1. 1 DOE Office of Natural Gas and Petroleum Technology Overview of Environmental Program Retroactive Metrics Analysis July 2000

2. 2 Background Forward Environmental Metrics Analyses Capture the Projected Future Benefit of Current ONGPT Environmental Program Activities 3 Previous Environmental Metrics Analyses –1996 –1998 –2000

3. 3 Background How can ONGPT Capture the Current and Past Benefit of Environmental Program Activities? Was the ONGPT Environmental Program as Effective as Predicted in the 1996 - 2000 Forward Environmental Metrics Analyses?

4. 4 Retroactive Environmental Metrics -Objectives Estimate the Actual Impact of ONGPT Environmental Program Activities for 1996 - 2000 Extend the Estimated Impact of ONGPT Environmental Program Activities to the Near Term, 2000 - 2005: –to capture Environmental Program Benefits up to the point at which the 2000 Forward Metrics begins.

5. 5 Retroactive Environmental Metrics - Objectives, (cont.) Compare Retroactive Metrics Analyses with Projections from the 1996, 1998, & 2000 Environmental Metrics Analyses Did the ONGPT Environmental Program Actually have the Impact on –Production, –Environmental Compliance Costs –Revenues and Royalties, – Employment, etc. Predicted by Previous Forward Environmental Metrics?

6. 6 Review of Technical Approach for Forward Environmental Metrics Analyses

7. 7 Forward Environmental Metrics Review 6 Categories of Environmental Issues that Affect Oil and Gas E&P –Drilling –Produced Water Management –Production Waste (Associated) Management –Remediation –Air Emissions –Other: Spills, Underground Injection, Regulatory Streamlining

8. 8 Forward Environmental Metrics Review Identify Individual Environmental Issues Develop alternative future regulatory or compliance technology scenarios for each environmental issue. Estimate relative impact/influence of ONGPT Environmental Program activities for each environmental issue

9. 9 Forward Environmental Metrics Review Estimate unit incremental compliance cost ($/well) for future environmental requirements –Probabilistic, “expected value” methodology –Reservoir level costs applied through Oil and Gas Environmental Model Three Cases Distinguished by Magnitude of Incremental Environmental Costs: –With DOE (DOE + Industry) –Without DOE (Industry Only) –Stringent

10. 10 Forward Environmental Metrics Review Incremental Environmental Costs to Oil System Analysis & Gas System Analysis Models (OSAM) (GSAM) Estimated Future ONGPT Environmental Program Benefit is Difference between With DOE Case & Without DOE Case –(With DOE Case) - (Without DOE Case) = Estimated ONGPT Environmental Program Benefit

11. 11 Forward Environmental Metrics - Regulatory Issues $ Incremental Environmental Compliance Cost 1996 2000 2020 $0 Stringent Case Industry Only Case (Without DOE ) With DOE Case ONGPT Environmental Program Benefit

12. 12 Forward Environmental Metrics - Technology Issues $ Incremental Environmental Compliance Cost 1998 2000 2020 $0 Stringent Case Industry Only Case With DOE Case ONGPT Environmental Program Benefit +$ -$

13. 13 Retroactive Environmental Metrics Based on Technical Approach Developed for Forward Environmental Metrics Evaluates Actual ONGPT Environmental Program Involvement For Each Environmental Issue Considered in the 1996, 1998 & 2000 Analyses Reservoir Level Incremental Environmental Compliance Costs Developed for 3 Cases: –With DOE Case (Baseline Case) –Industry Only Case (Without DOE Case) –Stringent Regulation or Limited Technology R&D Case

14. 14 Retroactive Environmental Metrics $ Incremental Environmental Compliance Cost 1996 2000 $0 Stringent Case Industry Only Case With DOE Case = Baseline ONGPT Environmental Program Benefit

15. 15 Retroactive Environmental Metrics- Environmental Issues Regulatory Issues 31 Issues –23 Onshore, 8 Offshore & Coastal General Selected Issues: –Onshore Drilling Waste Management –Offshore Synthetic Drilling fluid –Offshore Drilling Waste Management –Drilling in Wetlands Onshore Produced Water Disposal –Offshore Produced Water Disposal –Offshore Air emissions Control –Hydraulic Fracturing Technology Issues 10 -12 Issues –10 Onshore, 2 Offshore Selected Issues: –Regulatory Streamlining –Onshore Drilling - Waste Volume Reduction –Onshore Wetland Mitigation –Onshore Produce Water Technology - Water Treatment –NPDES Stormwater Permitting –Salt Cavern Disposal E&P Waste

16. 16 Retroactive Environmental Metrics - Incremental Cost Cases With DOE Case (DOE + Industry) –Represents the Current Scenario: Actual Compliance Costs with Existing Technology –Baseline Environmental Compliance Cost –$ 0 Incremental Environmental Compliance Cost

17. 17 Retroactive Environmental Metrics - Incremental Cost Cases Stringent Regulation/ Limited Technology R&D Case –Regulatory Issues: Represents the Most Stringent Feasible Outcome of Pending Regulatory Requirements ( “the worst that could have occurred”) –Technology Issues: Represents What Incremental Environmental Compliance Costs “Might have Been” –Technology: Estimates Increased Costs Due to Limited Technology R&D and Less Technology Penetration.

