Offshore Leases Research Articles

Aquaculture’s offshore frontier: learning from the Canadian courts on ocean grabbing, ocean privatization, and property as process

Many coastal nations have endorsed the Blue Economy as both an economic and environmental opportunity, despite numerous questions as to how industrial expansion into deep ocean waters might be regulated for sustainability. Aquaculture is one industry actively promoting a move offshore, with numerous offshore leases in development. Drawing on the history of aquaculture in the nearshore, and relying on a processual approach to property, we explore questions around the regulation of privatized ocean spaces: What can court cases involving aquaculture in the nearshore tell us about the role of law in promoting sustainable offshore ocean spaces? And what in turn does this suggest about extractive capitalism, the privatization of ocean spaces, and the law? We examine 46 Canadian court cases which cover a 30-year time frame and multiple Canadian jurisdictions. We argue that there are lessons here regarding the questionable ability of law to effectively regulate existing or future aquaculture operations once privatization emerges. The lessons from these Canadian court cases, taken together with a burgeoning literature on legal geography, more-than-human methodologies, and critical environmental law, suggest the varied legal dimensions of deep-sea aquaculture frontier imaginaries and highlight the real limits to regulating the extraction of resources in this perceived open space (terra nullius). We highlight crucial barriers to sustainability through what we are calling jurisdictional opaqueness in regulatory issues. The results include poor regulation and overlapping or contested jurisdictions, which relates in turn to inadequate consultation, frequent environmental problems (toxic chemicals, anoxia, salmon escapes, marine debris), and scientific disputes.

One Gulf – Commitment to Preparedness

ABSTRACT: Anadarko Petroleum Corporation partnered with the U.S. Coast Guard Eighth District and the Mexican Navy (SEMAR Zone 1) in a multi-year Mexico-United States (MEXUS) exercise series. The MEXUS Plan is a Joint Contingency Plan between the United Mexican States and the United States of America Regarding Pollution of the Marine Environment by Discharges of Hydrocarbons or other Hazardous Substances. It provides standard operational procedures with respect to bi-national coordination in case of pollution incidents that may represent a threat to coastal waters or the marine environment of the border zone of both countries. The MEXUS Agreement and Plan were developed after the Ixtoc I well blowout in June 1979. This international agreement entered into force on 30 March 1981. Under the MEXUS Plan there are two regional annexes: Gulf (MEXUSGULF) and Pacific (MEXUSPAC). Each Annex incorporates regional resource and high-level strategic information to assist each country in communication and coordination during an incident that impacts both countries’ jurisdiction. The regional annexes are not tactical; tactical planning remains at the local level (Area Contingency Plans in the U.S.; Local Contingency Plans in Mexico), led by the respective Federal On-Scene Coordinator (FOSC). For the U.S., the U.S. Coast Guard is the lead agency serving as the Federal On-Scene Coordinator; the Mexican Navy serves as the lead agency in Mexico. The U.S. Coast Guard has been working with the Mexican Navy (SEMAR) to update the MEXUS Plan, with a near final draft as of March 2017. The proposed changes incorporate several organizational changes that have occurred over the years while reiterating the core purpose as a communication and coordination plan. With the impending development of offshore leases in Mexico, coupled with efforts to update the MEXUS Plan, a tabletop exercise was conducted in 2016. This tabletop exercise allowed senior officials from federal and state agencies and industry representatives to openly discuss emerging scenarios and high-level strategies to identify gaps and shortfalls in existing plans, policies and procedures. To achieve this concept, both countries shared procedures and processes to allow for resources to operate in each respective country to minimize impact to natural resources and sensitive shoreline areas. In 2017, the lessons learned were incorporated in a multi-day exercise to demonstrate how industry, the U.S. Coast Guard and other agencies would manage a hypothetical offshore subsea well incident originating from the U.S. with resulting impacts in Mexican waters. This paper discusses the planning process and shares the lessons learned from both exercises in an effort to promote continued preparedness and improved response coordination. With the help of Mexican Association of Hydrocarbon Companies (AMEXHI), Mexico’s newly-formed national oil and gas industry association, these lessons learned will further help promote implementing Mexico’s new subsea containment and offshore response requirements.

