.15 80.72 46.27 26.35 Q en
11 74.06 51.96 36.47 61.79 Z a: 25
25.74 10.72
III[
12 52.33 32.16 29.42 42.24 10.91 2.81 ~
13 35.13 17.59 8.76 26.61 3.25 0.40 <:I -' 20
14 17.46 4.70 1.19 13.62 0.22 0.00 Z Q 0
15 7.00 0.65 0.03 1.39 0.00 0.00 is 15
16 o.n 0.00 0.00 0.20 0.00 0.00 Z !
it
·Each group denoted by a Roman numeral represents 4.000 wildcat wells in each trend. -' 10
III[
Z
a
a:
5

For random drilling, C j = 1; if drilling is twice as effi- III[

cient as random drilling, C j =2. Arps and Roberts, in
their initial application of the model, assumed a constant
exploration efficiency across size classes. However, Drew
et al. 5 estimated the efficiency for each size class
separately.
For most field-size classes in the Miocene-Pliocene
trend, the number of discoveries for equal increments of
exploration effort had begun to decline by Jan. 1977, so
the efficiencies could be estimated from the historical data.
However, because of substantial oil and gas price in-
creases in the early 1970's, many more discoveries were
made of the smaller fields that formerly were reported
as only hydrocarbon shows because they were not com-
mercial. For size classes where the discovery rates were
thought to be influenced by the economic truncation, Drew
et al. 5 applied the assumption that the underlying field-
size distribution was log geometric. The ultimate number
of fields, Fj(oo), for classes subject to economic trunca-
tion could be estimated from the ultimate number of fields
in field-size classes not subject to economic truncation.
For example, to estimate the ultimate number of fields
for Size Class 12 (a class that has been subject to recent
economic truncation), the estimated ultimate number of
fields used in the discovery-process model for the next
larger size class, Size Class 13 (which was presumed not
to be subject to economic truncation) is multiplied by
1.65-i.e., F j - 1 (00)=1.65 Fj(oo). This scheme was ap-
plied in the Miocene-Pliocene trend for Size Classes 9
through 12.
Through Dec. 1976, only 1,200 wildcat wells had been
drilled in the Pleistocene trend. This number was insuf-
ficient to provide a basis for estimating the Pleistocene
field-size class efficiencies. Drew et al. 9 therefore
assumed that exploration efficiencies estimated for the
Miocene-Pliocene trend would prevail in the Pleistocene
trend. Thus, the Miocene-Pliocene trend was used as an
analog for the Pleistocene trend. Parameters of the model
were presented in Ref. 5 and are reproduced in Table 8.
The discovery-process model was used to generate
forecasts for 60 increments of 200 wildcat wells to be
• Discovery data on which the discovery process modal was based ended Dec. 31,
1976. Because the time required be_n discovery, development, and inHiaI
production is sometimes lengthy for offshore fields, we chooee the 1976 cutoff to
ensure reliabilHy 01 our liekl-size data.
0
:I 0 12345678
UNDISCOVERED PETROLEUM
(BILLIONS BOE,
Fig. 5-Marginal finding and development costs (in 1984 dollars)
for Gulf of Mexico fields found in the study area after
1976 for 5,.15, and 25% required return (6,000 cu ft
natural gas equals 1 BOE).
drilled after Dec. 1976; these forecasts were to serve as
the basis for the planning model described earlier. Of
course, many of these wildcat well increments are not ex-
pected to be economic. The discovery-process-model
predictions are aggregated into three groups of 20 suc-
cessive increments (each increment representing 200
wildcat wells) for each trend and are presented in Table 9.
As a check on the model, results were compared with
recent discoveries. In 1982 U.S. Minerals Management
Service estimates of hydrocarbons found by about 750
wildcat wells dUrinf. 1977-79 totaled at least 841 x 10 6
bbl [133 x 10 6 m ] OE. The expected quantity of
hydrocarbons discovered with a similar number of wildcat
wells was about 1.02x10 9 bbl [0.16x10 9 m 3 ] OE.
After allowing for further delineation of these new
discoveries, the 1982 estimates should increase to the level
predicted by the model. Results generated by the model
compare favorably with the recent discovery history.