18. 18 Retroactive Environmental Metrics - Incremental Cost Cases Industry Only Case (Without DOE) –Represents the Incremental Environmental Cost Outcome that Might have Occurred without DOE Environmental Program Participation –Estimates the Past Level of DOE Environmental Program Activity (DOE Program “Weighting Factor”) –DOE Program “Weighting Factor” Establishes the Industry Only Case Incremental Environmental Costs

19. 19 Retroactive Environmental Metrics - Incremental Cost Cases Industry Only Case, Incremental Environmental Compliance Cost Example: Industry Only Incremental Cost = ( Stringent Case Cost - With DOE Incremental Cost) x (Estimated DOE Program Weighting Factor) Industry Only Incremental Cost = ($1000/well - $0/well) x (0.40) = $ 400/well

20. 20 Retroactive Environmental Metrics $ Incremental Environmental Compliance Cost 1996 2000 $0 Stringent Case Industry Only Case With DOE Case = Baseline ONGPT Environmental Program Benefit

21. 21 Retroactive Environmental Metrics - Incremental Cost Cases DOE Program Weighting Factor Represents the Estimated Level of ONGPT Environmental Program Involvement or Participation in each Environmental Issue Considered in the Retroactive Metrics Analysis This Estimate is Critical to Defining the Industry Only Case and thus the Total Environmental Program Benefit

22. 22 DOE Environmental Program Weighting Factors - Regulatory Issues Regulatory Weight 1.- Passive comments on rulemaking Written comments 0.05 - 0.15 2.- Active comments on rulemaking Fund analysis that provides basis for comments 0.15 - 0.25 3.- Facilitate dialogue between Industry and Government 0.10 - 0.25 4.- Collect data on industry practices Baseline practices for rulemaking process 0.20 - 0.30 5.-Active data collection for rulemaking process that involves new research 0.30 - 0.40 6.- Enforcement action avoidance: Operator compliance, workshops, guidance documents, general permits, Risk Based Data Management. 0.40 - 0.50

23. 23 DOE Environmental Program Weighting Factors - Technology Issues Technology Weight 1.- Provide some project funding with resulting “report on shelf” 0.05 - 0.15 2.- Cooperative research agreements such us Petroleum Environmental Research Forum 0.15 – 0.25 3.- Fund research in initial development stage, pilot projects, seed money, etc 0.10 - 0.25 4.- Collect data on industry practices Baseline practices for rulemaking process 0.20 - 0.30 5.- Active data collection for rulemaking process that involves new research 0.30 - 0.40 6. -Enforcement action avoidance: Operator compliance, workshops, guidance documents, general permits, Risk Based Data Management 0.40 - 0.50

24. 24 Retroactive Environmental Metrics - Modeling Considerations Oil and Gas Environmental Cost Model –Model generates reservoir-level incremental environmental costs (as opposed to state-level environmental costs) on issue by issue basis. –Model allows random assignment of full incremental compliance cost to an appropriate percentage of potentially affected reservoirs For example: Scenario ‘A’ assigns $1000/well to 20% of reservoirs in State ‘B’. Twenty percent of reservoirs are selected & receive full $1000/well. Previously, all wells in State ‘B’ would have received $200/well.

25. 25 Retroactive Environmental Metrics - Modeling Considerations Oil and Gas Environmental Cost Model, cont. To avoid double counting of DOE Environmental Program Benefits claimed in 2000 Metrics: Benefits Claimed for Retroactive Environmental Metrics start during 1996 - 2000 and end during 2000 - 2005, depending upon when each issue starts in the 2000 Forward Environmental Metrics Exercise.

26. 26 Retroactive Environmental Metrics - Modeling Considerations, cont. $ Incremental Environmental Compliance Cost 1996 2000 $0 Stringent Case Industry Only Case With DOE Case = Baseline Retroactive Environmental Program Benefit 2005 2003 Forward metrics issue starts in 2003. Projected to 2020. Stringent Without DOE With DOE Future DOE Program Benefit EXAMPLE Retroactive Metrics Issue: Program Benefit Claimed for 1996 - 2003

27. 27 Retroactive Environmental Metrics - Modeling Considerations OSAM & GSAM –Baseline environmental costs have been reviewed & updated to incorporate new data/analyses. –OSAM & GSAM to be calibrated to match actual production & price tracks for 1996-2000. –Models will be run for 1995 - 2005.

28. 28 Retroactive Environmental Metrics - Baseline Environmental Costs Data Sources: –Assessing the Cost of Environmental Compliance. IOGCC, December 1999. –Basic Petroleum Data Book. API, July 1999. –1997 Baseline costs Updated for 1998 Metrics. ICF, 1998 –Petroleum Industry Environmental Performance. API, May 1998

29. 29 Retroactive Environmental Metrics - Average Baseline Compliance Costs (for 1996 - 2000; all regions, depths, resource types)