E&P Notes (July 2014)

E&P Notes ’Williston Basin Reserves May Top 21 Billion Barrels, Peak Production in 6 to 7 Years’ More than 21 billion bbl of light, sweet crude oil will be extracted over the lifetime of the Bakken and Three Forks shale plays, according to the latest projections from energy consultancy group Wood Mackenzie. The two plays are found in the United States’ prolific Williston basin and together produce approximately 1 million BOEPD. As production rises from the deeper Three Forks formation, the firm predicts that between 2020 and 2021, production from the Bakken Shale will reach its peak. Despite the fact that production growth is slowing in the Bakken, Wood Mackenzie said there will be commercial opportunities throughout the basin for years to come. Reductions in drilling and completion costs and increased recovery rates are driving operators to explore less-rich areas of the Bakken. “It might not have made sense in 2010 to spend (USD) 13 million on a Bakken well that is only going to get about 300,000 BOE out of the ground,” said Jonathan Garrett, an upstream analyst at Wood Mackenzie who specializes in the Williston basin. “But flash forward to today; now it might make sense to spend (USD) 6 or 7 million on a well to get 300,000 to 350,000 BOE.” ’US Offshore Regulator to Focus More on Technology’ The United States’ top offshore regulator said his agency is adopting new policies and measures to improve its working relationship with the offshore industry. To accomplish this, the director of the Bureau of Safety and Environmental Enforcement (BSEE), Brian Salerno, said that his agency will increase its focus on technology assessment. Salerno explained that traditionally, BSEE has based regulatory standards in part on industry standards but the ongoing advancements of offshore technology have presented a challenge to this model. “We still rely on that basic approach, but regulations have always had a tough time keeping up with technological change,” said Salerno, who spoke at the Offshore Technology Conference in Houston in May. “For that matter, industry standards are having a tough time keeping up as well. And that has become even more of a problem as the pace of technological innovation and change has accelerated.” ’First Transboundary GOM Leases Awarded Under New Rules’ The US Department of the Interior and the US Bureau of Ocean Energy Management have awarded ExxonMobil three offshore leases in the US-Mexico boundary area of the Gulf of Mexico, the first leases subject to the terms of the 2012 US-Mexico Transboundary Hydrocarbon Agreement. The agreement governs reservoirs that are split by or close to the boundaries of the US and Mexico. It allows US operators and Mexican state oil company Pemex to explore transboundary reservoirs as single units, encouraging unitization - the process by which multiple leaseholders agree to extract resources through the work of a single operator. Unitization encourages the drilling of fewer wells, which increases efficiency of production and reduces waste as well as the likelihood of environmental accidents, the agencies said. In cases where a transboundary unitization agreement cannot be reached, parties can each produce as much oil that is calculated to lie on its side of the boundary. ’Saudi Aramco Progresses on Shale, Confirms Red Sea Find’ Saudi Aramco has made significant progress developing its shale gas reserves and will begin using shale gas for domestic industrial projects, the company said in its 2013 annual review. The company said its unconventional gas program became fully operational in 2013, 2 years after it launched a program to develop unconventional gas in the frontier Northern Region, offering new resources for the country’s energy needs. Saudi Aramco is now ready to commit shale gas for the development of a 1,000-MW power plant that will feed a massive phosphate mining and manufacturing project. “Saudi Arabia will be among the first countries outside North America to use shale gas for domestic power generation,” the company said in the annual review.

