Economics of the Delaware-Val Verde Basin Deep Gas Play

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc. This paper was prepared for the 43rd Annual Fall Meeting of the Society of Petroleum Engineers of AIME, to be held in Houston, Tex., Sept. 29-Oct. 2, 1968. Permission to copy is restricted to an abstract of not more than 300 words. Illustrations may not be copied. The abstract should contain conspicuous acknowledgment of where and by whom the paper is presented. Publication elsewhere after publication in the JOURNAL paper is presented. Publication elsewhere after publication in the JOURNAL OF PETROLEUM TECHNOLOGY or the SOCIETY OF PETROLEUM ENGINEERS JOURNAL is usually granted upon request to the Editor of the appropriate journal provided agreement to give proper credit is made. provided agreement to give proper credit is made. Discussion of this paper is invited. Three copies of any discussion should be sent to the Society of Petroleum Engineers office. Such discussion may be presented at the above meeting and, with the paper, may be considered for publication in one of the two SPE magazines. Abstract During the past several years the oil industry has developed large gas reserves in the Delaware-Val Verde Basin. This effort required a large investment in men and material. A minimum of 18,300 billion cubic feet of gas has been found and developed for an expenditure of 775 million dollars in direct costs. The rate of return on this investment should equal 9%, which is less than the average rate of return derived from all investments by domestic producers. The current discovery rate promises important new reserve additions. However, as the more obvious features are drilled the undiscovered accumulations will become harder and harder to find. This factor plus the current inflationary trend for goods and services is expected to hold the rate of return at its present level. Introduction Eighteen years ago the exploration emphasis in the Delaware-Val Verde Basin shifted from the search for shallow (2,500' to 6,000') Delaware Sand stratigraphic oil to the deep gas bearing Devonian and Ellenburger structural traps (12,000' to 25,000'). An early success at Puckett, coupled with the discovery of Brown Bassett a few years later, soured the oil industry into a massive campaign to find more Delaware Basin gas. Cash outlays for geophysical coverage, leases, and exploratory drilling nave been tremendous. Are gas reserves being found in sufficient quantities to justify this large outpouring of money? If so, will industry obtain an adequate rate of return on its investment? What is the current trend of the exploratory success ratio? To answer these questions has been the primary purpose of this investigation. A geographic area containing the elongated geosyncline known in the industry as the Delaware-Val Verde Basin was outlined. (Shown by Figure 1.) Beginning in 1950 and continuing through 1967, all investment directed toward finding and producing hydrocarbons in this area from formations of Wolfcamp age and older was accounted for by year.