SOCIOECONOMIC IMPACT OF INFILL DRILLING RECOVERY FROM

CARBONATE RESERVOIRS IN THE PERMIAN BASIN,

WEST TEXAS

"_ DTICco ~ELECTE

FS1• AUG 2 61994S~F

O A Thesis

by

BRYAN KEITH JAGOE

Submitted to the Office of Graduate Studies ofTexas A&M University

in partial fulfillment of the requirements for the degree of

MASTER OF SCIENCE

This doeuini has b~et cpprovdubiw c14i z|aba sd ?€1 its "•

May 1994

(V)~

Major Subject: Petroleum Engineering

DI'MC QT"r L'.

94825 180~~2 5, 1 8 I

SOCIOECONOMIC IMPACT OF INFILL DRILLING RECOVERY FROM

CARBONATE RESERVOIRS IN THE PERMIAN BASIN,

WESTTEXAS

A Thesis

by Accesion For

NTIS CRAMI

BRYAN KEITH JAGOE NTIC TAB CUranrounced UJustificationJustificatin B......... . . . ..............

Submitted to Texas A&M University Distbutionl

in partial fulfillment of the requirements Availability Codes

for the degree of Avail and IorDist Special

MASTER OF SCIENCE

Approved as to style and content by:

Ming H. Wu Robert R. Berg

r of Co ee) (Member)

Ronald M. Brimhall James E. Russell

(Member) (Head of Department)

May 1994

Major Subject: Petroleum Engineering

fill

ABSTRACT

Socioeconomic Impact of Infill Drilling Recovery From Carbonate

Reservoirs in The Permian Basin, West Texas. (May 1994))

Bryan K. Jagoe, Texas A&M University

Chair of Advisory Committee: Dr. Ching H. Wu

This investigative study presents results on thesocioeconomic impact of infill drilling recovery from carbonatereservoirs in the Permian Basin. The amount of incremental oiland gas production from infill drilling in 37 carbonate reservoirunits is established using decline curve analysis. The increase inincremental recovery is used to compute the amount of increasedrevenue and taxes (local, state and federal). A job market analysisis performed to determine the impact of these increased revenueson primary jobs in the oil industry and secondary jobs in thecommunity. Secondary jobs are generated by oil industry workersspending money in the community. The appropriation of theestimated taxes is analyzed to determine which governmentagencies benefit most from the infill drilling.

The observations from this research are that most of the SanAndres and Clearfork carbonate reservoir units in the PermianBasin are potentially profitable to infill drill. The incremental oiland gas production from infill drilling could maintain or createmany primary jobs within the local oil industry and also secondaryjobs in the community. The incremental production could generatetaxes which would greatly benefit certain local, state, and federalgovernment agencies.

This research proposal presents a methodology to calculatethe amount of incremental oil and gas production from infilldrilling, calculate the amount of revenue and taxes generated fromthe incremental production, determine how the increased reserves

V

DEDICATION

This thesis •dicated to:

My faith in Christ which gave me the strength and wisdom tocomplete the task at hand and my beautiful wife Donna Ann

Jagoe and our lovely daughter Elizabeth Anne Jagoe, I shallalways be grateful for the love, guidance, support, and inspirationthey have given me through the course of time. To the rest ofmy family, thank you for your orayers of support.

vi

ACKNOWLEDGEMENTS

The author would like to thank the following individuals andinstitutions for their contributions to this work:

Dr. C. H. Wu, for serving as Committee Chairman, and for hissupport and encouragement during this investigation,

Dr. R. M. Brimhall, for supervising this research as a committeemember,

Dr. R. R. Berg for his helpful inspiration and dedication to me inhelping me finish,

Zaheer Malik, without his help and encouragement, I could havenever finished,

To Improved Oil Recovery Consortium (IORC) members, MichaelBeladi, Jesus Alberto Canas, Guoping Xue, Hongbin Shao,Shamsuddin Shenawi, Bagus Tandia and especially Guo-Fag Lu fortheir cooperation,

To the Bureau of Economic Geology (BEG) University of Texas,Austin, for providing all the data needed to carry out this study,

To the State of Texas Comptrollers office and the U.S. Departmentof commerce, economic development agency for their technicalsupport and assistance,

To the United States Navy and the citizens of the United States forfurnishing the means for me to return to graduate school.

iv

affects the job market in the communities and how the increasedtaxes help government agencies. These results could be helpful inbolstering the oil industries image in local town meetings, ingovernment permitting processes, and in lobbying state andfederal congresses to acquire investment aid or tax breaks for oilfield investment projects.