Big Barriers to Building a New Generation of Arctic Vessels

The industry’s experience thus far drilling offshore the Arctic is a powerful argument to build a new generation of vessels and drilling rigs purpose built for operations in heavy ice. Many of the new exploration concepts that seek to overcome challenges in the Arctic were presented at the recent 2014 Arctic Offshore Technology Conference in Houston. Alexander Brovkin, a facilities and logistics adviser at the Chevron Arctic Center, agrees that while new vessel technology is needed for exploration drilling in the Arctic, first the resource must be proved by the drill bit. “An operator must first have a portfolio of Arctic wells before making a significant capital investment to design or build something new,” he said, adding that companies will be pushed to make decisions soon in order to comply with the terms and deadlines set by their offshore leases. Following Shell’s recent experiences, Arctic exploration off North America is at the moment paralyzed. Considered to be two of the most promising Arctic areas, development in the Chukchi and Beaufort Seas offshore Alaska has stalled out despite there being dozens of leases in those areas set to expire over the next couple of years. And after spending billions of dollars on its Arctic drilling program to date, Shell canceled all operations in the area for this year. The decision followed a series of accidents during the company’s Alaskan expeditions that began 2 years ago, one of which involved a drillship running aground, and a United States federal court decision that created uncertainty over the terms of its leases. ConocoPhillips and Statoil followed suit and have indefinitely postponed their Arctic drilling plans off Alaska. However, in the Russian Arctic, ExxonMobil and Rosneft are pressing ahead with a joint venture using conventional semisubmersible technology, which limits their operations to the open water season.

Valuation of investments in natural resources using contingent-claim framework with application to bituminous coal developments in Korea

Abstract As Brennan and Schwartz [Brennan M, Schwartz E. Evaluating natural resource investment. Journal of Business 1985;58:135–57] point out in their pioneering work, the valuation of natural resources projects is particularly difficult due to the high degree of uncertainty in output prices of resources. In general, there are two competing procedures to evaluate risky projects in natural resources developments. One is decision analytic, based on traditional discounted cash flow and stochastic dynamic programming [Fleten SE, Maribu KM, Wangensteen I. Optimal investment strategies in decentralized renewable power generation under uncertainty. Energy 2007;32:803–15; Smith J, McCardle K. Valuing oil properties: integrating option pricing and decision analysis approaches. Operations Research 1998;46(2):198–217; Szklo AS, Carneiro JTG, Machado G. Break-even price for upstream activities in Brazil: evaluation of the opportunity cost of oil production delay in a non-mature sedimentary production region. Energy 2008;33:589–600], and the other is contingent claims analysis, based on the no-arbitrage theory of financial markets [Brennan M, Schwartz E. Evaluating natural resource investment. Journal of Business 1985;58:135–57; Emhjellen M, Alaouze CM. A comparison of discounted cash flow and modern asset pricing methods – project selection and policy implications. Energy Policy 2003;31:1213–20; Laughton D. The management of flexibility in the upstream petroleum industry. The Energy Journal 1998;19:83–114; Paddock L, Siegel D, Smith J. Option valuation of claims on real assets: the case of offshore petroleum leases. Quarterly Journal of Economics 1988;103(3):479–508; Schwartz ES. Valuing long-term commodity assets. Journal of Energy Finance and Development 1998;3(2):85–99; Sezgen O, Goldman CA, Krishnarao P. Option value of electricity demand response. Energy 2007;32:108–19]. In this paper, we use the second approach to develop a new model, and the main contributions are providing a tractable and realistic means of incorporating the option value and optimal timing into the investment decision in natural resources and presenting an example that shows option and timing considerations to be important. We demonstrated the validity of the model using both numerical analysis and real data.

The Impact of Financial Restructuring and Changes in Corporate Control on Investment and Employment in the U.S. Petroleum Industry

This article investigates the effects of changes in market conditions and the financial structure of domestic petroleum firms on employment and investment in offshore oil leases. Important theoretical issues include the extent to which managerial power in firms has been challenged by intervention from financial markets and institutional investors and the effects of changes in financial control on employment and inventory investment. A pooled cross-section time series data set was assembled for forty large oil companies for 1978–1989. A dynamic analysis of company employment levels and investment in offshore oil leases in the Central Gulf of Mexico reveals that falling oil prices and lower domestic oil consumption reduced spending on offshore leases. Some support was found for the agency theory's claim that lower free cash flow reduced spending on offshore leases in the late eighties. Support was also found for an executive defense strategy (Useem 1993), where petroleum company managers reduced lease spending and employment as an adaptation to changes in market fundamentals and external threats from capital markets and institutional investors.

