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VALUATION OF OIL AND GAS RESERVES AT THE WIPP SITE
ADDITIONAL AREA, AND COMBINED AREA
Peter C. Anselmo
SUMMARY
The concern of this section is presentation of valuation results and discussion of
the method by which estimated oil and gas reserves at the projected Waste Isolation Pilot
Plant (WIPP), the designated additional area around the plant, and the combined area
comprising both WIPP and the additional area were evaluated. A Monte Carlo sampling
method was used to generate random walk price data for the period 1995-2030. Results
are presented first, then the method used is briefly described.
RESULTS
Oil and gas deposits at the WIPP site, additional area, and combined (WIPP site
plus the additional area) area were valued via simulation using reserve data from the New
Mexico Bureau of Mines & Mineral Resources (MNBMMR) and random-walk modeling
of market commodity prices. A 15 % discount rate was used for the base case oil and gas
valuation, and data are provided for the simulations using a 10% discount rate. Net
Present Values (NPV) were calculated for cash flows anticipated from oil and gas
development activities from the perspective of a single firm. NPVs are indicated in the
attachments as PV CFlow. These values are expected net present values, denoted
E(NPV), and represent the average of the present values of all the cash flows associated
with each simulation run.
Total revenue present values were also calculated and are provided as an
indication of the overall worth of oil and gas deposits at the actual WIPP site and in the
additional and combined areas. Total revenue present values are presented in the
attachments as PV Rev. Like E(NPV) values, revenue values are expected present values,
as they are the average of the expected present values generated by each simulation run.
The expected present value (as of l1anuary 1995 - a point discussed below in the
section of the repon dealing with the simulation method used) of combined oil reserves is
$390 million at a discount rate of 15 %. A histogram of the expected present value
(E(PV) results for 1008 simulations (all histograms presented in this section represent
1008 simulation runs) is presented in Figure 1. The distribution is symmetric at around
$400 million, and the likelihood an E(PV) value lower than $300 million or higher than
$500 million is small. As may be seen in Table 6 and in the attached appendix, the
E(PV) of WIPP site oil reserves is estimated to be $130 million, and the E(PV) of
additional area reserves is estimated to be $260 million. The E(PV) for the WIPP and
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