Grace high prices, large increases in oil and gas reserves were gained through new field discoveries, discovery of new reservoirs within fields and, t

Transcription

1 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? Print 8.5 x 11 Grace, John D. Earth Science Associates Abstract The growth in estimated ultimate recovery (EUR) of oil and gas fields over the course of their development has been recognized as a significant contributor to hydrocarbon supply, both in the United States and abroad. Data on changes in EUR have been examined for oil and gas fields discovered on the modern shelf of the Gulf of Mexico, in order to empirically determine the possible causes of these changes. Using a semilog regression model of EUR as a function of years since discovery, from 195 through 2002, roughly half of fields in the study area grew and the balance either shrank or remained statistically unchanged. Fields that grew were typically large discoveries to start and the volumes by which they grew were log normally distributed. The fields making the largest contributions to aggregate growth typically had at least 20 reservoirs over at least 5,000 feet of charged section, which was deposited in generally progradational environments at sediment accumulation rates between 500 and 2,500 feet per million years. The principal mechanism of field growth in the study area was through the discovery of new reservoirs. In the fields having the largest growth, these discoveries occurred in cycles based on stratigraphic interval. Within each cycle, the largest reservoirs were discovered early and the size of reservoir discoveries declined exponentially. Up to four major stratigraphically based cycles were observed; generally, but not always, each subsequent cycle added a smaller volume to EUR than those that preceded it. A secondary source of growth arises through the combined effects of recognizing an increased volume of reservoir rock containing reserves and improvement in recovery factors. The contributions of these mechanisms have been examined through analysis of singlereservoir fields and growth in fields after their last new reservoir discovery. Field growth is tied to the economic conditions surrounding oil and gas production. From the mid190s through mid-1980s, during a period of rising and Reservoir Characterization: Integrating Technology and Business Practices 1

2 Grace high prices, large increases in oil and gas reserves were gained through new field discoveries, discovery of new reservoirs within fields and, to a lesser extent, positive reservoir volume revisions and increases in recovery factors. Price collapses in 1986 and again in 1998 are both reflected in reductions in field growth and actually declines in aggregate EUR. Although a short time series, EUR growth between the beginning of the current price recovery in 1998 and 2002 indicates that supply of new oil and gas in existing fields is becoming more inelastic. This is most probably due to two factors: depletion of the growth potential of old, very large fields; and because of the progressive decline in the sizes of new field discoveries and the high correlation between size and growth, as newer finds have smaller growth potential. Introduction It is generally taken as an article of faith that applying more science and technology to a problem yields a more profitable solution. Yet is there empirical basis for this belief, particularly as applied to the geologic and geophysical characterization of commercial hydrocarbon reservoirs? How does knowing more about the architecture and character of reservoirs and fields lead to greater recovery of hydrocarbons and does this also produce more profit from development? Repeated studies have shown that over the last few decades in the United States, greater additions to oil and gas reserves came from discovered fields than from new field discoveries (Arrington, 1960; Hubbert, 196; Root, 1981; Attanasi and Root, 199; Drew et al., 199). The phenomenon of increases in a discovered field s estimated ultimate recovery (EUR, defined as the sum of cumulative production and reserves at any point in time) through its development is known as field or reserve growth. Both the U.S. Geological Survey and the U.S. Minerals Management Service (MMS) have recognized field growth as a source of future oil and gas supplies in their most recent comprehensive assessments (Root, et al, 1995; Lore, et al, 1996). s have long noted that failure to account for growth, when discovered fields are used as a basis for forecasting future discoveries, underestimates remaining exploration potential (Arrington, 1960; Drew and Schuenemeyer, 1990). The concept of field growth has been widely popularized by W.L. Fisher and his colleagues at the Texas Bureau of Economic Geology as it impacts U.S. supplies and has been applied internationally (Fisher, 1991; Watkins, 2000; Verma and Ulmishek, 200; Verma and Henry, 200). Typically, investigators have found that mature oil and gas fields, after decades of development and production, have EUR four to eight times larger than the EUR estimated in the year the field was found. Dif2