Early California Oil: A Photographic History, 1865-1940

In light of the importance of oil and gas in California, perhaps the discovery of gold there should be viewed as just a flash in the pan. By 1938, the cumulative value of all the gold found in the state stood at something more than two billion dollars, while the cumulative value of the oil and gas produced was more than double that sum--well over five billion dollars. The story of California oil deserves to be told, and pictures tell it best. The more than three hundred photographs in this book vividly portray the development of California's rich and colorful petroleum industry from the early exploration of the mid-nineteenth century through the boom years of the first four decades of the twentieth. Although Indians and Spanish explorers had known of and used local oil seepages for centuries and the search for commercial production had begun on several fronts in the 1850s, the actual birth date of California's oil industry may be set as 1865, with the first commercial sale of oil refined in the state (by the Stanford brothers) from a well drilled in the state (on the Matthole River in Humboldt County). The fascinating text and the impressive array of photographs here assembled reveal the variety and vigor of the development that ensued: from the world's smallest producing lease, on Signal Hill, to the derricks sharing Huntington Beach with the bathers, to the millions of mice infesting the Taft oil field in 1926-27; from the mounted patrols keeping livestock out of the Coalinga fields to the blinking light on a fence warning motorists of a well in the middle of a Los Angeles street. First among the states in oil production in eighteen of the first thirty years of the twentieth century, California experienced a boom of immense proportions and extraordinary diversity. These illustrations, along with contemporary descriptions by many of those who worked the fields and a wealth of detail provided by the authors, graphically portray the scenes and characters of California's second great mineral rush. An epilogue takes the boom up to the present, highlighting the shift in production to the offshore leases and the controversy surrounding them.

Continental Margin Mapping Project, U.S. Atlantic Margin: A Synthesis of Geologic and Geophysical Data and Interpretations: ABSTRACT

Syntheses of geologic and geophysical studies on the US Atlantic continental margin are being compiled in a series of maps and digital data bases to facilitate use of extensive information acquired by the US Geological Survey (USGS) on the US continental margins. The maps, which are at a scale of 1:1,000,000, are on an Albers Conic Equal Area Projection, with standard parallels at 29.5/sup 0/N and 45.5/sup 0/N, and are compatible with the US National Atlas and the USGS geologic and tectonic maps of the US. For this project, the Atlantic margin has been divided into four regions: Georges Bank basin and Gulf of Maine, Baltimore Canyon Trough, Carolina Trough, and Blake Plateau basin. Each region extends from the seaward edge of the US Exclusive Economic Zone to the coastal plain onlap (fall line). Primary data sets for this series were derived from multichannel seismic reflection profiles and magnetic and gravity surveys, as well as from drill-hole and bottom-sample data. Individual maps in the series include topography and bathymetry, tectonic features, isopachs of various sedimentary units, depth contours of basement and various sedimentary surfaces, paleoenvironment, magnetic anomaly contours, gravity-anomaly contours, earthquake epicenters, drill-hole locations, seismic-line navigation, and offshore leases. Amore » summary of the geologic, geophysical, and tectonic features compiled in this map series will be used to discuss the geologic evolution of the Baltimore Canyon Trough.« less

FURTHER RESULTS ON EQUILIBRIUM PATTERNS OF COMPETITION IN OCS LEASE SALES

A prior model of competitive bidding for offshore petroleum leases is subjected to more extensive empirical testing based on underlying geological data prepared by the U.S. Geological Survey. The current results strongly reinforce the tentative conclusions advanced in the previous paper, and demonstrate the robustness of the model. In light of the current results, it seems very likely that participants in offshore lease sales behave as if their operations were constrained physically such that only a limited volume of petroleum reserves are pursued in any one sale.

