Appendix A

Evaluation of the Hydrocarbon Resource Estimates for the Offshore Areas of Northern and Southern California and Florida South of 26 ° Latitude

Committee on Undiscovered Oil and Gas Resources

Board on Earth Sciences and Resources

Commission on Physical Sciences, Mathematics, and Resources

National Research Council

National Academy Press
Washington, D.C.
1989



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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures Appendix A Evaluation of the Hydrocarbon Resource Estimates for the Offshore Areas of Northern and Southern California and Florida South of 26 ° Latitude Committee on Undiscovered Oil and Gas Resources Board on Earth Sciences and Resources Commission on Physical Sciences, Mathematics, and Resources National Research Council National Academy Press Washington, D.C. 1989

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures CONTENTS      EXECUTIVE SUMMARY   113      INTRODUCTION   115      NORTHERN AND SOUTHERN CALIFORNIA OUTER CONTINENTAL SHELF AREAS   117      Evaluation of Methodology,   117      Conclusions,   119      SOUTH FLORIDA BASIN OUTER CONTINENTAL SHELF, SOUTH OF 26° LATITUDE   121      Evaluation of Methodology,   121      Geology/Geophysics Data Base,   121      Resource Assessment Procedures,   122      Conclusions,   124

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures EXECUTIVE SUMMARY The Committee on Undiscovered Oil and Gas Resources was asked to review and evaluate (1) the methods and procedures used by the Minerals Management Service (MMS) to estimate oil and gas resources for three outer continental shelf (OCS) areas and (2) the adequacy of the information for producing credible estimates for those areas. The committee established two panels to study these matters, one for the two areas of northern and southern California (lease sales 91 and 95, respectively) and the other for the South Florida Basin (lease sale 116, part 2). In working sessions at the MMS field offices where the information is maintained, the panels examined representative information, which is proprietary, pertinent to the OCS area and reviewed the methods and procedures applied to the information by the professional staff that conducted the resource estimate. The panel that conducted the reviews of the northern and southern California areas finds that the MMS has an extensive and adequate data base for the two areas from which to develop resource estimates. The professional staff is judged to be highly qualified, and their methods and procedures in the assessment process appear to be generally appropriate. In the panel's opinion the current resource estimates are very likely conservative because of incomplete consideration of potential stratigraphic accumulations and other conceptual plays not detectable by seismic methods and because of MMS risking techniques and economic screening. The panel was not able to evaluate directly the current MMS resource estimate for the South Florida Basin because the estimate was not available at the time the review was conducted. However, the panel examined the quantity and quality of available data and reviewed the methods and procedures employed in the resource estimation process.

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures Because no wells have been drilled in the basin, there is no firm basis for the determination of velocities or other stratigraphic control of the seismic data, no direct evidence of rock units that could serve as hydrocarbon reservoirs, and no direct method of recognizing potential hydrocarbon source rocks. Consequently, it is reasonable to expect large uncertainties in the resource estimate. However, good use is made of well data in adjacent areas, and the seismic lines, although sparse in parts of the basin, are of very high quality. The methods and procedures employed by the staff in extrapolating from areas with information to areas with little data are entirely appropriate for the level of information available for the basin. The Committee on Undiscovered Oil and Gas Resources (the parent committee for the review of the three lease areas that are the subject of this report) is conducting a review of the methodologies and procedures used by MMS, and the information available to the agency in producing hydrocarbon resource estimates for all offshore areas of the United States. At the time of the preparation of the panel reports, the committee had not reached conclusions concerning some aspects of the methodologies and procedures that influence the hydrocarbon resource estimates produced by MMS. Therefore, the members of the two panels (who are members of the parent committee as well) conducted the review of these three lease areas without considering such issues of methodologies and procedures. The committee concurred with this approach, and will provide further elaboration in its report scheduled for release in March 1990.

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures INTRODUCTION In his budget address to Congress on February 9, 1989, President Bush announced the establishment of a cabinet-level task force to review environmental concerns associated with outer continental shelf (OCS) oil and gas activities in three OCS lease areas: southwestern Florida (sale 116, part 2), southern California (sale 95), and northern California (sale 91). The National Research Council was asked to provide the task force with a review of scientific and technical information about environmental concerns and petroleum resources. Committees in two boards of the National Research Council were already involved in relevant studies. The Committee on Undiscovered Oil and Gas Resources in the Board on Earth Sciences and Resources was reviewing methods of estimating onshore and offshore undiscovered hydrocarbon resources. The Committee to Review the Outer Continental Shelf Environmental Studies Program in the Board on Environmental Studies and Toxicology was reviewing the Environmental Studies Program (ESP) of the Minerals Management Service (MMS). On the basis of their experience with these nationwide reviews, the committees undertook to review the information pertaining to the three sale areas of concern. This report is from the Committee on Undiscovered Oil and Gas Resources. To address the request, two panels of the committee were established: one panel was assigned the task of reviewing the Minerals Management Service (MMS) estimates of undiscovered hydrocarbon potential of the northern and southern California portions of the OCS (lease sales 91 and 95, respectively); the second panel was assigned to review the estimates for the southwestern Florida portion of the OCS (lease sale 116, part 2). This report is the product of the combined efforts of the two panels.