3 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? ferences arise in growth factors between oil and gas fields, offshore and onshore fields, and between fields challenged by heavy oil or tight gas reservoirs and the majority of common fields. Consequently, field growth has become a key source of anticipated future hydrocarbon supply. Yet how growth occurs, and the basis of observed differences in growth between fields, remains poorly investigated. The objectives of this study are to: Conduct basic analysis of the changes in EUR over time with a high resolution, publicly available data set covering the fields of the modern shelf of the Gulf of Mexico (GOM). Determine, to the extent possible, what geologic characteristics have allowed some fields to grow, while others have remained static or shrank. Examine the relationship between field growth, the market price of hydrocarbons, the cost of drilling and time. Fields of the Gulf of Mexico shelf The modern shelf of the Gulf of Mexico, since development opened in 19, has supplied more new oil and oil and gas production than any other area in the United States. As of the end of 2002, there were 9 fields having a collective EUR of 8.8 billion barrels of oil equivalent (BOE, gas converted at 5,620 cubic feet per BOE), of which roughly 0 percent was gas (Fig. 1). Between 19 and 2002, the GOM shelf contributed 10 percent of US domestic hydrocarbon supply. In 2002, as a mature province, GOM shelf fields contributed 2.9 trillion cubic feet of gas and 19 million barrels of oil, 15 percent and percent respectively of US domestic supplies. With very few exceptions, the reservoirs are siliciclastic, from Oligocene through Pleistocene in age, charged by hydrocarbons from both Mesozoic and Cenozoic sources. Maturation of source rocks and the formation of reservoirs and traps are associated with roughly a dozen major cycles of sedimentation that pushed the paleo shorelines and shelf edges progressively seaward. Faulting, for traps and migration, arose through accommodation of these sediment packages and by heavy interaction with salt diapirs rising from the underlying Upper Jurassic Louann Formation. Locally, systems of section expansion and mobile salt also directed reservoir and seal deposition. The industry was drawn offshore by the recognition that the same petroliferous systems demonstrated in south Texas and Louisiana did not stop at the water s edge. Seismic and gravimetric techniques, used to locate onshore salt diapirs, proved the existence of highly prospective offshore targets long before the first well was drilled in open water. This became a recurring theme of exploration and development: geologic analog to onshore together with geophysical information identified high-value prospects

4 Grace in waters deeper than extant production technology limits. These targets, and the first large discoveries that followed, catalyzed construction of production facilities for ever deeper water depths. Through the end of the 1960s, it was mainly piercement salt-related fields (defined where the depth to top of salt was equal to or shallower than the field s deepest reservoir) that lured the industry into producing in progressively deeper water. Within each water depth band, with a few very large early discoveries to anchor development, infrastructure became denser and advances in drilling and production technology drove down the average cost of operation. This supported testing smaller and deeper structures, and the resultant discoveries in-filled the earliest, biggest finds. The second generation of targets focused mainly on growth fault traps and more subtle structures propagated into the shallow section by deepseated, non-piercement salt. By the early 190s, drilling extended to the modern shelf edge. At that point, both the rate of additions to cumulatively discovered volumes and the mean size of new discoveries began to deteriorate sharply (Fig. 2). From 19 through 2002, mean discovery size halved every 8. years: more slowly before 190 and more quickly thereafter. This forced new field exploration in two new directions: greater activity across the lessdensely explored Texas shelf and to move down the continental slope into deep water (> 18 meters [600 feet]). Particularly initially, deep water meant a quantum leap in both technologic requirements and cost; therefore, shelf producers turned even greater efforts into the shallow-water fields already discovered. Operators had added new reservoirs to discovered fields since the region s first finds, but a second wave of activity began as the outlook for new fields on the shelf diminished over the last 0 years. It is the process of growth in the discovered fields of the GOM shelf that forms the empirical test bed for this analysis. Changes in field EUR over time The data for this study were drawn from a time series released by the MMS of its annual estimates of oil and gas EUR from 195 forward for all fields in the GOM. The series is updated each year, with about a three year lag. The agency s approach to reserve analysis has evolved over 0 years; its estimates, however, approximate proved reserves, as defined by the U.S. Society of Petroleum Engineers (Society of Petroleum Engineers, 2006). Several mathematical models of changes in field EUR have been proposed. The most straight-forward is to regress EUR on time, using either a linear or semilog model (Eqs. 1 and 2). These were used to place GOM shelf fields into three classes: those with EUR that grew