The technical contributions of this research proposal are asfollows: (1) presents a methodology including the parameters usedin determining profitable infill drilling projects in the San Andresand Clearfork units of the Permian Basin, (2) develops a correlationbetween the increased revenues of infill drilling and the creationof jobs in the Permian basin communities, and (3) develops acorrelation between the increased tax revenues of infill drillingrecovery and the benefits to local, state, and federal agencies.

vii

TABLE OF CONTENTS

Page

ABSTRACT .............................................................................................................. iii

DEDICATION ........................................................................................................... v

ACKNOWLEDGEMENTS ..................................................................................... v i

TABLE OF CONTENTS ............................................................................................ vii

LIST OF TABLES ..................................................................................................... x

LIST OF FIGURES ................................................................................................... xi

CHAPTER I INTRODUCTION .............................................................................. 1

CHAPTER II LITERATURE REVIEW .............................................................. 6

2.1 Carbonate Reservoir Infill Drilling Recovery ....................... 62.2 Reservoir Data Base ........................................................................ 72.3 Link Between Oil Production and Jobs .................................. 72.4 Tax Collecting and Appropriation Structure ........................ 92.5 Social, Political and Economic Impact of Oil ........................ 9

CHAPTER III EVALUATION OF DECLINE CURVE ANALYSIS ........... 10

3.1 General Description of Data Base ............................................ 1 03.2 Parameters for Decline Curve Analysis .................................. 1 13.3 Observations From the Decline Curve Analysis ................ 113.4 Incremental Oil Recovery From Infill Drilling .................. 1 23.5 Correlating the IORC Infill Drilling Development

Units to all the Permian Basin Clearfork and SanAndres Reservoirs ........................................................................ 1 3

viii

Page

CHAPTER IV THE AMOUNT OF REVENUE FROM OILPRODUCTION .......................................................................... 29

4.1 General Description ..................................................................... 294.2 Basic Assumption, ........................................................................ 294.3 Revenue From Incremental Infill Drilling

Production ....................................................................................... 304.4 Extrapolating Out to the Entire San Andres and

Clearfork Reservoirs in the Permian Basin ........................ 324.5 Percent of Federal Income Tax ............................................ 3 334.6 Rule of Thumb in Computing Revenue .............................. 34

CHAPTER V OIL PRODUCTION CREATES JOBS ....................................... 68

5.1 General Discription ........................................................................ 685.2 Jobs From Revenue ....................................................................... 685.3 Texas Input/Output Model ........................................................ 695.4 The U.S. Department of Commerce Method ....................... 705.5 Southwest Econometrics Model ............................................... 705.6 Types of Jobs Created by the Increased Revenues ...... 715.7 Jobs for Petroleum Engineers ................................................... 735.8 Rules of Thumb in Creating Jobs ............................................. 74

CHAPTER VI INFILL DRILLING OIL PRODUCTION GENERATESTAX REVENUE .......................................................................... 91

6.1 General Description ..................................................................... 9 16.2 Advalorem Tax Revenue ............................................................ 916.3 Severance Tax Revenue ............................................................ 926.4 Federal Income Tax Revenue .................................................. 936.5 Expeditures of the Department of Energy Tax

Revenue .......................................................................................... 94

ix

Page

CHAPTER VII CONCLUSIONS AND RECOMMENDATIONS ..................... 108

7.1 Conclusions .......................................................................................... 1087.1.1 Revenue From Oil Reserves .......................................... 1087.1.2 Jobs From Oil Reserves ................................................... 1087.1.3 Tax Revenue From Oil Reserves ................................. 109

7.2 Recommendations and Commentary ........................................ 1107.2.1 Enacted Legislation ................................................... 1107.2.2 Future of Petroleum Industry ..................................... 111

REFER NCES .............................................................................................................. 1 13

APPENDIX A DESCRIPTION OF S. 828 (ENHANCED OIL AND

GAS RECOVERY TAX ACT OF 1989) .................................. 119

APPENDIX B THE TEXAS INPUT/OUTPUT MODEL TABLE,1986 UPDATE ............................................................................ 133

