Frequently faced with sharp criticism from industry and WallStreet for its estimates on everything from supply and demand tonatural gas prices, the Energy Information Administration earlierthis month publicly admitted there were serious errors over morethan a decade in its gas and oil drilling data.

During a recent effort to revise its statistical procedure thatgenerates estimates of actual well completions, EIA detected some”unusual patterns” in its results. “Discrepancies” were uncoveredthat turned out to be much more serious than first thought. Fortotal wells by year, records were under-reported by more than 2,200wells, 11% of the 1995 total. And the impact of the errors extendedback in time to at least the early 1980’s, EIA said in its MarchNatural Gas Monthly.

“Users of the EIA drilling activity data are therefore advisedthat the drilling activity data which were published or otherwisedistributed by EIA prior to February 1998 are substantially inerror,” a note in the publication warns.

“I expect there were a lot of financial decisions based on[these incorrect numbers],” said EIA’s Phil Shambaugh, co-author ofthe report that explains the errors. “That’s why we wanted to digin and make sure we got all of the wrinkles out of it and thenpublicize the fact that, hey, there have been problems with thesenumbers.

“Whether the [wells] are going up or down, somebody on WallStreet is going to look at that and say ‘okay if the [wells] aregoing up that means that we’re going to be increasing supply ofdomestic hydrocarbons and that will influence the market prices andso on. Or even they could say ‘well that means we should investmore in drilling stocks.’ I don’t know what actual things happened,but its easy to posit a number of scenarios.”

EIA said it has corrected the errors, however. The revisedseries shows some striking differences. It turns out the mid-1990sdrilling decline was not as steep as previously indicated. Furtherin the past, the corrections show drilling activity did attain apeak level in 1981, but the peak was higher than first reported:91,496 wells as opposed to 90,034. Gas and oil exploratory wellswere greatly under-reported in the post-1985 period with more thanhalf of the wells missing in certain years. And success ratesmeasured as the share of successful gas and oil wells relative tothe total wells improved greatly as early as 1986 rather than bythe mid-1990s.

“I was troubled quite a bit by the difference in the successrates. That’s the sort of thing that is so fundamental for ourunderstanding of the industry and how it reacted to the economicsof the late 1980s when the industry was going through some veryhard times,” said William Trapmann, an EIA economist and co-authorof the report on the errors. “So our understanding of the impactsof economics as well as the adoption of alternate techniques to tryto enhance industry performance – 3-D seismic was adopted in thatperiod – [was not quite correct]. If you look at the success ratesusing the old data, it looks as though nothing really happeneduntil just a few years ago even though we know anecdotally andotherwise that these technologies were being applied on awidespread basis..

“The data understated by a substantial margin the favorableimpact of some of these techniques that the industry was applyingto try to deal with the very severe conditions that they foundthemselves in,” he said.

A Simple Misunderstanding?

EIA is quick to point out it doesn’t collect the data.Houston-based Petroleum Information/Dwights has been supplying thedata to EIA since 1995 for about $15,000/year. Prior to that,PI/Dwights provided the data to the American Petroleum Institute,which then shipped it to EIA.

In trying to avoid placing the blame on its only source ofdrilling data, Shambaugh attributed the errors to miscommunicationparticularly following the switch to PI/Dwights. He said “not fullyunderstanding how the private companies were collecting the dataand what each variable meant in its full entirety got us into thisproblem.”

“It was just a misunderstanding, I think,” said PI/Dwights PeteMcClintock, manager of statistics. “I’m not so sure they understoodthat the data that they were getting, the data that we were sellingto the API, was filtered by API specifications.. There were somewells that API didn’t want delivered to them. For instance, theydidn’t want any workovers. They didn’t want any wells with lessthan 50 feet of drilled footage. They didn’t want what we called onour system pending wells, wells that didn’t have completeinformation on them. EIA would have wanted those wells if they hadrealized they weren’t getting them. I got the impression after Ispoke with the DOE at length that they assumed they were gettingall the wells.

“They apparently didn’t look at what they got or understood whatthey got. I wasn’t quite sure that these guys had a handle onprocessing this data and an understanding how this data reallyworks,” said McClintock, noting EIA’s modeling methodologies areoften criticized even by EIA personnel. EIA has to use anestimating model on drilling data because of the time lag in wellcompletion reporting. Despite EIA’s claims to the contrary,McClintock said he’s not sure the problem has been correctedcompletely “or if it’s a case of even the blind squirrel finds anut sometimes.”

While noting the good work PI/Dwights does, EIA’s Trapmann saidthe biggest problems occurred simply because “we did not get allthe records” from PI/D.

“I thought there was a programming error involved. I’m not surewhat the misunderstanding would have been. We’re not scheduled toget the recompletions, but that in itself would not have been thesource of all these missing data. My understanding is that theprocessing that creates the file that is sent to us was somehowflawed.

“There were a couple months in the 1995-96 period in which iswas something like half the records weren’t present. That was theworst case. And that’s not a misunderstanding about recompletions.

EIA said the problems would not have occurred over such anextended period had it done its own data collection all along.Using an outside source “does not allow complete familiarity withthe data, and it hampers efforts to investigate concerns with thedata. Second, the well completion data are inherently quiteerratic, so even sizable fluctuations are not prima facie a causefor concern.” And third, reported data are often inflated becausethey contain wells that were completed months and years prior tothe reporting date. Perhaps worst of all, there is no other timelysource for well completion data, EIA said.

But the time and expense of conducting well completion surveysmake it unlikely if not impossible for EIA to do the job itself,Shambaugh said.

“We are certainly monitoring the data as we receive it and thenumbers that we generate to try to make sure that if somethingunfortunate does happen then we’ll catch it more quickly than thispast problem,” said Trapmann. “This is an unfortunate thing andkind of embarrassing, but it had to be taken care of. We’re hopingwe’re on top of it now.”

Rocco Canonica

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