5 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? over time, those with EUR that shrank and those with EUR unchanged over time. BOEEURt = α + β (AGEt)...(1) ln(boeeurt) = γ + δ (AGEt)...(2) where BOEEURt = the EUR of a field in year t, measured in millions of BOE. AGEt = field age, defined as the year in which EUR was evaluated (t), minus the year of field discovery. α, β, γ, δ are parameters estimated in the regression analysis. The parameters and are referred to in the text as slope parameters. To ensure statistically reliable results, fields were excluded if they had less than five years of EUR data. Fields were classed as growing if the slope coefficient in Eq. 1 or 2 was positive and the t-statistic on its estimator was significant at 95 percent; fields with negative slope coefficient and passing the same significance test were classified as shrinking. If the slope coefficient was equal to zero or if the estimator of the slope parameter failed the 95 percent significance test, the field was classified as static. The results for all GOM shelf fields are shown in Table 1, Sections A and B. The results of the same analysis performed on fields discovered after 19 (i.e., the subset for which reserve data was available for the entirety of their production) are shown in Table 1, Sections C and D. For either the entire set, or post-19 discoveries, the analysis shows that EUR grew as a function of time for only about half of the fields on the GOM shelf. Roughly one-fifth of the fields shrank over the course of their development and the rest showed no statistically significant change since discovery. However, the picture changes when the three groups are examined either by field size or the collective volume of hydrocarbons they contain. Considering all fields, 80 percent of the discovered hydrocarbons were in fields that grew; 5 percent was in fields that shrank; and 15 percent in static fields. Considering only post-19 discoveries, 66 percent was in fields that grew, percent was in fields that shrank, and the balance in static fields. The same pattern is mirrored in both mean and median field size in each group: the mean sizes of fields that grew are six to seven times larger than for those fields that shrank. This leads to the first important conclusions on field growth in GOM shelf fields Irrespective of size, as measured by BOE EUR over time, fields on the GOM shelf between 195 and 2002 were as likely to shrink or remain static as they were to grow. The likelihood that a field will grow over its development, rather than shrink or remain static, was very highly correlated with its size. The larger the field, the more likely it will grow. Evaluated as of their 2002 BOE EUR, a field containing less that 10 million BOE had a 5 percent 5

6 Grace chance of shrinking or remaining static between 195 and 2002; fields over 10 million BOE had a 25 percent chance of shrinking or remaining static; and those over 100 million BOE had only a 15 percent chance. Which fields grew? Of the 9 GOM shelf fields in the MMS reserve history file, the fields that grew added 15.9 billion BOE from either their year of discovery or 195 (for fields discovered earlier) and 2002 (six fields grew, as measured by the regression analysis, but had lower EUR in 2002 than when discovered and were not included past this point of the analysis). The amount by which fields grew was lognormally distributed: the 19 fields that added the greatest reserve volumes ( percent of those that grew) contributed 25 percent of total growth and the top 62 fields (1 percent of those that grew) contained half of reserve additions. Most of the highest-growth fields start as big discoveries. However, they also share geologic elements that illuminate how and why fields grow over time. Figure shows the 62 fields that contain half of the field growth on the shelf. Almost all of these fields are on the shelf south of Louisiana; fields on the Texas shelf are smaller. Across the Louisiana shelf, however, they appear at first to be randomly distributed. Rather than randomly distributed, however, the fields that grew the most between 195 and 2002 share characteristics largely related to the environment extant during the deposition of their principal reservoirs. Spe- cifically, the following generalizations apply to fields that added the greatest volume of reserves: The charged section of these fields (from the deepest to shallowest reservoir) is typically at least 5,000 feet (1,52 meters) and contains 20 reservoir sands deposited over less than 10 million years (m.y.) The sediment accumulation rate (SAR) over the charged section typically ranged between 500 feet (152 meters) and 6,000 feet (1,829 meters)/ m.y. and within that band most growth occurred in fields where the SAR averaged between 500 feet (152 meters) to 2,500 feet (62 meters)/m.y. As with most shelf reservoirs, generally about 0 percent of productive sands were deposited in progradational environments. Within shelf fields generally, 56 percent of field EUR is contained in the largest sand. In the 62 fields containing half total field growth, only 0 percent of total resources are contained in each of the field s largest sand. Between reservoir thickness and area, higher growth is more closely associated with the latter than the former. The exception is fields trapped 6

