The first-ever broad-based study analyzing finding anddevelopment (F&D) costs by strategy area and cost componentsfor companies operating in the Shelf and Slope areas of the Gulf ofMexico shows that technology plays a key role in determiningcompetitive advantage. Ziff Energy Group, which released the studythis week at the Offshore Technology Conference in Houston,analyzed activity on the Shelf and Slope to 1,500-feet water depth.

Even though business was not as strong for the study’sparameters — 1996 to 1998 — as it is today, Ziff Energyattracted a “strong mix” of independents and majors active in theGulf of Mexico to participate in the survey. And analysts hope thestudy’s results will better prepare companies for the future.Basically, Ziff analyzed links between the use of key technologiesand actual economic performance in several specific strategies.The study also examined which technologies offer the most successin each strategic area.

Paul Ziff, CEO, said the study focused on the Gulf regionbecause of the amount of corporate activity there, with severalmajors and independents “selling or swapping out of certain regionsof the Shelf and generally opting to focus their activity on theShelf and/or shift spending to the deep-water.” As examples, hereferred to Mobil’s sale of 23 Shelf fields to Vastar in 1998,Shell’s sale of 22 fields and 16 undeveloped blocks to Apache in1999, and Texaco’s sale of 82 blocks to Anadarko in 1999.

“The Gulf of Mexico is the breadbasket of U.S. gas supply,providing about 25% of total U.S. gas supply,” said Ziff. “Therehas been much controversy regarding the outlook for gas supply fromthe Gulf, and whether it will soon decline sharply, as has beenpreviously forecast several times during the past decade.”

The survey analyzed four key technology areas in the F&Dprocess: geophysics, drilling engineering, petrophysics, and datamanagement. What the survey revealed was the following: Virtuallyall acquired data is speculative; the acquisition and integrationof core data into prospect interpretation correlates with lowerF&D costs by exploration and development companies; companiesthat take the time to involve all team members in drilling planningsee a reward in lower F&D costs; and data management accountsfor between 30% and 50% of E&P professionals’ time.

According to Ziff Energy, participants invested more than $5billion in F&D activities during the three-year periodanalyzed, drilling 1,200 wells, which added more than 700 MMBOE ofproved reserves. Upward revisions to drilling discoveries accountedfor 10% of the total. Participants re-invested an average of $6 perBOE of production between 1996 and 1998, characterized byrelatively strong prices in 1996, and sliding to weak prices in1998.

“However, the spending pattern was remarkably stable from yearto year, even as rig rates collapsed,” said Ziff. Drillingexpenditures accounted for most of the money spent, nearly 75% oftotal spending, and analysts suggested that this amount beresearched by companies to “optimize producer results,” and perhapsreduce costs. The study also revealed that F&D costs varied”significantly” from one strategy area to another. In the fourmature strategy areas, F&D costs averaged $6.89/BOE, rangingfrom $5.20 to $8.50/BOE, or $0.87 to $1.56/Mcfe.

Ziff Energy joined with Collarini Engineering Inc., a reservevaluation firm based in New Orleans, to value the main types ofplays within seven strategy areas to determine a total of 23 oiland gas plays.

Ziff’s CEO believes that companies can use the results toidentify their “true areas of competitive advantage” among thevarious Gulf of Mexico strategies, and optimize capital allocation.Using the data, they also can develop full cycle models of fieldperformance, and compare capital spending levels and composition tothe industry and comparably sized companies for each strategy.

In July, Ziff Energy is expected to release the third edition oftwo studies — one for Shelf and one for Deepwater — thatevaluate operating costs and best management practices forproducing fields in the Gulf of Mexico. Schlumberger, a petroleumindustry supplier, serves as technical/operations adviser for theBest Practices sections for the two studies, which focus on WellInterventions.

For more information about the Shelf and Deepwater initiatives,contact the Houston office at (888) 736-5780, or e-mail RichardTucker, vice president of marketing, at rtucker@ziffenergy.com.

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