Modeling Lost Production in the Gulf of Mexico—II. Framework and Assumptions

Abstract

During the 2004 and 2005 Gulf of Mexico hurricane seasons, hurricanes Ivan, Katrina, and Rita destroyed 122 offshore structures and severely damaged 76 others. Most of the destroyed infrastructure was mature assets low on their production curve with limited remaining reserves. These assets are unlikely to meet the economic thresholds to support redevelopment, and in the majority of cases, the production from these structures will be “written off” by owners. In Part 2 of this 3 part series, we develop a model framework to forecast the production and revenue streams associated with the collection of destroyed assets. The general framework of analysis is outlined along with the assumptions employed to value lost production.

Keywords:

• impact assessment
• lost production
• valuation

Notes

¹In other words, if a structure is T years old at the time of observation, then we model the second half of the production history, using data beginning in year T/2.

²If reserve estimates were available on a structure basis, then the reserves would provide an estimate for lost production and potential revenue. Unfortunately, reserves data at the structure level are considered proprietary and are not available in the public domain. We might be able to infer structure reserves from field reserves (which are publicly available), but because we do not have the requisite geologic information to allocate field reserves to blocks, leases, and structures, our decomposition would be subject to significant uncertainty.

³The values of the economic limit represent category averages based on statistical analysis of over 1,500 structures removed in the GOM over the past two decades (Kaiser, 2008). For a recent update and extension see Kaiser (2011).

Note: ^a Structures are classified as oil or gas producers according to their cumulative gas-oil ratio (GOR) measured in cf/bbl. Structures with GOR ≤ 5,000 are classified as primarily oil producers; structures with GOR > 5,000 are primarily gas producers.

Note: ^a Structures are classified as oil or gas producers according to their cumulative gas-oil ratio (GOR) measured in cf/bbl. Structures with GOR ≤ 5,000 are primarily oil producers; structures with GOR > 5,000 are primarily gas producers.