7 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? by piercement salt, where smaller-than-average reservoir areas are compensated by greater-thanaverage numbers of charged sands. These observations suggest the following conclusions about the GOM shelf fields that grew and, because growth and field size are so highly correlated, about the formation of the largest fields: 1. The largest fields, and the ones that account for most of the aggregate growth, are those whose reservoirs are deposited in environments that produce many sealed sand bodies of greater-thanaverage areal extents. 2. These optimal environments are associated with a fairly narrow window of SAR. Most likely, below the window, the sand/shale ratio is too low to host large hydrocarbon volumes and sand isolation reduces the probability of intersection with migration fairways. Above the window, SAR is.. so high that shales are available in insufficient volumes and areal contiguity to seal large-volume reservoirs. Even at SAR s within the window, increasing proximity to delta fronts may produce too sandrich an environment for effective and areally extensive seal formation. SAR s within the optimal window appear correlated with both local development of growth faulting and activation of vertical movement of piercement salt. Both of these mechanisms catalyze contemporaneous migration and trap formation. At SAR s below the window, shallower toed faults may be insufficiently deep to efficiently access migrating hydrocarbons; above the window, faulting may be so extensive as to breach seals and produce much smaller (and less frequently filled) traps. How GOM shelf fields grew The half of GOM shelf fields that grew dominates the region s resource base. There are four principal mechanisms by which the EUR of a field increases over the course of its development. 1. Discovery and development of new reservoirs 2. Recognition and development of larger volumes of productive rock associated with discovered reservoirs.. Increase in recovery factor from discovered reservoirs.. Amalgamation of fields formerly recognized as separate, forming larger fields under a single name (this mechanism is not considered here). As reviewed above, large field EUR is highly correlated with a large number of reservoir sands and the largest fields contribute the greatest volume to field growth. Therefore, it should be no surprise that the prin

8 Grace cipal mechanism for growth of shelf fields is by the discovery of new reservoirs. Fields that grow the most through new discoveries are those in which the largest reservoir is not the first discovered. Although the largest reservoirs are usually discovered early in field development, most of the time the very largest is not the very first one found. Therefore, the estimate of field size based on the first reservoir found is quickly augmented by one or several larger discoveries within the field. When the largest reservoir is discovered first, especially if there are a relatively small total number of reservoirs, the field EUR quickly becomes asymptotic in time or cumulative drilling. When there is a large jump in field EUR after early drilling, it is usually associated with recognition of potential in a different stratigraphic series, sometimes, but not always deeper than the round of reservoir discoveries that anchored the field s original development. The largest reservoir in this new series is found early and then the new series additions to EUR also become asymptotic. Fields on the GOM shelf may experience two, three or even four several such cycles, but with rare exceptions, each cycle adds less than the ones preceding it. The East Cameron Block 01 Field (EC1), in Figure, is such an exception, where the third cycle based on MM reservoirs contains the largest reservoir in the field). In addition to discovery of new reservoirs, field EUR is augmented by both the expansion of rock vol- ume recognized as containing commercially productive oil and gas and by increase in the estimated recovery factor applied to those hydrocarbon volumes. Operating together, these factors can best be examined two ways. The first is by the EUR growth of single-reservoir fields. These are generally small fields, which introduces bias into the analysis. However, they allow isolation of EUR changes, absent the influence of new reservoir discoveries. The second way is to examine the growth in field EUR after the last sand discovered. There were 8 single-reservoir fields on the GOM shelf discovered after 19 (allowing examination of their change in EUR from discovery forward). Of these, only 18 (2 percent) recorded statistically significant growth between discovery and Collectively, they increased from an average EUR in the year of discovery of about million BOE to 11 million BOE by 2002; however, the median growth was only million BOE. Of the single-reservoir fields, shrank in EUR from discovery year to 2002 and the balance (2) were static (i.e., had statistically insignificant changes in EUR between discovery and 2002). The fields that shrank had discovery year EUR s smaller than those that grew (2. versus.6 million BOE). The median loss in EUR for shrinking single-reservoir fields was under 1 million BOE. The change in EUR of fields after their last reservoir discovery isolates changes due to either changes in the reservoir volumes or recovery factors. These are 8

