1995 National Oil and Gas Assessment and Onshore Federal Lands
Donald L. Gautier, Gordon L. Dolton and Emil D. Attanasi

U. S. Geological Survey Open-File Report 95-75-N
January 1998

METHODS OF ASSESSMENT

Geologic assessment methods

Assessments on which this study is based were part of the 1995 National assessment of oil and gas resources by the USGS (1995), the reader is referred to Gautier and others (1996) for detailed treatment of the analysis and methodology. Beeman and others (1996) and Charpentier and others (1996) present additional supporting data.

Assessments of resources for Federal lands were derived separately from play estimates and were based on the percentage of each play’s undiscovered oil and gas resources estimated to be under Federal Land or mineral ownership (see Appendix B, Table B-2, Table B-3, and Table B-4.). The estimates considered the distribution of these lands relative to the geology of the play and to the distribution and intensity of exploration activity in the play. Where Federal ownership of oil or gas in plays was estimated to be less than 0.5 percent, it was considered to be negligible and shown as zero. This was done for two reasons. First the adequacy of the land and mineral ownership data would not support more definitive estimates, and second, the reliability of estimates on scattered small tracts requires a level of geologic data not generally available.

Separate methods were used for assessing undiscovered resources in small and larger fields for each province (Gautier and others, 1996). Small fields were defined in the 1995 study as those fields that have recoverable resources that are less than 1 million barrels of oil or 6 billion cubic feet of gas. The Federal share of these small field resources in each province was assumed to be equal to the weighted average percentage of the play resources in the province allocated to Federal lands. To arrive at the estimated quantity of assessed resources for larger areas, such as provinces, regions, or the Nation, distributions for the basic assessment units (plays and small field assessment) for Federal lands were progressively aggregated, incorporating assumptions about dependencies at each level. For the aggregation of conventional undiscovered resources at the play level to the province level, dependencies among plays were the same as those used in the 1995 National Assessment. Aggregation of technically recoverable resources to the regional and National levels assumed independence among provinces and among regions. Estimates and aggregation assumptions of the continuous-type and coalbed gas plays are reported in Crovelli and Schmoker (1997) and Crovelli and Nuccio (1997).

Economic assessment methods

The economic analysis presents estimates of the costs required to transform assessed technically recoverable resources in undiscovered conventional and unconventional oil and gas accumulations into producible proved reserves. Incremental cost functions specify these unit costs as functions of the cumulative quantity of resources transformed. Costs include finding, development, production, and also a return on investment. The computation of the incremental cost functions requires that the "full cost" of the marginal unit of resources plus producible reserves equals well head price.

Incremental cost functions show the quantity of resources that the industry is capable of adding to proved reserves or cumulative production rather than predicting what the industry will actually supply. Actual additions and market supply are the outcome of optimizations of numerous supplier decisions over geographically diverse regions and hydrocarbon sources that assure market supply at lowest costs. Economic analysis provides a baseline to compare costs when examining alternative sources for oil and gas, and alternative technologies. Coalbed gas and conventional gas, for example, have different production technologies that characterize discovery, development, and production costs. These differences are accounted for as resources are put on a common basis by the incremental cost functions.

The methods applied in the economic analysis are explained in detail in Attanasi and Rice (1995), Attanasi and others (1995), Attanasi and others (1996), and Attanasi and Bird (1996). Results of the economic component of the National Assessment are summarized in Attanasi (1996). The economic analysis uses the mean value of the assessed hydrocarbons. Industry is assumed to exhibit rational behavior, so that investment will not be undertaken unless the full operating costs, investment costs, and the cost of capital can be recovered. A 12 percent required after-tax rate of return was assumed for this analysis. Cost levels were the same as those that prevailed during 1993. The economic analysis focused on prices between $18 per barrel ($2 per mcf)) and $30 per barrel ($3.34 per mcf). The price of dry gas (gas without natural gas liquids) was assumed to be two-thirds the price of oil when expressed on an equivalent energy basis. For example, if oil prices are $18 per barrel the implied price of gas would be $2 per mcf. The relationship between oil and gas prices corresponds roughly to the historical average. Also, the well head price of natural gas liquids is assumed to be three-fourths the per barrel price of crude oil. Lower 48 West Coast prices were assumed for Northern Alaska, so the well head price used in the evaluation required subtraction of all transportation costs from the West Coast price. Appendix C reproduces the general and specific assumptions of the economic component of the National Assessment.

Contents

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