Full Title: Business Impact of Proposed Changes to Well Completion Regulations
Author(s): Phillip K. Verleger
Publisher(s): Peterson Institute for International Economics
Publication Date: February 1, 2012
Full Text: Download Resource
Description (excerpt):
As per your request, we have examined the impact of a proposal that would require that companies drilling new wells for the extraction of petroleum products submit a plan outlining the details of well completion operations for approval prior to performing them. The proposed regulation is being promulgated by the US Department of Interior’s Bureau of Land Management (BLM) and as currently written would apply only to federal wells on or impacting Federal and Indian lands, or split estate lands. However, this definition is remarkably broad and could potentially be applied to companies drilling on private lands in the western states.
In fact, assuming a best case scenario, where the BLM approves 100 percent of all applications and assuming capital costs of only 7 percent, these regulations – if applied to all projects in the western states – would cost at least $1.226 billion annually based on the carrying costs of the project. Based on the discounted lost value of petroleum output, the proposed regulations would cost about $1.342 billion annually. Averaging these two methods together suggests that a reasonable estimate for the cost of this proposed rule as applied to drilling in the western states is just over $1.284 billion. The average cost per well is estimated at $253,800. This figure does not even include the cost of the regulations for existing wells than will require re-work or re- stimulation. A conservative estimate of this cost is upwards of $233,100 per well or about $273 million per year. Total aggregate annual costs for new permits and workovers would be at least $1.499 billion and as high as $1.615 billion.