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures The charge to each of the panels was to do the following: Review and evaluate methodologies of estimates by MMS, and others, regarding the quantity and chemical composition of potential hydrocarbon resources in the OCS area(s). Assess the adequacy and reliability of the existing scientific and technical information to make the following determinations in each subject and area under consideration; specifically (a) what is known plus reasonable extrapolation accompanied by an expression of the error or uncertainty, (b) what information is missing and the reasons why (e.g., difficulty of measurement, confounding of data, lack of theory, or insufficient time), (c) what information could be obtained with reasonable increments of investigative resources (e.g., personnel, financial support, facilities, and time), and (d) what most needs to be known to support decision making in a factual basis comparable to other similar problems? The findings presented herein are to be considered preliminary and subject to review and possible modification by the committee in its forthcoming report.

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures NORTHERN AND SOUTHERN CALIFORNIA OUTER CONTINENTAL SHELF AREAS In order to evaluate the data and methodology used in estimating oil and gas resources in the northern and southern California OCS, the panel held a three-day meeting on June 26-28, 1989, at the regional office of MMS in Los Angeles. During the panel meetings with MMS, a thorough, detailed, in-depth review of the entire scope of lease sales evaluation procedures and resource assessment processes was conducted. Los Angeles MMS regional supervisor, Robert Paul, and his professional staff presented every aspect of their methodology to the panel with complete cooperation, openness, and constructive attitudes, and full access to data, thought processes, and systems applications was given. At least 12 MMS personnel participated in the review. Evaluation of Methodology The panel reviewed the entire process by which economic evaluations for lease sales are derived on a tract basis and by which oil and gas resources are calculated. Because of the extensive seismic data base available to MMS in both the northern and the southern California lease sale areas, structural prospect mapping is the primary focus for identifying undiscovered resources of oil and gas. The same method used to evaluate prospects for tract economics is used in the resource assessment process. In the MMS Pacific Region a threefold, stratigraphically subdivided play definition is used: i.e., pre-Monterey, Monterey, and post-Monterey. Undiscovered resources are aggregated from prospect to basin to area to region. This process is consistent within the region, but does not conform to “play definition

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures and analysis” as used both offshore and onshore elsewhere in the National Assessment. In both the MONTCAR (tract evaluation) and the PRESTO (resource assessment) programs, critical aspects lie in the methods by which risk is assessed with respect to zones, prospects, basins, and areas. Definitions and application of probabilistic dependence and independence in risk analysis may significantly alter resource estimates. For example, in one case where four zones were evaluated by individual chance of success (1 minus percent risk) to arrive at a prospect chance of success, the zones were assumed to be independent, an assumption that the panel judged to be unwarranted and which resulted in a prospect chance of success of 0.73. If the zones had been judged to be dependent, the result would have been 0.85 (zone chance factors used were 0.98, 0.97, 0.90, and 0.85) Because the chance of success is a direct multiplier in the operation which determines prospect reserves, significant reserve reduction would occur in multimillion barrel prospects. The significance of the probabilistic dependence/independence assumptions are currently under review and will be addressed in the committee 's report. It is apparent to the panel, though that current practice may result in conservative estimates of undiscovered resources in both areas. A substantial effort to improve current risk assessment practice is warranted. First, statistical studies of well data to determine the empirical nature of zone risk dependencies should be undertaken. Few have been done. Second, the results of such studies should be incorporated in MMS risk assessment procedures. Using all available subsurface well data and extensive seismic reflection data, MMS personnel do attempt to define, map and estimate undiscovered resources for “postulated” or “unidentified” plays. These include stratigraphic traps (e.g., pinchouts or truncations), complex structures (e.g., thrust faults), diagenetic alterations (e.g., opal-chert), and statistical projections of unmapped structural closures in areas with widely spaced seismic grids. Inherent difficulties in identifying, justifying, and quantifying unidentified prospects may result in underestimating undiscovered resources, particularly in the more remote frontier areas such as the Eel River Basin of the northern California OCS area and the outer banks and basins of the Southern California OCS area. For example, in the northern California Eel River Basin, the entire “postulated ” resource was allocated to an estimated 4 “unidentified” structural prospects as compared to 92 “identified” structural prospects. In the entire basin the unidentified category yielded a risked total resource of only 5 million barrels of oil as compared to a total of 159 million barrels of oil for the identified