Statistical Analyses of Bids for Federal Offshore Leases

Statistical analysis of bids for federal offshore leases shows that the relative magnitude of the high bid and the amount of "money left on the table" each varies with number of bids in a way that is predictable. Joint bidders tend to bid on more sought-after leases and tend to bid higher than their solo-bidding competitors. Introduction Offshore bidding is big business. Since the first sale was held on Oct. 13, 1954, the total of bonuses paid to the federal government through 1974 exceeds $14 billion. This huge amount of money was spent as the result of bids prepared and submitted by the managements of prepared and submitted by the managements of companies desiring to produce oil and gas from the tracts offered for lease. The submitter of the competitively highest bid received the lease and the opportunity to find and produce oil and gas therefrom. Both the management and those who prepare bids for companies and the federal government as "owner" of the leases have a cogent interest in bidding behavior, each from their point of view. Further, the public also has a real interest because a substantial part of the oil and gas used by the public is derived from the leases - and the $14 billion spent for the leases. The fact that bids for an individual offshore lease are distributed lognormally has been observed many times. In light of the great uncertainty in estimating physical parameters from exploratory measurements and physical parameters from exploratory measurements and of the multiplicative process used to decide upon bids, the observed distribution of bids is to be expected based on the central-limit theorem. Furthermore, previous analyses have indicated that the observed bid distribution is consistent with the hypothesis that, in any given sale, all bids are drawn from a lognormal distribution with the same standard deviation. We accepted these results as a starting point for our analyses; the consistency of our results confirms the adequacy of these statistical postulates. In our analyses we considered all leases issued to competitive bonus bids through 1974. Our analyses consisted of four major parts:We first determined the standard deviation of the logarithms of bids for all sales. We found that by deleting abnormally low bids we obtained a consistent pattern of results and that no significant time trend in the standard deviation of bids by sale was indicated.We analyzed the manner in which the high bid relative to the mean bid on a tract varied with number of bidders, nl. We concluded that observed behavior is consistent with the hypothesis that the high bid is the largest value of a random sample of size nl drawn from a population whose mean is that for the lease and whose population whose mean is that for the lease and whose variance is that for the sale.We analyzed the way in which "money left on the table" varies with number of bidders, nl. We concluded that observed behavior is consistent with the hypothesis that the highest and second highest bids are the largest and second largest values of a random sample of size nl drawn from the bid population.We compared solo bids with joint bids and concluded that joint bidders tend to bid on more sought-after (and, apparently, more valuable) leases and that they tend to bid higher, on the average, than their solo-bidding competitors. Standard Deviation of Bids by Sale Our examination of historical bids revealed that inordinately low bids have been submitted occasionally, possibly with less than normal technical evaluation. possibly with less than normal technical evaluation. JPT

Competition and Quest for Offshore Leases: ABSTRACT

Competition and Quest for Offshore Leases: ABSTRACT

History of Seismic Exploration-Santa Barbara Channel: ABSTRACT

The Santa Barbara Channel is 50 mi northwest of Los Angeles, and represents the offshore part of the Ventura basin, which covers an area of approximately 70 mi in length and 25 mi in width. Structurally, the basin is characterized by sharply folded, highly faulted anticlines, some of which are offshore extensions of onshore producing trends. The basin contains up to 40,000 ft of Tertiary sediments, with production from Pliocene through Eocene reservoirs. The history of Humble's geophysical activity in the Santa Barbara Channel spans the period from early 1948, when the first reconnaissance lines were shot, through the 1969 digital CDP program. During this period, Humble compiled approximately 10,000 mi of seismic data. All of the data accumulated through 1967 was incorporated into a regional interpretation of the Santa Barbara Channel in preparation for the Federal lease sale in February 1968. Later surveys continued to improve data quality and velocity control for prospect evaluation on Humble leases. Early seismic surveys, 1948-1953, used dynamite or black powder as an energy source and were recorded on paper records. An L spread cable configuration was commonly used, which enabled the geophysicists to resolve a true strike and dip at each shot point. These seismic events were laboriously hand picked, plotted, and migrated. Interpretation of the deep structure was greatly limited on these data by lack of penetration and a severe multiple problem. The near surface structures could be defined and resulted in the discovery of several fields on State offshore leases. The development of CDP shooting techniques, first used by Humble in 1964 in the Santa Barbara Channel, gave the first insight into the deep structural complexity. Attenuation of multiple energy was possible and greatly needed velocity information could be obtained. Regulations limiting the amount of dynamite which could be used, were the greatest incentive for industry to change to non-dynamite sources. Air gun, gas exploder, and Aquapulse became the principal sources used. Data quality continues to be enhanced by improvements in the energy source, shooting technique, and data processing. End_of_Article - Last_Page 437------------

