Economics and appraisal of conventional oil and gas resources in the western Gulf of Mexico

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 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 presented are a description of the model used to make the assessment, results of a sensitivity analysis, and a discussion 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 $30/bbl [$4.76/m ] 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 25.19 × 10 bbl [4 × 10 m ] 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 important implications in terms of forecasting future industry drilling and other associated activities in the western Gulf of Mexico.