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures category. This process does not included possible stratigraphic or other types of conceptual traps known to occur in other California basins. With regard to the chemical composition of potential hydrocarbon resources, MMS has utilized available data sources, including public as well as purchased proprietary geochemical analyses of specific wells, surface sections, bottom samples, basins, and areas. Engineering data from field and production history are effectively applied by direct projection or by analog comparisons. Determination of total basin generative capacity as a means of estimating the quantity of hydrocarbons is not used except by analogy based upon onshore basin comparisons. Focus upon the Monterey Formation as the dominant source (and reservoir) may have the effect of downplaying other potential hydrocarbon source beds and thus tend to understate their contribution to postulated or unidentified plays in resource assessment processes. Nevertheless, the MMS methodology in characterizing the types and compositions of hydrocarbons in potential accumulations seems to the panel to be a fundamentally sound state-of-the-art application of geochemical data and principles. At this stage in the committee's review of the MMS methodology to estimate quantity and chemical composition of potential hydrocarbon resources, the assessments of the northern California area and the southern California area seem to be adequate for economic tract evaluation decision making. The panel considers that the process appears to develop a conservative estimate through application of multiple risking approaches and economic screening. If this is sustained the committee's final report, the MMS resource estimation efforts will probably be found to understate the undiscovered resource base that could yield potentially recoverable reserves. 1 Conclusions In reviewing what is known, it is apparent that MMS has an unequaled, extensive data base of geological, geophysical, engineering, and production information on the southern and northern California OCS. The panel views this 1   The term “recoverable reserves” is used herein in its standard connotation of referring to those identified hydrocarbons that are recoverable by all existing methods except for enhanced oil/gas recovery.

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures data base as adequate for making sound estimates of the hydrocarbon resources in these areas. The staff is highly qualified and applies currently accepted, state-of-the-art methods, to their analyses and interpretations. Continued study, review of methods, and sensitivity testing of results of risking and dependence versus independence could benefit the process of resource assessment. A critical element with respect to missing information lies in the inability of MMS (or USGS) to obtain the use of certain confidential data concerning state of California waters in the 3-mile zone. The California State Lands Commission retains control over the data, which results in a critical gap in the transition area of projection of interpretive trends from onshore to offshore. Although MMS has extensive seismic grid coverage, especially in the productive and more competitive basins and areas, northern portions of the Eel River Basin of northern California and the western extremities of the southern California outer banks and basins could be better understood with a denser seismic grid. In order to enhance decision making based upon the relative values and significance of potential resource development, it is important to utilize the best possible knowledge and understanding of these resources. More emphasis on conceptual geologic plays or prospects could improve the “postulated” or “unidentified” component of the assessment. Priorities within MMS now limit detached analysis of prospects to post-sale evaluation of tracts having received bids. Because the resource assessment process is directly related, and dependent upon, the lease sale process, more detailed mapping and evaluation of prospects as a routine treatment of tracts prior to sales could yield a more defensible result. In the panel's view, MMS tends to emphasize the economic assessment of specific tracts for lease sale purposes. A policy of greater emphasis on resource base assessment process within MMS, could result in more definitive knowledge of the resource base available for long-term exploration and development under different political, technological and economic scenarios. This, in turn, could provide better support for enlightened decision making.

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures SOUTH FLORIDA BASIN OUTER CONTINENTAL SHELF, SOUTH OF 26° LATITUDE In order to evaluate the data and methodology used in estimating oil and gas resources in the South Florida Basin OCS, the panel held a two-day meeting on June 27-28, 1989, at the regional offices of MMS in Metairie, Louisiana. The meeting was conducted in an informal, work-session format with excellent cooperation from the MMS regional supervisor for resource evaluation and his staff. Eight MMS professional staff members participated in the meeting. Evaluations of Methodology Geology/Geophysics Data Base As their studies of the South Florida Basin were in an early stage of development and were ongoing, according to MMS staff, there is a limited data base. Extensive use of the available geologic literature was made in defining the nature of the basin and in focusing on the primary objective zones. No wells have been drilled in the offshore part of the basin to date, but well data from 6 dry holes along the Sarasota Arch, 11 dry hole along the Pine Key Arch, north and south of the basin, respectively, 3 dry holes in state waters on the south flank of the Sarasota Arch to the northeast of the basin, and data from the onshore, productive Sunniland Trend were extrapolated to define potentially productive zones. These data consisted of various types of well logs, sample logs and well histories. At this stage of the studies, no samples had been examined by MMS personnel, but the panel was informed that this is planned for the near future.