Texas Offshore Bidding Patterns

If bids on offshore leases are determined by competent people, each acting independently and all evaluating each tract on the basis of the same criteria, what would be the general characteristic of the bids? An analysis of the bids on several tracts reveals that a pattern can be anticipated if the many factors involved are individually scrutinized beforehand. Introduction Half a billion dollars in bonuses was paid at only one offshore oil and gas lease sale last year. For each tract the cost of the bids ranged up to $43 million, and the number of bidders ranged from one or two to more than a dozen. The quality of the prospects varied widely and was reflected in both the bids and the number of bidders. In an effort to account for this variation, the bids on several tracts from a recent Texas sale have been analyzed. Many factors enter into the deliberations and formulation of a large sealed bid. All factors believed to affect the value of the property must be considered; these factors can be estimated with varying degrees of certainty. Among intelligent bidders the estimate of any single factor will vary and will always be uncertain; and the uncertainty will depend upon the individual. The "eternal optimist" in an organization may be inclined to estimate too highly, which could result in the acquisition of the property even though it might be of little financial merit. It will also result in the bids being too high from the bidding standpoint; that is, the next highest bid would be considerably lower. With this in mind, we intend to postulate how sealed bids on the offshore properties should be distributed. Basic Premise In arriving at the proposed distribution of bids it was postulated that competent earth scientists were to postulated that competent earth scientists were to make completely independent appraisals of an offshore prospect. Commencing with this premise, it is not difficult to arrive at the expected distribution of bids on a single tract. We are led to expect a straight-line correlation of bids when they are plotted in a certain manner. The present worth of a prospect may be arrived at by an independent decision based on the many factors affecting the bid on a property. This could be formulated in simple algebra as follows: Sealed Bid (number of pays) × (average pay thickness) × (average length of reservoir) × (average width of reservoir) × (fraction of pore space occupied byby hydrocarbons) × (fraction recovery) × (average profit per Mcf of gas orbbl of oil produced) × (discount factor) × (expected occurrence of finding oilor gas,)..................... (1) In simple language we shall say that the bid comes from the product of the many factors above, or (1a) The terms A, B, C, etc., represent a single bidder's estimate of the number of pays, pay thickness, etc., required to satisfy all terms in Eq. 1. JPT P. 283

