Hydrocarbon production cost functions in the Gulf of Mexico

Hydrocarbon production is the process of extracting oil and gas reserves from the earth, and then treating, processing, and transporting the oil and gas to market. Production costs are those costs required to operate and maintain wells and related equipment and facilities. Production costs are generally not available in commercial databases, however, and must be derived from survey instruments or extracted from company records. An alternative approach is to infer production cost based on an assessment of the economic limit of structures removed from service. The purpose of this paper is to derive generalized production cost functions of offshore structures in the Gulf of Mexico using the economic limit model. A statistical description of over 1700 offshore structures removed in the Gulf of Mexico over the past two decades is provided, followed by generalized regression models that infer production cost from gross revenue statistics at the time of abandonment. A description of the factors involved in the analysis and a summary of the results are presented.