V IT A ........................................................................................................................... 14 2

x

LIST OF TABLES

Table Page

3.1 Parameters Used in Tables ................................................................. 173.2 Clearfork Data Base .................................. 183.3 San Andres Data Base .......................................................................... 213.4 BEG Atlas of Major Texas Oil Reservoirs (Clearfork) .............. 243.5 BEG Atlas of Major Texas Oil Reservoirs (San Andres) ......... 253.6 Summary of Reservoir Properties From all Three

R esources .................................................................................................. 2 73.7 Average Wellhead Oil Price for Texas Oils .................................. 28

4.1 Parameters Used in Tables ................................................................. 394.2 The Estimate of Costs .......................................................................... 394.3 Summary of the Economic Evaluation for IORC Clearfork

U nits (8) ...................................................................................................... 4 04.4 Summary of the Economic Evaluation for IORC Clearfork

U nits (10) ................................................................................................... 4 14.5 Summary of the Economic Evaluation for IORC San

A ndres U nits (8) ..................................................................................... 424.6 Summary of the Economic Evaluation for IORC San

Andres Units (10) .................................................................................. 454.7 Incremental Oil Production Per Year for IORC Clearfork

U nits ........................................................................................................... .. 4 84.8 Incremental Oil Production Per Year for IORC San

A ndres U nits ................. ........................................................................... 5 24.9 Incremental Oil Prod. Revenue Per Year for Clearfork

R eservoirs ................................................................................................ 5 84.10 Incremental Oil Prod. Revenue Per Year for San Andres

R eservoirs ................................................................................................ 6 2

5.1 Incremental Jobs Created Per Year Due to ClearforkProduction ............................................................................................... 7 9

5.2 Incremental Jobs Created Per Year Due to San AndresProduction ............................................................................................... 84

5.3 Earnings'of U.S. Engineers Per Year, 1989 ................................... 90

6.1 Tax Revenue and Expenditures ..................................................... 1036.2 Federal Income Tax Calculations ........................................................ 107

xi

LIST OF FIGURES

Figure Page

1.1 Clearfork units field location map .................................................... 41.2 San Andres units field location map ............................................... 5

3.1 Example of curve fitting using computer programIPG R A F ....................................................................................................... 1 5

3.2 Simplified stratigraphic column and relative oilproductivity of the Permian Basin ................................................. 16

4.1 Combined incremental oil production per year for IORCClearfork and San Andres units ...................................................... 35

4.2 Combined incremental oil production revenue per yearfor IORC Clearfork and San Andres units ..................................... 36

4.3 Combined incremental oil production per year for allPermian Basin Clearfork and San Andres reservoirs ............ 37

4.4 Combined incremental oil production revenue per yearfor all Permian Basin Clearfork and San Andresreservoirs ................................................................................................... 3 8

5.1 Incremental jobs created per year from the combinedrevenue of the Clearfork and San Andres IORC units ........... 75

5.2 Incremental jobs created per year from the combinedrevenue of the Clearfork and San Andres formations inthe Permian Basin .................................................................................. 76

5.3 Growth of industries in the United States .................................. 775.4 Number of engineers employed in the United States ............. 78

6.1 Advalorem tax per year for the IORC units ............................... 956.2 Advalorem tax per year for the Permian Basin

reservoirs ................................................................................................... 9 66.3 Midland County 1992 budget .......................................................... 976.4 Ector County 1992 budget .................................................................. 986.5 Severence tax per year for the IORC units ................................ 996.6 Severence tax per year for the Permian Basin

reservoirs ................................................... 1006.7 State of Texas 1992 budget .................................................................. 1016.8 Federal Government 1992 budget ..................................................... 102

CHAPTER 1

INTRODUCTION

Since the drilling of the first oil well by "Colonel" Edwin L.Drake in 1859 near Titusville, Pennsylvania, a large sector of the

United States population have earned a living from the oil

ind-igtry. 2 6 Many towns and cities have developed, and then laterdisappeared depending upon the amount of oil and gas produced

near their community. Throughout the years, the prosperity and

livelihood of West Texas has been lnked to the amount of oil and

gas production .. , the Permian Basin. Today, the citizens are

heavily dependent upon the oil and gas production thus creating aneed to find new recovery technologies, -. g. infill drilling.' 8

The purpose of this research is to study the correlation

between the amount of incremental infill drilling recovery, andthe revenue plus jobs generated by this incremental recovery.This information would be very useful to the oil companies

investing in the Permian Basin. The local, state and federal

governments would be interested in this study as well to offer

incentives for oil companies to drill in this region. The Chamber of

Commerce usually promotes these types of business incentives for

towns and cities. However, in this situation, the government must

take control because the oil fields are scattered throughout manytowns.