Costs of Finding and Developing
Future Oil and Gas
Predictions for the Reference Case. Potentially
recoverable oil and gas resources from fields to be
discovered after Dec. 1976 were estimated as a function
of price and required ROR, where price is equal to the
sum of marginal finding and production costs. Price in-
creases can add to the potential reserves by prolonging
the life of fields and making previously noncommercial
fields profitable to fmd and develop. Furthermore, price
increases enhance the after-tax NPV of all discoveries and
thus induce additional exploration in our model. However,
the scheme for determining when exploration stops
depends not only on the after-tax NPV of the resource
but on the components of exploration cost-i.e., the cost

DECEMBER 1984 2177

 MIOCENE- MIOCENE-
...
eI) 50
PLEISTOCENE PlIOCENE TOTAL
... PLEISTOCENE PUOCENE TOTAL
0 CI) 50
to)
0
... 45 (,)
Z
'"~ 40
...
Z
45
A.", w 40
00 ::E
mID 3S
A. W
>ez: 0-I
"'",
QA.
30 0 35
w 11:1
QeI)
25 > 0:
cs
Zez:
0...1 20
w
Q w
A.
30
zO Q CI)
Q Q Z 0:
25
15
Zz CC
a::- S 20
"Q
...I 10 -I
C Z 0
z Q
6 5 15
Z
it ~
ez:
C 0
~ 2 3 4 5 6 7 8 9 10 10
-I
THOUSAND WILDCAT WELLS CC
Z
(; 5
Fig. 6A- Number of wildcat wells projected to be drilled in the 0:
Gulf of Mexico study area by trend (after Dec. 1976) CC 0
as a function of marginal finding and development cost ::E t 2 3 4 5 6 7 8
with a 15% discounted cash flow return assumed.
UNDISCOVERED PETROLEUM
(BILLIONS BOE)
of wildcat wells, geologic and geophysical data collec-
Fig. 68-Marginal finding and development costs (in 1984
tion, and lease acquisition. Exploration stops at that in- dollars) for fields to be discovered in the Gulf of Mexico
crement of exploratory wells when the associated expected study area after 1976 by trend areas with a 15% dis-
after-tax NPV of the commercial resources discovered is counted cash flow return assumed. (6,000 cu ft natural
insufficient to cover the costs of that increment of explora- gas equals 1 BOE.)
tion effort.
When oil and gas prices are constant, the in-situ value
of the resource theoretically should fall as the quality of hydrocarbons and natural gas liquids for the remaining
the remaining prospects deteriorates. The expected in-situ 7 %. Gas contained in nonassociated gas fields represents
value, however, will not fall below the minimum accept- 71 % of the total hydrocarbons estimated to be discovered.
able bid that is set by the leasing authority-otherwise the Figs. 6A and 6B provide additional information relating
prospect will not be explored. We assumed a nominal in- to our reference case-I5 % required ROR and in-situ
situ value of $1.50/bbl [24 Clm 3 ] OE for the predictions lease cost of $1.50/BOE-for the Miocene-Pliocene and
presented. If the minimum economic field is Size Class Pleistocene trends. In Fig. 6A, economic increments of
9, the $1.50Ibbl [24 Clm 3 ] OE is roughly consistent with future wildcat wells for the two trends are presented as
a minimum bid of $1,000,000 per tract, assuming one a function of price, and Fig. 6B shows predictions ·if
field per tract. Indeed, Class. 9 fields are generally much potentially recoverable hydrocarbons by trend. As of Jan.
smaller than the typical tract leased by the federal govern- 1977, approximately 3,300 wildcat wells had been drilled
ment (see Table 8). in the Miocene-Pliocene trend and 1,200 wildcat wells
Results of the reference set of predictions are presented had been drilled in the Pleistocene trend. Fig. 6 indicates
in Figs. 5 and 6. In Fig. 5, estimated potential total that it will continue to be economically optimal for the
recoverable oil and gas resources of future discoveries industry to drill about three wildcat wells in the Miocene-
in the Gulf of Mexico are shown as a function of output Pliocene trend for every wildcat well drilled in the
price (equivalent to the sum of marginal finding and pro- Pleistocene trend. At $30.oolbbl [$4.76/m 3 ] OE, the
duction cost) and ROR. At $30.oo/bbl [$4.76/m 3 ] OE potentially recoverable resources from the Miocene-
and 15% ROR (assuming a payment of $1.50Ibbl Pliocene trend are about three times the estimated amount
[24 Clm 3 ] OE of resource in situ), the remaining for the Pleistocene trend.