A Strategy for Sealed Bidding

Abstract This paper describes the development of a strategy for sealed bidding on undeveloped leases, which is designed to acquire a maximum number of tracts of acceptable profitability for a given amount of capital. The method is based on the principles of operations research and is particularly applicable when a large amount of statistical material on past sales is available, such as when bidding on leases offshore. The first step in the application of the proposed method is the preparation of a conventional evaluation of the tracts of interest. Three different evaluation methods are discussed in the paper. The second step is based on the observation that past bidding patterns on individual tracts appear to follow a log-normal distribution; by methods of regression analysis, a correlation may be developed between the geometric mean of these distributions and the controlling parameters which were known at the time of bidding. From such a correlation the mean bid values for specified tracts at a future lease sale may be estimated. An empirical relationship may also be developed between the probability of being high bidder and the ratio of bid value to mean value. Finally, from the results of the first and second steps, it is possible to develop an optimum bidding strategy which will maximize the number of tracts purchased for the amount of commitment capital available. Introduction The purchase of prospective acreage through sealed bidding at state or federal lease sales plays an important role in the economics of the petroleum industry. For example, at the record March, 1962, sale of offshore leases in the Gulf of Mexico, the industry committed some $920 million in bids, while $446 million was actually collected by the government. This amounted to approximately 20 per cent of the industry's total exploration expenditures for that year. Yet, with many companies devoting such substantial portions of their exploration budgets to this type of lease acquisition, a study of the amounts "left on the table" strongly suggests that the actual choice of numbers in many cases was based more on hunch or intuition than on a systematic study of the subject. During the last 10 years some 2,529 bids have been submitted on 884 offshore tracts. With enormous investments at stake and with such a wealth of statistical material readily available, an attractive possibility exists to take advantage of certain techniques from the field of operations research in the development of an optimum bidding strategy which will maximize the results per unit of available capital and minimize unnecessary overbidding. The purpose of this paper is to set forth certain basic relationships which may provide guidance in developing such a strategy. It should be emphasized that the examples given and the numbers used in this paper are intended only as a paraphrase of a real situation. Optimizing Bidding Strategy Through Operations Research Operations research, or operations analysis, is the application of mathematics to an activity which is currently carried out largely by intuition. In most applications of operations research it is necessary to clearly decide first, (1) what is the goal or purpose of the operation? and, (2) what is the bottle neck, e. g. what is in short supply? In general terms, an optimum outcome can be anticipated if the results of Operation 1 are maximized per unit of the limiting factor 2. In the case of sealed bidding for undeveloped acreage, the purpose of the operation is obviously to purchase as many tracts as possible, while still meeting certain profitability requirements. The bottle neck, or limiting factor, is usually the amount of capital available. One should aim, therefore, at the acquisition of a maximum number of tracts of acceptable profitability for a given (limited) amount of capital. The amount of capital available for commitment in bidding on undeveloped acreage is exclusive of the capital to be reserved for testing and development of the acreage to be purchased. In designing an optimum bidding strategy to achieve this goal, several steps will be necessary. First, a conventional evaluation must be prepared for each individual tract under consideration. Such an evaluation involves a study of potential income, cost and risks, to determine the maximum value of each tract to the bidder, which will satisfy his profitability requirements. As a second step, it is necessary to evaluate the behavior of the competition. This involves a study of past behavior patterns of potential competitors and of the industry as a whole. As a third step, the results of the other two are combined into a bidding strategy designed to acquire the maximum number of profitable tracts for a given amount of available commitment capital. Such a strategy will, therefore, also minimize unnecessary overbidding.

The Growth Outlook for Petroleum

The Growth Outlook for Petroleum

Developments in Upper Gulf Coast of Texas in 1954

The Upper Gulf Coast coincides with Texas Railroad Commission District III. The total of 1,835 wells drilled in 1954 is a slight increase over 1953. Of these, 1,360, or about three-fourths, were development wells. There were 1,240 development wells drilled in 1953. Exploratory tests numbered 475 compared with 571 in 1953. Wildcat drilling resulted in 33 new-field discoveries, and exploratory and development drilling accounted for 97 new-pool discoveries and extensions. In 1953, new-field discoveries numbered 37 and new-pool discoveries and extensions totaled 101. Oil and condensate production for 1954 amounted to 158,229,465 barrels. Record-breaking bonuses were paid for offshore leases at the first Federal Government sale since settlement of the ownership controversy. The Standard Oil Company of Texas paid $4,565,251.99 for 5,760 acres, thus setting a bonus record for a single tract offshore from Texas. The Magnolia Petroleum Company paid $3,180,960, or $2,209 per acre for a tract containing 1,440 acres, setting a record for the highest per-acre bonus ever paid at a lease sale in the Gulf of Mexico. Geophysical activity totaled 1,805 crew-weeks, of which 90 per cent is reflection-seismograph time. Indications are that exploration and development activities in 1955 will maintain or exceed the 1954 level.

