P. 6 ~ Continued - How Haynesville shale will lift Louisiana's gas production profile

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Valuation

Table 3 summarizes the discounted gross revenue of the reserves data in Table 2 under constant future prices of $60/bbl oil and $6/Mcf gas and a 10% discount rate.

The valuations only consider commodity price and discount rate; they do not include royalties, taxes, operating and capital cost, or transportation expenses. High commodity prices lift fields above their economic threshold and make uneconomic production viable.

Net worth is correlated with the amount of reserves but is also affected by the timing of production. The total expected present value for oil reserves and gas reserves are $18.7 billion and $105.9 billion, respectively.

Present values are presented based upon future prices that vary from $40/bbl to $120/bbl and $4/Mcf to $12/Mcf (Table 4). Oil and gas prices are independent, and if future oil prices are assumed to average $80/bbl and gas prices $4/Mcf, total present value would be $25 billion from liquids production and $71 billion from gas production, or $96 billion total.

Remaining oil and gas reserves are valued at $12-38 billion and $71-212 billion, respectively. In the North, oil reserves represent about half of the production total, and gas contributes nearly 90% of the total value. South Louisiana has significant remaining oil reserves and smaller quantities of gas.

The Haynesville shale is expected to be a significant contributor to state gas production and the manner in which the Haynesville develops will play a critical role in the state's future.

References

1. "Jennings Field—The birthplace of Louisiana oil industry," Public Information Series No. 9, Louisiana Geological Survey, Baton Rouge, September 2001.

2. US Department of Energy, Energy Information Administration, Crude Oil Production, Washington, DC, 2010 (http://tonto.eia.doe.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_m.htm).

3. US Department of Energy, Energy Information Administration, Natural Gas Gross Withdrawals and Production, Washington, DC, 2010 (http://tonto.eia.doe.gov/dnav/ng/ng_prod_sum_dcu_rusf_a.htm).

4. SPE/WPC/AAPG/SPEE, "Petroleum Resources Management System," 2007 (http://www.spe.org).

5. Strategic Online Natural Resources Information System, Louisiana Department of Natural Resources (http://sonris-www.dnr.state.la.us/www_root/sonris_portal_1.htm).

6. Kaiser, M.J., "Hydrocarbon production forecast for committed assets in the shallow water Outer Continental Shelf of the Gulf of Mexico," Energy—The International Journal, Vol. 34, No. 11, 2009, pp. 1,813-25.

7. Kaiser, M.J., "Hydrocarbon production forecast for Louisiana—producing fields module," Mathematical and Computer Modeling, 2011, available on line.

8. SPE, "Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information," approved by SPE board of directors, June 2001, Article 5.7, "Estimating Reserves by Analogy to Comparable Reservoirs."

The authors

Mark J. Kaiser ([email protected]) is professor and director, research and development, at the Center for Energy Studies at Louisiana State University. His primary research interests are related to policy issues, modeling, and econometric studies in the energy industry. Kaiser holds a PhD in industrial engineering and operations research from Purdue University.

Yunke Yu is a research associate at the Center for Energy Studies at LSU. His research interests are related to modeling and economic evaluation. He earned a bachelor of engineering in oil and gas transportation and storage from China University of Petroleum and a master of finance from Tulane University.

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