9 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? summarized in Table 2. The fields are grouped by the year in which their last reservoir was discovered (rows in Table 2). The regression model in Eq. 2 has been applied to the MMS EUR estimates for the years following the last reservoir discovery through The same statistical criteria as employed above are used to classify the fields as growing, shrinking or static. Above, it was shown that half of all fields grew, considering all three growth mechanisms. However, when only growth in reservoir rock volume and increased recovery factor were considered, slightly more than one-quarter of the fields grew after their final reservoir discovery. After the last reservoir was discovered, three-quarters of the fields shrank or remained static. The fields that grew were, on average, larger fields than the shrinking or static fields. Additionally, there is no obvious trend in the change in EUR after final reservoir discovery over time. That is, roughly the same proportion of fields having last reservoir discovery before 196 grew as among fields with last discovery before Fields that actually shrank were consistently the smallest fields in the GOM shelf resource base; mean size of growing fields was six times larger and static fields were in between (excluding the impact of new reservoir discoveries). Analysis of the mechanisms of growth, divided between addition of reservoirs and change in reservoir rock volumes/recovery factors of discovered reservoirs leads to the following conclusions: 1. The dominant mechanism of field growth on the GOM shelf is through the addition of new reservoirs. 2. For the fields adding the greatest EUR (i.e., large fields with many sands) typically add reservoirs in cycles that are differentiable by stratigraphic series. Within these cycles, the largest reservoir in stratigraphic unit is found early, and the sizes of subsequent discoveries within that unit decline exponentially with additional drilling (and time).. Fields adding the greatest EUR, with multiple cycles of reservoir discoveries, typically (but not always) start with the richest cycle, and subsequent cycles lead to smaller additions of EUR. Subsequent cycles are usually, but not always deeper than the cycle containing the field-discovery reservoir(s).. Field growth through recognition of expanded volume of rock containing reserves or increased recovery factor is a significant but secondary contributor to field growth. As with in-field discoveries, growth of the volume or recovery from existing reservoirs is highly correlated with field size. The larger the field, the more likely there will be growth in EUR through extension and improvement of recovery factor. 9

10 Grace Field growth and drilling economics The growth of EUR in discovered fields takes place within the context of the economic environment for producing oil and gas. Growth through discovery of new reservoirs, as well as from expansion of reservoir volumes or higher recovery factors, requires that wells be drilled. Wells are only drilled if the ex ante expectation of operators is that they will be profitable. Moreover, the bar of well profitability, despite advances in drilling technology over the last 0 years, has risen steadily. Figure 5 shows the volume of hydrocarbons that must be added to pay for the cost of drilling a well. This is a minimum volume, as a return on the operator s investment must be added to make drilling profitable. Operators on the GOM shelf have responded to changes in oil and gas prices and drilling costs in ways that economic theory would predict. The highest increases in EUR from discovered fields and new field discoveries have occurred between the mid-190s and mid-1980s, when oil and gas prices were high. That performance substantially degraded after the price collapse in 1986, to the point where in 1990, negative revisions to existing field EUR s exceeded positive revisions and new field discoveries to force a negative net change in EUR for all fields. Performance increased slowly through the 1990s, only to turn negative again in 1998, another year of price collapse. Since the rebound in oil and gas prices, which began in 1998 and continued thereafter, there has been a recovery since the 1998 performance, but increases are both far smaller than the increases in the period and not commensurate with the rate of increase in price. There could be several reasons for this: Fields discovered in the period were almost all, by 2002, fully-grown. That is, they have reached the asymptotic level of EUR as a function of cumulative drilling. Because fields discovered since 1998 are much less mature (in terms of cumulative drilling), they will add reserves in years after 2002, which are not yet reflected. As shown in Figure 2, the size of new field discoveries has declined since the first discoveries on the shelf. Therefore, the contribution made by new fields to the total resource base continues to decline (even if they are fully grown ). This is shown in Figure. As shown in the analysis above, positive change in field EUR is highly correlated with field size. So, as the average size of new discoveries declines, the likelihood they will grow at all (as opposed to shrink or remain static) goes down. For those fields that do grow, as they are smaller than their predecessors, they will add smaller volumes of reserves as a function of continued drilling. As field growth requires investment in drilling and production technology, it would be expected to be 10