Developments in Upper Gulf Coast of Texas in 1948

The Upper Gulf Coast of Texas is composed of 26 counties in the southeastern part of the state. It is identical with Texas Railroad Commission District 4, omitting Fayette and Lee counties. There were 1114 wells drilled in the district in 1948, which is a 27 per cent increase over 1947. Of these, 212 were wildcat tests drilled in search of new structures. This represents an increase of 14 per cent over 1947 and resulted in the discovery of 22 new fields as compared with 20 new fields in 1947. These new discoveries consisted of 9 oil fields, 10 gas-condensate fields, and 3 gas fields. All are of minor importance, the Lane City Townsite field, Wharton County, being the most important. First production was discovered in Jasper County, Buna field, and a new Cretaceous producing zone was found in Trinity County, in the northwest Glendale field. Considerable more reserves were added by development in old fields. Nine hundred two wells were drilled on known structures, which resulted in the discovery of 77 new sands, 31 new reservoirs, and 22 important extensions. This is a considerable increase over 1947. Most of these additions to reserves were the result of the discovery of new fault segments and new sands on old salt domes. Two wildcat wells were completed as dry holes in the Gulf of Mexico, one of which is believed to have discovered a new salt dome 18 miles southeast of Galveston. First production was established on an interior salt dome in Madison County. Forty seismic reflection parties were operating at the end of the year as compared with 35 at the first of the year. The most active counties were Brazoria, Matagorda, and Wharton, with some work being conducted on offshore leases. Total oil and condensate production in 1948 amounted to 197,055,000 barrels, which is an increase of 6 million barrels over 1947. The reflection seismograph, in conjunction with subsurface geology, was the most successful exploration method.

Marine Exploration in Gulf of Mexico: ABSTRACT

Marine exploration is one of the most expensive types of development ever undertaken by oil companies; the great amount of capital which must be hazarded before any returns are assured, necessarily restricts these operations to the larger companies. To meet this enormous cost, some of the large companies, which otherwise are unrelated, have combined for marine work. A complete exploration department of landmen, geologists, and geophysicists is required. Operations of these integrated departments must be coordinated continually without delay by an understanding management. The risks encountered in marine work are great. In addition to executive efficiency, proper management calls for daring in the use of capital and clear vision as to future values of resources now uncomme cial. Modern marine exploration for offshore oil and gas fields was apparently started experimentally in 1940, but had not reached its present large scale until 1946. The first offshore leases of the present type were obtained off the coast of Louisiana in 1945 and off Texas in 1947. Leasing requirements are different in Louisiana and Texas, and the more favorable conditions in Louisiana have resulted in the greater development there. The tidelands title controversy remains unsettled. Government agencies, such as the Corps of Engineers and the U. S. Coast Guard, demand that all of their regulations be respected. The fishing interests of Louisiana and Texas have made it difficult for the oil companies to plan and execute exploratory campaigns properly, thus increasing the cost. The high rent ls paid for leases force early development. All types of geophysical exploration have been utilized in the Gulf of Mexico campaign. Originally, the gravity meter was used by lowering it with an operator in a diving bell; later, the present remote-controlled gravity meter was evolved. Magnetic surveying, using both airborne and boat-towed instruments, is also employed. Early seismograph work, with charges and seismometers on the Gulf floor, was slow and costly. Experience has greatly refined seismic methods until, today, this End_Page 2315------------------------------ type of exploration is rapid, economical and obtains excellent results. It is estimated that all of the offshore areas of Louisiana, out to the 10-fathom depth, and about half of those of Texas, along a similar belt, have been mapped to date. The culmination of this marine exploration program began late in 1947 with the development of production on the first piercement-type salt dome at a comparatively shallow depth. To date, five additional discoveries have been made of either oil or gas fields, and tests on three other prospects are encouraging. The great cost and risk of marine exploration work must be recognized as small in comparison with the expense and hazard of the later exploitation phase. The tremendous costs of this development, to say nothing of the losses incurred in the dry wildcat wells which have been drilled and will continue to be drilled, will only be justified if there are no restrictions to prevent reasonable profits on the successful operations. The results of offshore work to date tend to confirm the original anticipation that this risking of enormous quantities of private capital will eventually make a great addition to the oil and gas reserves of the Western Hemisphere. End_of_Article - Last_Page 2316------------