IDEAS home Printed from https://ideas.repec.org/a/eee/energy/v31y2006i4p385-408.html
   My bibliography  Save this article

Modeling the cost of shut-in production and the value of information in the Gulf of Mexico

Author

Listed:
  • Kaiser, Mark J.
  • Pulsipher, Allan G.

Abstract

Weather delay is a common risk in offshore energy production, and in the Gulf of Mexico, the occurrence of tropical storms and hurricanes regularly force operators to shut-down production, cease drilling and construction activities, and evacuate personnel. In physical terms, shutting-in a well will usually not cause a loss of the hydrocarbon resource, but in financial terms, the impact of deferred production can have a significant economic effect. Improved ocean observation systems in the Gulf of Mexico are expected to enhance the reliability and accuracy of hurricane forecasting, lowering the probabilities of false positives, and positively impacting the economic and human life consequences. Improved information reduces risk, and to the extent that operators are risk averse, enhanced information increases welfare. The purpose of this paper is to provide a methodological framework to estimate the cost of shut-in production due to extreme weather, and to provide a first-order lower-bound estimate of the market value of improved weather forecasting. Shut-in production is modeled using various recovery scenarios and valued in terms of the cash flow analysis over the life of the asset. A description of the valuation model and the nature of production recovery is outlined and illustrated through stylized examples.

Suggested Citation

  • Kaiser, Mark J. & Pulsipher, Allan G., 2006. "Modeling the cost of shut-in production and the value of information in the Gulf of Mexico," Energy, Elsevier, vol. 31(4), pages 385-408.
  • Handle: RePEc:eee:energy:v:31:y:2006:i:4:p:385-408
    DOI: 10.1016/j.energy.2005.03.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0360544205000629
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kaiser, Mark J. & Pulsipher, Allan G., 2004. "The potential value of improved ocean observation systems in the Gulf of Mexico," Marine Policy, Elsevier, vol. 28(6), pages 469-489, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ji, Qiang & Guo, Jian-Feng, 2015. "Oil price volatility and oil-related events: An Internet concern study perspective," Applied Energy, Elsevier, vol. 137(C), pages 256-264.
    2. Kaiser, Mark J. & Yu, Yunke & Jablonowski, Christopher J., 2009. "Modeling lost production from destroyed platforms in the 2004–2005 Gulf of Mexico hurricane seasons," Energy, Elsevier, vol. 34(9), pages 1156-1171.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:31:y:2006:i:4:p:385-408. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.journals.elsevier.com/energy .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.