11 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? sensitive to both costs and prices. That relationship is demonstrated in the fields of the GOM shelf. Moreover, because of progressive depletion of the GOM shelf resource base, the reduction in the number and size of new field discoveries reduces the potential for future field growth. Although there is insufficient data covering the increase in oil and gas prices since 1998 for strong conclusions (because the MMS series ends in 2002), there is evidence that the supply of new oil and gas from both new discoveries and field growth is becoming more inelastic. That is, the increase in hydrocarbon supply from a unit increase in price is declining. Conclusions Analysis of changes in EUR in fields of the GOM shelf validates the general conclusion that field growth is a major contributor to oil and gas supply. However, in the study area, only half of over 900 fields grew between 195 and Growing fields did account for 80 percent of the oil and gas on the GOM shelf as of Fields that shrank or were static were much smaller than those that grew, establishing a high correlation between growth and field size, echoing the oil-patch wisdom that good fields get better while bad fields get worse (or at least fail to improve). The biggest fields, accounting for most field growth, typically contain a large number of reservoirs deposited in what appears to be relatively narrow conditions of depositional environment, sediment accumulation rate, and sand/shale ratio. These conditions are closely related to concomitant requirements for faulting, vertical movement of diapirs, development of reservoir volumes and seal formation. The rarity of these combinations leads to the lognormal distribution of field sizes. Because field growth is so tightly associ- ated with size, the underlying depositional conditions also strongly govern field growth. Some of the observed growth lasting decades, especially in the largest fields, arose because in-field exploration for new reservoirs is not perfectly efficient. That is, if reservoirs were discovered in strict inverse relationship to their size, growth as a function of time or cumulative drilling would be much quicker and therefore end sooner after the field s initial discovery. The principal mechanism of field growth is finding new reservoirs. This implies that the key scientific tools are geophysical and that understanding field structural and stratigraphic architecture, rather than reservoir characterization, has the biggest impact on adding new oil and gas to old fields. EUR is also enhanced by recognition of greater volumes of reserve-bearing rock and increases in recovery factor over time. Both these factors are related to improvement in geophysical data on reservoirs, geologic interpretation of that information, and engineering advances in well placement and production management. 11

12 Grace Field growth does not take place in isolation from economic conditions surrounding the industry generally. Increasing drilling costs relative to price place a growing burden on investment, which is necessary for field growth to occur. Moreover, data from fields on the GOM shelf indicate that cumulative discoveries, and attendant reduction in the size of new field finds, progressively (although slowly) reduces the potential for field growth. Aggregate growth potential is highly dependent on large, complex fields with many reservoirs, which are found earlier in exploration. Even References Arrington, J.R., 1960, Size of crude reserves is key to evaluating exploration programs: Oil and Gas Journal, v. 58, no. 9 (February 29), p Attanasi, E.D, and D.H. Root, 199, The enigma of oil and gas field growth: AAPG Bulletin, v. 8, no., p within those fields, the largest reservoirs are found early within stratigraphically bound exploration cycles and the cycles themselves are usually progressively poorer in growth potential. Nevertheless, relative to new field exploration, particularly as a region matures, investment in producing field growth bears the durable advantages of lower exploration risk and the ability to exploit existing production and transportation infrastructure both of which lower reserve acquisition cost, if not always in absolute terms, relative to new field exploration. Drew, L.J., and J.H. Schuenemeyer, 1990, A petroleum discovery rate forecast revisited the problem of field growth: Nonrenewable Resources, v. 1, no. 1, p Drew, L.J., R.F. Mast, and J.H. Schuenemeyer, 199, The space-time structure of oil and gas field growth in a complex depositional system: Nonrenewable Resources, v., no., p Fisher, W.L., 1991, Future supply potential of US oil and gas: Geophysics: The Leading Edge of Exploration, v. 10, no. 12 (December), p Hubbert, M.K., 196, Degree of advancement of petroleum exploration in United States: AAPG Bulletin, v. 51, no. 11, p Lore, G.L., J.P. Brooke, D.W. Cooke, R.J. Klazynski, D.L. Olson, and K.M. Ross, 1996, Summary of the 1995 Assessment of Conventionally Recoverable Hydrocarbon Resources of the Gulf of Mexico and Atlantic Shelf: Minerals Management Service, Outer Continental Shelf Report MMS-96-00, Appendix A, pages. Root, D.H., 1981, Historical growth of estimates of oil and gas field sizes in S.I. Gauss, ed., Oil and Gas Supply Modeling (Washington, DC: National Bureau of Standards), p Root, D.H., E.D. Attanasi, R.F. Mast, and D.L. Gautier, 1995, Estimates of inferred reserves in the 1995 USGS National Oil and Gas Resources Assessment: USGS Open File Report 95-5-L, 29 pages. 12