The subject topic has been studied by the major oil

companies for investment and lobbying purposes. But, as themajor oil companies migrate overseas, they take with them the

mechanism to make large investments which generate revenue

and create many jobs in the area. They also take with them the

This proposal follows the style of Journal of Petroleum Technology.

2

oil lobby power in the Congresses of Texas and of the UnitedStates. 2 7 As more independent oil companies move into WestTexas, the oil companies and the citizens will have to combineforces with lobby groups such as the American PetroleumInstitute (API)' 8 and the Independent Petroleum Association ofAmerica (IPPA). These lobby groups could formulate ways tolink improved oil recovery such as infill drilling with revenue andjobs. Then, they can lobby the state and federal government forhelp with funding of large investment projects and tax reliefs.These actions will keep the economy of the Permian Basin strongand its citizens employed.2 7

Two good infill drilling targets are the San Andres andClearfork formations because they are two of the most prolific oilproducers. Fig. on p.4 and p.5 are location maps for majorClearfork and San Andres waterflood units, respectively. Thesecarbonate reservoir units are complex and heterogeneous,thereby, responsive to infill drilling development."5 Also, theyare good targets because the San Andres carbonates combinedwith Grayburg Formations dominate the Permian Basin's oil-resource base, containing more than 50 percent of the original oilin place (OOIP) and 56 percent of the estimated ultimaterecovery. The Clearfork carbonates combined with Sprabarry-Dean sandstones account for nearly 25 percent of the PermianBasin's OOIP but only 13 percent of the ultimate recovery2 8 .Much more oil remains in these reservoirs and is presentlyunrecoverable due to the large well spacing, approximately 37acres per well.

The present status of these reservoirs is that most havebeen discovered, drilled, and waterflooded. Interest in thesereservoirs is rising due to the large incremental infill wellrecoveries observed in the Clearfork and San Andres formations.The infill wells are placed between existing wells and areseparated by standard distances defined by regulatory agencies.This allows the new wells to capture the oil and gas that cannotbe recovered by the existing wells. 15

3

The results of this research will show a methodology to

calculate the incremental oil and gas production from infilldrilling recovery, calculate the amount of revenue and taxes

generated from the incremental production, determine how theincreased revenues affect the job market in the communities and

how the increased taxes help government agencies. See Fig. 1.1and 1.2 as follows.

4

CLEARFORK UNITSFIELD LOCATION MAP

1. NAN ejjat Vales2. SWEIm "/PAA AC I Z Sew"s Rimsn3. ULARASAMMEoAFgR COS -(

S. USUTS"ImmT cy~6. 901'UC0111. ft[.TICEuf Son LAnkie

9. PURTICE SPUIM j~ ~ Go~u11. MtElICE 6M/I6700 17F .W Frie

W3 WAM17MU C~v/U U. Cla Fr

14. MASMA MUMm L. Clea, ForkIS. 0LS.UlaeZKI'AllIW6 LEE WMISCEAEST ____________________

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n2. 10111 ZILEI *CF* 6

4:14

to oal aO a.0 ONICNILL

A 0Fig. 1.1-Clearfork units field location map.

5

SAN ANDRES UNITS

ffc~tmlTFIELD LOCATION MAP

I. MIR l*5*2. FSm IPAUcNOS9 *sas

3.1F1Im SOWAI't %V- a

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13 VASOAML -SA Lubbock14. KOM 31 a*ItIs. LIEWLLMA Cis 0 -u-

14. SLAUtICK SA* T U*Ho

IS. SEHIMLI..ESA' WIT20. W- WUUCLE SA'21. Uk3E '$A' okm er

20 GainecoN 0 471

Fig 1.-Sn Adrs uit fieldlctin mp

6

CHAPTER II

LITERATURE REVIEW

2.1 Carbonate Reservoir Infill Drilling Recovery

The majority of the available literature on infill drilling inthe United States is related to West Texas carbonate reservoirs.The reason is that many of the United States' giant oil fields arelocated in the Permian Basin. The Permian Basin contains 21% ofthe United States' Original Oil in Place. Much of the oil remains inthese giant reservoirs and is unrecoverable under existingoperating strategies. But, these carbonate reservoirs areparticularly complex and thus responsive to infill drillingdevelopment. '

5

A recurring theme in the reviewed papers eventually leadto the same conclusions as to the success of infill drilling. Thefirst conclusion was eluded to previously, i.e complex geology.Individual pay intervals are typically thin, spread over thick(gross) sections of complex carbonate rock, and limited in arealextent. Wells are normally concurrently completed in many suchpay intervals. Many articles 2-6 reported that improving the pay

continuity between wells is a primary reason for the success ofinfill drilling. Barber et.al.6 reported that West Texas carbonatereservoirs are more discontinuous than originally believed fromstudies conducted on units with varying well spacings.

The second conclusion is, within pay intervals, the rock ishighly heterogeneous. This results in lower than expectedprimary and waterflood recoveries because the oil is slow tomove from areas where the rock is tighter. V.J. Driscoll 1 2

describes the advantages of infill drilling in low permeabilitywaterfloods. He illustrated nine factors affecting recoveriesincluding pattern and improved sweep efficiencies. L.H. Stiles6

7

studied the effect of infill drilling to increase the reserves in ninedifferent fields located in Texas, Oklahoma, and Illinois. He foundthat infill drilling can enhance both area] and vertical sweep

efficiencies, thus improving oil recovery.The third conclusion is that these formations can be

anisotropic. This results in reservoirs preferentially flooding in a

particular direction. 15

2.2 Reservoir Data Base

The Improved Oil Recovery Consortium at Texas A&M

University established a data base for San Andres and Clearfork

reservoirs to study the impact of infill drilling on oil recovery and

economics. The data base includes thirty-seven carbonate

waterflood units ranging in size from 3 to 2,166 MMSTB original

oil-in-place, and incremental infill drilling recoveries ranging

from 225 to 558,986 MSTB. This database is used in thisresearch paper to study the socioeconomic impact of infill drillingrecovery from carbonate reservoirs in the Permian Basin.16" 17

2.3 Link Between Oil Production and Jobs

Most of the literature linking enhanced oil recovery, the

local economy and jobs has been government statistical reports.

The Texas Comptroller maintains an economic computer program

called "The Texas Input-Output Model" which correlates the

number of jobs to gross production revenues at the production

well head. Also, the model shows how Texas industries and the

oil industry depends upon each other. 29 Another model which is

used to calculate the national economic outlook is the U.S.

Department of Commerce Detailed Input/Output model of the U.S.

Economy. This model is used to calculate the effects of the

economy on a national level.Noel Tyler4 0 and Mark Holtz40 at the Bureau of Economic

Geology said that the Bureau had no method to compute oil

8

production into dollars but he contracts this type of calculation toSouthwest Econometrics, Austin, Texas. A sample of thiscalculation is found in the report to the governor of Texas 1989.25

The governors report is a study on this topic to support bill S.828,"The Enhanced Oil and Gas Recovery Tax Act of 1989," in the

United States Congress. The bill would provide tax incentives forthe removal of crude oil and gas through enhanced recoverytechniques and tax credit for research and development todiscover improved tertiary recovery methods. 2 5

Many other agencies were contacted as well but did notprovide a link between oil production and jobs. At Texas A&MUniversity, the following agencies were contacted; the EconomicsDepartment and the Director of the Center for Business Economicat Texas A&M University.`0 They did not know of a method toconvert oil production into jobs.

In the Bryan College Station area, the following agencieswere contacted. The City of Bryan city planners,40 the city

engineer 40 and the county auditor of Brazos County40 and theyhad no link between petroleum production and jobs.

In Midland, Texas, the following agencies were contacted.The Midland Chamber of Commerce, 4 0 the Permian BasinPetroleum Association, 40 the County Auditor,4 0 and the SchoolBoard Councils of Midland and Ector counties. 40 They were notaware of a link. The auditor and school boards sent a copy oftheir financial audit which will be discussed in Chapter 6.

In Washington D.C., the following agencies were contacted.The American Petroleum Institute (API), 40 the Department ofEnergy, Oil and Gas Processing Office40 and both recommended tocheck the Department of Commerce Input/Output model whichwas mentioned earlier.

In Austin Texas, the following agencies were contacted. TheUniversity of Texas at Austin Economics Department, 40 the Bureauof Business research,40 the Petroleum Extension Service at U.T.Austin,4 0 the Texas Commerce Commission40 and the the RailroadCommission. 40 None had any link between oil production and

9

jobs. Even though the Texas Railroad Commission does notperform economic analysis on the oil industry, they were veryhelpful in pointing out agencies with information on the

petroleum industry.A non-government study by G. D. Krueger4" has investigated

the types of jobs which will be created if the oil price increases inthe United States oil industry. 2 0

2.4 Tax Collecting and Appropriation Structure

The literature describing how the oil industry is taxed andthe appropriation of the tax money is found in governmentreports. For local governments, the tax revenue and expendituresare found in the county auditors report and the county schoolboard financial report. 30°32 For the State of Texas, the financialinformation is iocated in the Texas Comprehensive AnnualFinancial Report. 33 Finally, the federal financial information is inthe Budget of the United States. 34 These financial reports arepublished each year by the respective agencies. This researchpaper studies these reports and determines the impact of oil andgas revenues on the well being of the local community.

2.5 Social, Political, and Economic Impact of Oil

The literature reviewed on the social, political and economicimpact of oil can be summed up in the following way. The impactof the oil production increase will affect the redistribution ofeconomic activity across the nation. This increase will mainlystimulate the growth in the under-employed regions of thecountry. This growth will most likely result in an overall increasein U. S. economic activity and the increased production could helpbalance the foreign trade deficit. Finally, the most importantpositive economic impact of increased oil production is the UnitedStates reduced dependency upon imported oil especially at a time

of a foreign oil shortage.18" 20

10

CHAPTER III

EVALUATION OF DECLINE CURVE ANALYSIS

3.1 General Description of Data Base

The. first step in this economic study of infill drilling

recovery is to assemble a reservoir data base for analysis. The

data collected for this research is stored on a computer data base

created by' the Improved Oil Recovery Consortium (IORC) at Texas

A&M University. The data base is large enough to be statistically

relevant. Pertinent information was collected to include as many

reservoir, rock, fluid and geologic characteristics as could be

obtained from public records and operators. Sixty waterflood

units which have had a substantial amount of infill drilling

development were studied. But only twenty-two Clearfork and

twenty-one San Andres waterflood units were considered in the

final analysis due to the amount of information available. Table

on p.17 explains the abbreviations used in the enclosed tables.

The extensive database of. information is compiled in Tables on

p.18 and p.21.This economic analysis will study the Clearfork and San

Andres formations which will be evaluated in the same manner

due to the similarity of the following factors: 1) geographic age,

2) depositional environment, 3) geographical location, 4) drive

mechanism and 5) lithology. Data was gathered from Forms H-I

and W-2 and engineering and geological reports on file at the

Texas Railroad Commission. The form H-I is the application to

inject fluid into a reservoir productive of oil or gas. Companieswho operate units in this study also contributed much

information. Precision and consistency are of primary concerns.

The porosities and water saturations, key reservoir properties

normally obtained from logs, were obtained from form H-I. The

information from this form is valuable to this study because

11

operators of the units file the form many years after primary

production has been established and the long production history

has been analyzed. Also, the OOIP is recorded on this form. The

information received directly from the operators is particularly

useful because they have further improved their estimates of

reservoir properties following detailed reservoir studies of logs,

cores, production, pressures and other data.17

3.2 Parameters For Decline Curve Analysis

Estimates of infill drilling recoveries are obtained from

production decline curve analysis. An interactive commercial

computer graphics program called IPGRAF by Energy Software

International (ENSYTE) is used to find the best curve-fits. An

example is shown in Fig. on p.15. Production curve segments

could be isolated and expanded for better resolution. Often, curve

smoothing, editing, and automatic curve-fit routines were utilized

to determine the best production rate of decline. More often than

not, decline rates after infill development were similar tW those

following waterflooding. Attempts were made to isolate and

nullify the effects of enhanced oil recovery (EOR) methods which

are present in only a few units. Other assumptions required were

abandonment production rTates. Economic limits of 3 BOPD per

active well are used to calculate the final rate for primary

development, and 3 BOPD per active production and injection well

are used during waterflooding and infill development stages1 .

3.3 Observations From Decline Curve Analysis

Tables on p.18 and p.21 list the important economic datawhich is obtained from the decline curve analysis. In order to

establish that reservoirs in the Clearfork and San Andres

formation can be economically evaluated in the same manner, the

following reservoir properties and production performances are

compared for similarities. Well spacings during primary recovery

12

stages are the same between the two formations with anarithmetic mean (mean) of 51 acres per well. The San Andres hasa lower well spacing during waterflood and infill development

stages which is 34 and 25 acres per well respectively. The

spacing observed for the Clearfork units is 40 acres, and 28 acres

per well, respectively. The smaller well spacing may be due to

the fact that San Andres is shallower than Clearfork, and San

Andres wells are less expensive to drill and complete. Otherreservoir properties are similar between the formations such as

the mean pay thickness, porosity, permeability, and initial oil

saturation. The values for the San Andres are 74 feet, 8.88%, 6.93md. and 74.01%, respectively, and for the Clearfork, 79 feet,7.95%, 4.86 md. and 69.45%, respectively. Due to the similarity ofthese two formations, their reservoir and productionperformances will be evaluated in the same manner.

3.4 Incremental Oil Recovery From Infill Drilling

The production data shows that the OOIP of the IORC

Clearfork units ranges from 3 MMSTB to 1,029 MMSTB, and theIORC San Andres units ranges from 3 MMSTB to 2,166 MMSTB.Incremental infill drilling recoveries per unit ranges from 212 to98,561 MSTB in the Clearfork and 285 to 558,986 MSTB in theSan Andres. To calculate the percentage of infill drilling recoveryfor both reservoirs which will be extrapolated to the entirePermian Basin, the units flooded with C02 were excluded. C02injection is normally combined with infill drilling and it becomeshard to determine which recovery method accounts for what

percent of the incremental oil recovery as shown in Tables 3.2

and 3.3. The over all incremental infill drilling recovery for theIORC San Andres units is 6.39 percent of the OOIP or 174 MMSTB.

The incremental recovery for the IORC Clearfork units is 5.06

OOIP or 219 MMSTB.

13

3.5 Correlating the IORC Infill Drilling Development Units to allthe Permian Basin Clearfork and San Andres Reservoirs

To expand the economic study on infill drilling developmentto the entire Permian Basin, correlations will have to beestablished between the IORC units and the rest of the Clearforkand San Andres reservoirs in the Permian Basin. Fig. on p.16shows a simplified stratigraphic column and relative oilproductivity of the Permian Basin. The following correlation willshow that the IORC units are a good representation of all the SanAndres and Clearfork formations. The IORC units are compared totwo other resources which contain reservoir info. on the subjectformations for the entire Permian Basin. The first is the Bureauof Economic Geology (BEG) "Atlas of Major Texas Oil Reservoirs." 36

The reservoir properties are listed in Tables on p.24 and p.25.The 2nd. source is the BEG Geographical Circ. 89-4.28

Table on p.27 compares the reservoir properties of theabove two publications with the IORC units. The mean porosity,permeability and initial oil saturation are similar between threeresources. The IORC San Andres units mean values are 9.88%,6.93 md. and 74.01% and the BEG atlas San Andres reservoirmean values are 11%, 12 md. and 73% respectively. The BEGCircular does not contain this information. The mean values forthe IORC Clearfork units are 7.95 %, 4.86 md. and 69.45% and theBEG Atlas Clearfork reservoir mean values are 10%, 12 md. and72%, respectively.

