BOEM uses a stochastic simulation model to assess the resource economic value of the OCS tracts offered for lease through a discounted cash flow analysis using the projected oil and gas prices. The stochastic approach allows BOEM to account for the uncertainty of the input parameters as well as to quantify the risk associated with exploration and production of hydrocarbons.
The process includes developing a complete geological and geophysical interpretation of the subsurface; evaluating relevant engineering parameters such as recovery factors and production profiles; and modeling the exploration and development activities, including the scheduling of capital expenditures and operating costs. Much of the geologic and engineering data (e.g., areal extent and thickness of the hydrocarbon pay zone, porosity, initial water saturation, recovery factors, production rates, projected oil and gas prices, drilling and facilities costs, etc.) carry varying degrees of uncertainty. BOEM recognizes these uncertainties by utilizing a Monte Carlo modeling technique which provides a means to mitigate the subjectivity of each individual variable and yet recognize the probabilistic nature of all input variables affecting the evaluation outcome through multiple simulation trials.