13 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? Society of Petroleum Engineers, 2006, on their web site: Verma, M.K., and G.F. Ulmishek, 200, Reserve growth in oil fields of West Siberia basin, Russia: Natural Resources Research, v. 12, no. 2, p Verma, M.K., and M.E. Henry, 200, Historical and potential reserve growth in oil and gas pools in Saskatchewan: Saskatchewan Geological Survey Summary of Investigations, 200, v. 1, p Watkins, G.C., 2000, Characteristics of North Sea reserve appreciation: MIT Center for Energy and Environmental Policy Research, WP (December), 99 pages. 1

14 Grace Table 1. Results of regression of analysis of EUR (in BOE) as a function of time Field BOE EUR Class Fields Sum (Bil.) Mean (Mil.) Median (Mil.) Mean R2 Mean RMSE Slope Coefficient Estimates Mean Std. Min. Max. Section A. All Shelf Fields, , Linear Model (Eq. 1) Grow Shrink * Static Total Section B. All Shelf Fields, , Semilog Model (Eq. 2) Grow Shrink * Static Total Section C. Fields Discovered after 19, Linear Model (Eq. 1) Grow Shrink * Static Total Section D. Fields Discovered after 19, Semilog Model (Eq. 2) Grow Shrink * Static Total *less than k 1

15 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? Last Reservoir Discovery Number of Fields (2002 BOE EUR MM BOE) Fields with Growing EUR between Last Reservoir Discovery and 2002 (2002 BOE EUR MM BOE) Total 21 (56) 5 (96) 89 (1,889) 16 (,986) 128 (,826) 19 (12,9) 5 (16) 1 () 1 (1,22) (2,516) 29 (2,8) 112 (6,2) Fields with Shrinking Fields with Static EUR EUR between Last between Last Reservoir Discovery Reservoir Discovery and 2002 (2002 BOE and 2002 (2002 BOE EUR MM BOE) EUR MM BOE) 6 (62) 16 (251) 2 (110) 59 (521) 5 (91) 10 (1,5) 10 (518) 15 (252) (58) (99) 6 (2,050) 16 (,1) k Table 2. Change in field EUR s for years after last reservoir discovery. 15

16 Grace Figure 1. The study area. The two letter abbreviations refer to names of MMS licensing protraction areas referenced in the text. k 16

17 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? Discoveries on GOM Shelf 1,000 5 Mean Discovery Size (Mil. BOE) Cumulative Discovered Volumes (Bil. BOE) Mean Discovery Size Cumulative Discoveries Figure 2. The exponential decline of the size of new discoveries and the level of cumulative discovered volumes in fields on the GOM shelf. Field sizes were evaluated as of the end of k 1

18 Grace Figure. The 62 fields that experienced the highest volume of growth in their BOE EUR s between 195 (or year of discovery for those discovered later) and k 18

19 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? LP/UP Reservoirs (1981 forward) MM Reservoirs (196 forward) MM9 Reservoirs (195 forward) UM/UM1 Reservoirs (195 forward) Figure Figure. The development of the East Cameron 1 field from initial discoveries in the Upper Miocene (UM and UM1) plays, through recognition of the Middle Miocene (MM9) reservoirs three years later. With a hiatus in drilling of almost 20 years, new reservoir discoveries began in the deeper Middle Miocene (MM) play. The final cycle of discoveries is based on Pliocene (LP & UP) reservoirs k 19

20 Grace BOE to Cover Well Cost (Well Costs and BOE Prices in $2005) 1,600 1,00 (Thousands) 1,000 BOE 1, Figure 5. The number of BOE required to cover the cost of drilling an average well on the GOM shelf. The effect of inflation has been eliminated, as both well drilling costs and the wellhead price per BOE are measured in constant (2005) dollars. k 20

21 A Closer Look at Field Reserve Growth: Science, Engineering, or Just Money? Total Reserve Additions/Reductions & Real Price $12,000 2,500 $10 2,000 1,500 $6 1,000 $ 500 $ Real Price ($2005/BOE) Reserve Changes (Mil. BOE) $ $0 Total Reserve Additions/Reductions Real Price ($2005)/BOE Figure 6. The annual changes in EUR for GOM shelf fields (from both revisions to discovered fields and newly discovered fields) in relationship to the real price of oil and gas. k 21

22 Grace Sources of Reserve Growth on GOM Shelf,000 2,500 2,000 Million bbls 1,500 1, Discovery of New Fields (as of Discovery Year) Growth in Previously Discovered Fields Figure. The annual changes in EUR for GOM shelf fields divided between additions from new field discoveries and additions to the reserves of discovered fields. k 22