recoverable resources are estimated as 3.68 X 109 bbl
[O.6x 10 9 m 3 ] OE. At a 5% required ROR, the poten- Sensitivity of Results to Ecc.nomic and Engineering
tially recoverable resource is 153% greater (or 5.65 billion Parameters. To evaluate the robustness of the prediction
BOE), and at 25% required ROR, predicted discoveries to changes in economic and engineering variables, sen-
are 30% (1.09 x 109 bbl [O.17x10 9 m 3 ] OE) of the 15% sitivity to three cost parameters was examined: (1) wer
ROR estimate. At $50.oolbbl [$8/m 3 ] OE, the estimates drilling and completion, (2) platform and processing
are 8.24, 6.94, and 5.49xl0 9 bbl [1.31, 1.1, and equipment, and (3) changes in production schedule flow
0.9x10 9 m 3 ] OE for required ROR's of 5, 15, and rates.
25%, respectively. At almost all prices computed, natural The influence of varying drilling and completion costs
gas accounts for apr roximately 76 % of the total hydrocar- on the resource appraisal is presented in Fig. 7. This figure
bons discovered. Crude oil accounts for 17 % of the total shows appraisals where costs were 120% (Curve A) and

2178 JOURNAL OF PETROLEUM TECHNOLOGY

 ABC A B C
§ 50

45
I-
en
0
(.)
50

45
~
III
I-
2
40 III
:Ie 40
A. III ~
o 0 35 A. III
iiim 0
-' CD
0 35
£:j
Q
ffiA. 30
III
> cz:
III III 30
Q A.
Q en 25
2 cz: Q en
< 5 Z cz: 25
,,-'
2 0
20 < :5-'
C 20
2~
iI:
Q
15 A - DRILLING AND COMPLETION COST
1.2 x COST OF B "
Z 0Q
C
Z ~ 15
A - PRODUCTION WELL FLOWRATE
.8 x FLOWRATE OF B
-' 10
< C - DRILLING AND COMPLETION COST iI:
2
5 .8x COST OF B -' 10 C - PRODUCTION WELL FLOWRATE
C; <
cz: Z 1.2 x FLOWRATE OF B
< 5cz: 5
:Ie 12345678
UNDISCOVERED PETROLEUM < 0
~ 1 2 3 4 5 6 7 8
(BILLIONS BOE)
UNDISCOVERED PETROLEUM
Fig. 7 -Marginal finding and development costs (in 1984 dollars)
of fields to be discovered in the Gulf of Mexico after Dec. (BILLIONS BOE)
1976 for alternative drilling and completion costs. In
Curve A, drilling and completion costs are 120% of those Fig. 8-Marginal finding and development costs (in 1984 dollars)
used in the reference example (Curve B) and for C costs of fields to be discovered in the Gulf of Mexico aft$r Dec.
are BooAl of the costs of the example. For all curves, a 1976, assuming alternative production well flow rates.
15% discounted cash flow return was assumed. (6,000 In Curve A, production well flow rates were 80% of those
cu ft natural gas equals 1 BOE.) used in the reference example (Curve B) and for C flow
rates were 120% of those applied in the reference case.
For all curves, a 15% discounted cash-flow return was
assumed. (6,000 cu ft natural gas equals 1 BOE.)
80% (Curve C) of the reference example (Curve B). At
$30.00/bbl [$4. 76/m 3] OE, economic resources
associated with the lower cost case were 21 % greater than
the reference example, whereas resources associated with reference case (Curve B), and the corresponding economic
the higher cost case represented 74 % of the resources of resources associated with the reduced flow rates were 91 %
the reference case. At $50.00/bbl [$8/m 3 ] OE, the cor- of the reference case.
