Economic limit of Outer Continental Shelf Gulf of Mexico structure production

Abstract

The economic limit of an oil and gas asset occurs when income from production is less than the direct cost of operation. Economic limits determine the threshold for profitable operations and are often considered from a conceptual perspective rather than as an object for empirical assessment. The purpose of this paper is to derive empirical estimates of the economic limit of offshore structures in the Outer Continental Shelf Gulf of Mexico. We classify 1962 decommissioned structures between 1986–2009 by structure type, primary production, water depth and year of removal, and compute end-of-life production, adjusted gross revenue, and water cut thresholds according to various levels of categorization. During the last year of production, historic gross revenues averaged $539,000 for oil structures, $955,000 for gas structures, and $1.1 million for dry gas structures. Daily end-of-life production ranged from 50 BOEPD for oil structures to 647 MCFEPD for gas structures and 788 MCFEPD for dry gas structures. The economic limits for oil and gas structures increased to $1 million and $1.7 million over the period 2005–2009.