Why We Must Expand Drilling in the Outer Continental Shelf

“Why don’t we just go drill the 86 billions of barrels we know we have?!”

So goes the argument for expanding drilling in the OCS (or in ANWR, or any other unexplored basin, for that matter) – as if there is an existing inventory of “proved reserves” just waiting to be exploited. The problem is, many of the places where those 86 billion barrels supposedly reside have never had a well drilled. There is absolutely no way to know whether or not a petroleum prospect actually contains oil and natural gas, and in what quantities, until you actually gut up and drill a well.

Hey, don’t get me wrong, I’m all for drilling, and drilling ASAP, but for a reason contrary to the one usually put forward in these pages: the best geologic science, employing the most sophisticated statistical methods, gives us nothing better than a S.W.A.G. as to the quantity, or for that matter the existence, of the resource.

America needs to assess its resource base, and to do that, America must drill.I come to this judgment after reviewing the Assessment of Undiscovered Technically Recoverable Oil and Gas Resources of the Nation’s Outer Continental Shelf, 2006, the official government assessment of undiscovered offshore reserves conducted periodically by the Minerals Management Service.

A few observations:

It’s hard enough to determine the reserves of a producing field with any degree of certainty. Estimates performed by different engineers using the same data are frequently greatly different. Here, the MMS took on an entirely different task: resource assessment in sparsely-drilled or completely undrilled basins depends completely on conjecture and statistical methods. To wit:

The estimates represent a 66 percent increase in oil resources and a 33 percent increase in gas resources in the Atlantic OCS, when compared with the MMS 2001 assessment. … [S]ignificant new analog information was available as the result of recent exploration in the Scotian Shelf offshore Canada and the West African Continental Slope offshore Mauritania.

*Now, I’m certain that the geologic science employed was sound, but it points up how little we know about the Atlantic OCS, if we are extrapolating all the way from Nova Scotia and across the Atlantic Ocean.*

The 2006 Assessment was based on data available through the end of 2003. Statistically, the resource estimates are expressed in terms of confidence: the authors of the study had 95% confidence that the “Undiscovered Technically Recoverable Resource” (UTRR) was 67 billion barrels. The chance of exceeding 115 billion barrels was only 5%. The mean of that distribution was 86 billion barrels, the number you’ve heard widely quoted lately.

But an interesting graph in the study reveals what the corresponding estimates were in 1996: 38 billion at 95%, 57 billion at 5%, with a mean of 46 billion barrels.

In other words, the maximum reasonable estimate from 1996 (57 BBO at 5% confidence) was 10 billion barrels less than the minimum reasonable estimate (57 BBO at 5% confidence) just 10 years later!

What changed? For one thing, we drilled wells. For another, technology improved:

Significant increases in the estimates for the deepwater areas were the major contributor to the overall growth in the estimates of UTRR for oil. … This increase in UTRR was also accompanied by approximately 4.5 Bbo and 14 Tcfg that were discovered in [deepwater] fields such as Thunder Horse and Holstein, whose resources were moved to the reserve category during this time period.

Successful drilling in the deepwater disproved some geologists’ strongly-held opinions that the prospects for large fields in the deepwater was poor due to their location, far from continental sources of sediment. Those theories could only be proven wrong with a drill bit.

Significantly, due to the timing of the data cutoff of this assessment (late 2003), little if any of the Lower Tertiary Trend data could be included. There has been speculation that the reserves attributable to this trend are in the 3 to 15 billion barrel range. I strongly suspect that an updated assessment of OCS reserves will once again trend to the upside.