
C:\
dmautop\
temp\
DCTM_
ARP.
wpd
MEMORANDUM
TO:
File;
Carey
Johnston,
USEPA/
EAD
FROM:
Mary
Willett
and
Anne
Jones,
ERG
DATE:
August
12,
2004
SUBJECT:
Lost
Production
­
New
O&
G
Extraction
Fixed
Facility
Costing
This
memorandum
documents
the
assumption
that
there
will
be
no
lost
production
for
new
oil
and
gas
(
O&
G)
extraction
fixed
platform
facilities
due
to
incremental
316(
b)
Phase
III
compliance
costs.

Lost
production
for
an
O&
G
extraction
facility
could
occur
if
an
oil
company
made
a
decision
to
shut
in
a
facility
early
due
to
the
incremental
costs
associated
with
cooling
water
intake
structure
operation
and
maintenance
(
CWIS
O&
M.)
The
decision
to
shut
in
a
facility
is
generally
made
on
an
annual,
semi­
annual,
or
at
most
quarterly
basis.
At
the
end
of
a
fixed
facility
production
life,
the
costs
of
production
would
be
in
the
$
3.7
million/
year
range
and
the
incremental
CWIS
O&
M
costs
are
estimated
to
be
in
the
$
37,000/
year
range.
Therefore,
the
incremental
CWIS
O&
M
costs
are
approximately
0.1
%
of
the
production
costs
and
would
not
impact
a
quarterly,
semiannual
or
annual
shut
in
decision.
Well
shut
in
decisions
will
be
much
more
sensitive
to
the
price
of
oil
and
gas.

Preliminary
economic
analysis
shows
that
the
costs
of
the
Phase
III
rule
are
highly
unlikely
to
have
any
production
effects
on
new
deepwater
platforms,
nor
are
these
costs
expected
to
pose
a
barrier
to
entry
to
new
oil
and
gas
development.
The
economic
modeling
does
not
indicate
that
production
is
very
sensitive
to
costs
estimated
at
the
current
order
of
magnitude.
