Full Title: Individual Well Costs from Proposed Rule Changes to Oil and Natural Gas Operations on BLM Lands: Comments and a Monte Carlo Specification
Author(s): Steven C. Agee Economic Research and Policy Institute
Publisher(s): Oklahoma City University
Publication Date: January 1, 2013
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Description (excerpt):
A proposed rule governing oil and natural gas operations on BLM managed lands would generate costs to society designed to purchase “useful information to the public” and assurance that “hydraulic fracturing is conducted in a way that adequately protects the environment” (Federal Register Volume 77, Number 92, RIN 1004‐AE26). Natural resource economics invokes the basic principles of welfare economics to assess if the benefits to society from such a purchase exceed its cost. This paper contributes to the discussion by first reviewing the key economic principles involved and then estimating through a custom, multi‐stage Monte Carlo process the individual well costs imposed by the rule. The design of the Monte Carlo experiment as well as the distributional parameters selected reflect the proprietary process and cost estimates of one of the nation’s largest independent oil and natural gas producers and are believed to be representative of industry practices. Among the key findings and points of consideration are the following: