Modeling Lost Production in the Gulf of Mexico—III. Results and Limitations

Abstract

In extreme weather, damage to offshore facilities is unavoidable and can take many forms. To better understand the scope of weather risk and catastrophic loss in the Gulf of Mexico (GOM), and the factors that impact the redevelopment decisions of operators, we quantify the value of lost production associated with the 2004–2005 hurricane seasons. We estimate that the value of lost production from the 2004–2005 hurricane seasons range from $1.3 billion to $4.5 billion, depending upon the future price path. For a future average oil and gas price of $100/bbl and $10/Mcf, the total lost production is estimated to be $3.7 billion. In the final part of this series, we present results that quantify the amount and value of lost production in the GOM under various price and model scenarios. We perform sensitivity analysis, describe the maximum redevelopment cost per structure that will yield a specific rate of return, and discuss the limitations of modeling.

Keywords:

• impact assessment
• lost production
• valuation

Notes

¹A portion of the clean-up cost may be covered by insurance.

Note: ^aP(I) = {P^o = $40/bbl, P^g = $4/Mcf}; P(II) = {P^o = $60/bbl, P^g = $6/Mcf}; P(III) = {P^o = $80/bbl, P^g = $8/Mcf}; P(IV) = {P^o = $100/bbl, P^g = $10/Mcf}; and P(V) = {P^o = $120/bbl, P^g = $12/Mcf}.

^bDiscount rate = 10%.

Note: ^aP(I) = {P^o = $40/bbl, P^g = $4/Mcf}; P(II) = {P^o = $60/bbl, P^g = $6/Mcf}; P(III) = {P^o = $80/bbl, P^g = $8/Mcf}; P(IV) = {P^o = $100/bbl, P^g = $10/Mcf}; and P(V) = {P^o = $120/bbl, P^g = $12/Mcf}.

^bBarrels of oil equivalent.

^cDiscount rate = 10%.

Note: ^aP(I) = {P^o = $40/bbl, P^g = $4/Mcf}; P(II) = {P^o = $60/bbl, P^g = $6/Mcf}; P(III) = {P^o = $80/bbl, P^g = $8/Mcf}; P(IV) = {P^o = $100/bbl, P^g = $10/Mcf}; and P(V) = {P^o = $120/bbl, P^g = $12/Mcf.

^bDiscount rate = 10%.

Note: ^aP(I) = {P^o = $40/bbl, P^g = $4/Mcf}; P(II) = {P^o = $60/bbl, P^g = $6/Mcf}; P(III) = {P^o = $80/bbl, P^g = $8/Mcf}; P(IV) = {P^o = $100/bbl, P^g = $10/Mcf}; and P(V) = {P^o = $120/bbl, P^g = $12/Mcf.

^bFor early producers, we assume the model output for a = 0.1.

^cDiscount rate = 10%.

Note: ^aP(I) = {P^o = $40/bbl, P^g = $4/Mcf}; P(II) = {P^o = $60/bbl, P^g = $6/Mcf}; P(III) = {P^o = $80/bbl, P^g = $8/Mcf}; P(IV) = {P^o = $100/bbl, P^g = $10/Mcf}; and P(V) = {P^o = $120/bbl, P^g = $12/Mcf.

Note: ^aP(I) = {P^o = $40/bbl, P^g = $4/Mcf}; P(II) = {P^o = $60/bbl, P^g = $6/Mcf}; P(III) = {P^o = $80/bbl, P^g = $8/Mcf}; P(IV) = {P^o = $100/bbl, P^g = $10/Mcf}; and P(V) = {P^o = $120/bbl, P^g = $12/Mcf.