responding results were 10% greater than the reference The absolute magnitudes of the changes in the reference
case and 92 % of the reference case. As prices increase, appraisal shguld be put in perspective. Even a change in
the differences in the results tend to diminish on a percen- the appraisal of 27 % (assuming a 15 % ROR and
tage basis and also in absolute terms. $30.00lbbl [$4.76/m 3 ] OE) amounts to about 1 X 109 bbl
Similarly, the influence of varying the platform and [0.16XI0 9 m 3 ] OE or about 1 year's production at the
processing equipment costs by 20% about the costs used 1977 level of 1.1 x 10 9 bbl [0.17 x 10 9 m 3 ] OE/yr. This
for the reference example was examined. However, the represents only 4% of the total hydrocarbons (25.19x
changes in the resource appraisals were well within 5 % 10 9 bbl [4X10 9 m 3 ] OE) discovered in the Gulf of Mex-
of the results of the reference example. ico through Dec. 1976. When comparing this result to
The effect of varying the production well flow rates is cumulative previous discoveries, we might conclude that
presented in Fig. 8. Flow rates of the reference example the level of the overall appraisal is relatively insensitive
were increased by 20% (Curve C) and reduced by 20% to reasonable variations in the basic assumptions made
(Curve A), and the number of production wells was ad- in the modeling effort. However, in relative terms, the
justed in the opposite direction so that recovery per field appraisal is sensitive to drilling and completion costs and
remained relatively constant. The results of increasing the production well flow rates but is much less sensitive to
flow rate and reducing the number of production wells platform and equipment costs.
required to produce a field are (1) a higher after-tax dis-
counted cash flow for fields that are already commercial Implications and Conclusions
and (2) a possible change for some fields from uneconomic The sensitivity analysis showed the reference appraisal
to commercial. At $30.00lbbl [$4.76/m 3 ] OE, resources to be reasonably robust to changes in the most important
associated with Curve A were 89 % of the resources underlying cost and physical assumptions used in the plan-
associated with the reference example, whereas, at the ning model. Although results could have been presented
same price, the resources associated with Curve C were for which other variables such as operating costs or in-
10% greater than the reference example. At $50.00/bbl dustry drilling efficiencies were changed, the assumptions
[$8/m 3 ] OE, the economic resources associated with examined here were clearly the most important in terms
higher flow rates (Curve C) were 11 % greater than the of their effect on the appraisal. As the price increased from
DECEMBER 1984 2179
 --
--...
,
ULTIMATE NUMBER OF FIELDS
NUMBER OF FIELDS
!Un_......
-
JDIlIlCOllERI:D
AND DEVELOPED
AT 150 PER BO£ AND
15 PERCENT RETURN
15 100
~
ULTIMATE NUMBER OF RELDS
210
DISCOVERED AND DEVELOPED
Z AT .30 PER BO£ AND
200 15 PERCENT RETURN
,.
'10
10
• .,.
'M.J
M 1.12 •.•
RELD SIZES IN MILLIONS OF BOE
Fig. 9-Field-size frequency distributions, which include the
estimated ultimate number of fields in each size class
(from Ref. 5), fields in the Gulf of Mexico discovered
before Jan. 19n, and expected subsequent discoveries
at $30.00/BOE and $50.00/BOE.
$30.00 to $50.00lbbl [$4.76 to $8/m 3 ] OE, the dif-
ference in the overall appraisals generated by changing
the various assumptions generally diminished.
The question of what part of the resource base is ex-
pected to be discovered and developed at various prices
is partially answered by Fig. 9. In the figure, the ultimate
number of fields are estimates made by Drew et al. 5 The
figure shows cumulative discoveries expected at $30.00
and $50.00lbbl [$4.76 and $8/m 3 ] OE. Through 1976
there were 422 discoveries in this area. At $301bbl
[S4.76/m 3 ] OE and a 15% required ROR, 360 additional
commercial discoveries are expected. Similarly, at $35
and $501bbl [$5.56 and $8/m 3 ) OE, there are expected
523 and 1,121 new commercial discoveries, respectively.
. Thus, even at $501bbl [$8/m 3 ] OE, total commercial
hydrocarbons that will be discovered are only about 28 %
of hydrocarbons in past discoveries. However, the newly
discovered resources will be contained in more than two
and a half times the number of fields. As shown in Fig.
9, new discoveries on average will be substantially smaller
than previous discoveries.
The drilling and the petroleum service industry seem
to be driven by the number of fields discovered and
developed. The information conveyed by Fig. 9 is par-
ticularly important. This information along with the well
and platform configurations in Table 2 can be used in
forecasting the industry's long-run development well
demand. The shift in the size distribution toward smaller
fields will require relatively more development drilling
per unit of resources because smaller fields have lower
well productivity. Figs. 6A and 6B together show the ex-
pected number of commercial wildcat wells and discover-
ies at each price. Data behind these figures indicate that
the wildcat well discovery rate-i.e, BOE per wildcat
well-can be expected to decline by 50% over the next
5,000 wildcat wells.