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures Seismic data consisted of commercial seismic lines of good quality ranging in age from 1981 through 1988. The highest density of the seismic grid pattern was concentrated on and around acreage blocks associated with prior lease sales. Several Lower Cretaceous horizons and top of basement were identified on the seismic lines and were used to construct structure contour maps. A limited amount of geochemical data is commercially available for most of the wells drilled along the southern flank of the basin, but this has not been included in the MMS assessment. Total organic carbon sufficient for generating hydrocarbons is present in the onshore Sunniland source rocks. Thermal history plots for the onshore wells suggest that mature source rocks may be present offshore. Lower Cretaceous formations make up most of the prospective section. Prospective horizons are the Dollar Bay carbonate and evaporite sequence, the Sunniland Formation, which has produced over 92 million barrels of oil from onshore fields, the porous Brown dolomite, the Pumpkin Bay and deeper carbonate sequence and the Lower Cretaceous Shelf Edge Reef Trend. Additional potential exists in Triassic(?) basal sands over the basement surface and in grabens. The presence of porous, prospective sections in the wells surrounding the basin leads to the interpretation that there may be zones of comparable reservoir quality within the basin itself. A total of 141 structural traps have been mapped, using the available seismic grid. The traps are predominantly anticlinal closures and fault closures. An additional 119 structures have been interpreted by projecting the number of mapped prospects from areas of good seismic control into areas where seismic coverage is sparse or nonexistent. Resource Assessment Procedures The absence of wells drilled in the offshore parts of the basin results in greater uncertainty in resource estimation. Information obtained from wells aids in interpreting the seismic data through refinement of velocity profiles for the stratigraphic section and in correlating seismic reflectors with specific subsurface rock units. Furthermore, logs, samples, and cores from wells permit the identification and evaluation of potential source and reservoir rocks. If successful, these wells can provide for direct detection of hydrocarbons. The lack of such analytical tools impedes the assessment process. Although the panel is not in a position to determine either the number or the location of wells needed to characterize adequately the hydrocarbon potential of the basin, at least one stratigraphic test well is necessary for the reasons cited above.

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures Because of the nonuniform distribution of seismic control, it was necessary to extrapolate from areas of dense seismic grid where traps were well-defined to areas of no control in order to estimate the total number of possible traps in the resource assessment area. This extrapolation was done by direct analogy: the number of and size distribution of unidentified prospects in areas of sparse control are chosen to match experience in areas with good seismic control. Most of the identified traps are structural (e.g., fault or fold closures), and the estimated total number of traps is considered to be conservative. The panel had some concern with the narrow range of uncertainty expressed about the number of unidentified prospects at the time of its meeting with this branch of MMS. Lack of data within the South Florida Basin generally has prevented the identification of stratigraphic traps (e.g., pinchouts or unconformities) to the extent to which they are probably present. Stratigraphic traps are very common in the equivalent stratigraphic intervals throughout the Gulf Coast region, and it is reasonable to expect that they will become increasingly important in this basin as the data necessary to identify them develop. Various estimates of trap filling were used in calculating volumetric estimates of the resources of the basin, but the calculations were not complete at the time of the meeting. In the interim, calculated ultimate recoveries from other Lower Cretaceous fields along the Gulf Coast trend were used as indirect analogs to provide an indication of what order of magnitude might be expected in the resource estimate. The current method of assessing unidentified prospects based on a sample of seismically generated prospects is subjective in character and might be usefully supplemented in future assessments with objective statistical methods specifically tailored to a seismic search for prospects. The procedure for assigning risks to prospects follows standard MMS practice: judgmental probabilities of .90 to .94 for the prospect risk in frontier provinces is reasonable in light of experience elsewhere. In this assessment, MMS did not encounter the problem of assigning multiple zone risks. However, as exploration proceeds and information accumulates, the need will emerge to appraise multiple zone risks systematically. The committee will address this subject in more detail in its report.

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UNDISCOVERED OIL AND GAS RESOURCES:: An Evaluation of the Department of the Interior's 1989 Assessment Procedures Conclusions At this writing, MMS is in the process of determining its resource estimate for the South Florida Basin but does not have it completed. The MMS regional supervisor for the Gulf Coast confirmed on August 29, 1989, that the resource estimate was in Washington pending final review. As the resource estimate of oil and gas for the basin was not available from MMS at the time this report was completed, the panel was not able to assess its credibility. Although the available data are limited to the South Florida Basin, it is apparent to the panel from its meeting with MMS staff that they are using appropriate techniques for interpreting the geological potential of the basin. The methods used in predicting the number, distribution, and volume of structural traps are appropriate for this frontier area at this stage in its history. Because the estimation procedure does not include prediction of stratigraphic traps, the panel believes that the total resource estimate will probably be very conservative. The Committee on Undiscovered Oil and Gas Resources (the parent committee for this panel) will comment further on the resource estimate of the South Florida Basin in it report to be issued in March 1990.