Incremental economic analysis of environmental mitigative measures on oil and gas operations

Schulz, Robert

An economic analysis of wells drilled, completed and produced in National Park Lands is presented. This is a study of the economic effects of complying with the environmental mitigative measures needed to operate in environmentally sensitive areas, the oil and gas industry is routinely required to take mitigative measures to minimize their operations impact during all phases of hydrocarbon recovery. Operators were surveyed on their operating costs while working on National Park Service (NPS) land compared to working outside of National Park Service Land. Site visits were conducted to observe the differences in operations between National Park service land and fee (non-federal or outside the NPS lands) lands. Based on this information, economic models were constructed to determine the time value of money effects on the cost and revenue cash flows. Cost comparisons were calculated between the National Park Service and outside lands to determine where environmental mitigative cost occured and the cost of said measure. From the findings, the drilling and completion environmental stipulations add between 10% to 40% to the cost of the well construction, however, the real difference occurs during the permitting process. Because most environmentally sensitive areas have a longer permitting process, that delay time discounts the revenue from the sale of oil and gas. This has a negative effect on the net present value of a well or project by as much as 40% compared to a similar operation outside of National Park Service administered lands.