Data similar to those presented in Fig. 9 also can show
me effects of technological innovation on industry activity.
2180
For example, a 20% decline in drilling and equipping costs
at $301bbl [S4.76/m 3 ] OE and a 15% required ROR in-
creases the number of commercial fields from 360 to 475.
At $50/bbl [$8/m 3 ] OE, they increase from 1,121 to
1,345. Alternatively, if well flow rates could be increased
by 20%, at $30/bbl [S4.76/m 3 ] OE the number of com-
mercial discoveries would be 466 instead of 360, and, at
$501bbl [$8/m 3 ] OE, 1,341 are expected instead of
1, 121. In contrast, if drilling efficiency declines and
materials costs increase so that drilling and equipping costs
increase by 20%, at $301bbl [S4.76/m 3 ] OE the number
of commercial discoveries declines by about one-third and
at $50lbbl [$8/m 3 ] OE they decline by about one-eighth.
Additions to proved reserves come from both the new
discoveries and growth in proved reserves in older fields
as the edges of old fields are delineated and infield drilling
identifies new pools. Additions to proved reserves from
m.z1.114.4
growth of previously discovered fields is expected to total
about 1.12 X 10 9 bbl [161 x 10 9 m 3 ] of crude oil and
26.70x 10 12 cu ft [756 x 10 6 m 3 ] of natural gas. II So,
future additions to proved reserves in the study area may
come equally from new discoveries and growth in older
areas. Thus, this appraisal indicates the study area to be
a relatively mature area in terms of undiscovered future
oil and gas reserve potential.
References
1. "Future Supply of Oil and Gas From the Permian Basin of West
Texas and Southeastern New Mexico," USGS, Washington, D.C.
(1980) Circular 828.
2. Attanasi, E.D., et al.: "Economics and Resource Appraisal-The
Case of the Permian Basin," J. Per. Tech. (April 1981) 603-16.
3. Drew, L.1., Root, D.H., and Bawiec, W.1.: "Estimating Future
Rates of Petroleum Discoveries in the Permian Basin," Proc.. 1979
SPE Hydrocarbon Economics and Evaluation Symposium, Dallas,
101-06.
4. Attanasi, E.D. and Haynes, J.: "Future Supply of Oil and Gas From
the Gulf of Mexico," USGS paper 1294, USGS, Washington, D.C.
(1983).
5. Drew, L.J., Schuenemeyer, J.H., and Bawiec, W.J.: "Estimation
of the Future Rates of Oil and Gas Discoveries in the Western Gulf
of Mexico," USGS paper 1252, USGS, Washington, D.C. (1982).
6. Farmer, R. and Zaffarano, R.: "OCS Oil and Gas Supply Model-
Data Description," U.S. DOE, Washington, D.C. (1983).
7. Funk, V.T. and Anderson, T.C.: "Cost Indexes for Domestic 0:
and Gas Field Equipment and Production Operations, 1983," U.S.
DOE, Energy Information Admin., Washington, D.C. (1984).
8. •• Annual Survey of Oil and Gas, " U.S. Bureau of the Census, Cur-
rent Industrial Repons, Series MA-13K (79)-1 (1981).
9. "North American Developments Issue," Bull., AAPG (1980) 64,
No.9, 129-53.
10. Arps, J.J. and Robens, T.G.: "Economics of Cretaceous Oil on
the East Flank of the Denver-Julesburg Basin," Bull., AAPG (1958)
42, No. II, 2549-66.
II. Root, D.H.: "Estimation of Inferred Plus Indicated Reserves in the
United States," Estimates of Undiscovered Recoverable Conven-
tional Resources of Oil and Gas in the United States. Dolton et al.
USGS, Washington, D.C. (1982), USGS Circular 860, Appendix
F,81-87.
SI Metric Conversion Factors
bbl x 1.589 873 E-Ol = m3
cu ft x 2.831685 E-:-02 = m3
ff x 3.048* E-Ol = m
sq mile x 2.589988 E+06 = m2
"Conversion factor is exact. JPT
Original manuscript received in the Society of Petroleum EngiM81S oIIice Oct. 18, 1982.
Paper accepted lor publication May 4. 1984. Revised manuscript received July 30.
1984. Paper (SPE 11297) first presented at the 1983 SPE Hydrocarbon Economics
and Evaluation Symposium held in Dallas March 3-4.
JOURNAL OF PETROLEUM TECHNOLOGY