The percentage of cumulative production versus OOIP andthe ultimate oil recovery versus OOIP are similar between theIORC units, the BEG Atlas reservoirs and the BEG Circular. TheIORC values for the San Andres units are 27.94% and 28.39%, theBEG Atlas reservoirs are 26.41% and 32.4% and BEG Circular are26.17% and 32.28%, respectively. The IORC values for theClearfork units are 21.88% and 26.20%, the BEG Atlas reservoirsare 20.03% and 22.79%, and BEG Circular are 13.19% and 16.26%,respectively. The ultimate oil recovery divided by OOIP is

14

slightly higher for the IORC Clearfork units compared to the othertwo references because the units in the IORC study have hadmore recent production information collected thus allowing forbetter production estimates. Also, more production history hasbeen collected on the IORC units. This comparison shows thatinfill drilling can extend the life of a Clearfork reservoir. Theultimate recovery divided by the OOIP is slighty lower on theIORC San Andres units because the IORC units have only beenwaterflooded and infill drilled and the recovery numbers in the

BEG Atlas San Andres reservoirs and the BEG Circular, whichaccounts for all the San Andres reservoirs in the Permian Basin,represent reservoirs in all stages of production including

Enhanced Oil Recovery (EOR).To hypothetically project the incremental infill drilling oil

recovery for the entire Permian Basin, the incremental recoveryis first calculated using the IORC data base. The incremental infill

drilling recovery for the San Andres is 6.39 percent of the OOIPwhich is accomplished by reducing the well spacing down to a

mean of 25 acres per well. This number will be extrapolated out

using the OOIP from the BEG Circular. Therefore, 6.39 percent ofthe entire Permian Basin San Andres formation's 53,910 MMSTBOOIP is equal to 3,445 MMSTB. The incremental infill drilling

recovery for the Clearfork is 5.06 percent of the OOIP which isaccomplished by reducing the well spa-ing to a mean of 28 acresper well. This number will be extrapolated out using the OOIPfrom the BEG Circular. Therefore, 5.06 percent of the entirePermian Basin Clearfork formation's 24,600 MMSTB OOIP is 1,245

MMSTB. This incremental infill drilling recovery will be usedagain in the economic analysis in chapter IV.

In Table on p.28, the average oil price in Texas since 1981is $23.45/bbl. The subject infill drilling projects began in 1981 aswell. Assuming the price will be constant at $16.00/bbl for the

next 35 years, the average price of oil is $18.00/bbl. Oil prices of

$18.00, $20.00 and $22.00 are used in this study. See Fig. 3.1

through 3.2 and Tables 3.1 through 3.7 as follows.

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17

TABLE 3.1-PARAMETERS USED IN TABLESAfld DEIFINITION

API Oil Specific Gravity.

ATLAS BEG "Atlas of Major Texas Oil Reservoirs," 1985

AREA Area of reservoir.

BEG Bureau of Economic Geology

C02 Units with C02 injection.

CUM PROD Cumulative oil production.

DEPTH Depth of reservoir.

FVF Formation volume factor.

GROSS Gross thickness.

INCOIL Incremental oil recovery from infill drilling.

IORC Inhanced oil recovery consortium at Texas A&M University

I R Ultimate infill drilling recovery efficiency; = 100*UIR/OOIP.

IWS Infill drilling Well Spacing.

NET Net thickness.

OIP-IIF Oil in place at the start of infill drilling.

OOIP Original oil in place.

PERM Permeability of reservoir.

POR Porosity.

PR Ultimate primary recovery efficiency; = 100*UPR/OOIP.

PRESS Initial reservoir pressure.

PROD TECH Latest production technologies use on the units.

PWS Primary well spacing.

REC EFF Ultimate oil recovery with known technologies/OOIP

SWI Initial water saturation.

SOl Initial oil saturation; =100.-SWI.

SOR Residual Oil saturation.

UIR Ultimate infill drilling recovery.

ULT RCVY Ultimate oil recovery

UPR Ultimate primary recovery.

UWR Ultimate initial waterflooding recovery eff.

VIS Viscosity of oil.

WR Ultimate initial waterflooding recovery eff.; = I00*UWR/OOIP.

WWS Initial waterflooding well spacing.

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28

TABLE 3.7-AVERAGE WELLHEAD OIL PRICE FOR TEXASOILS

($ Per Barrel)

1981 $35.061982 $31.771983 $29.351984 $28.871985 $26.801986 $14.731987 $17.551988 $14.711989 $17.681990 $22.36191 $19.04AVERAGE $23.45

29

CHAPTER IV

THE AMOUNT OF REVENUE FROM OIL PRODUCTION

4.1 General Description

The next step in this economic analysis is to find out how

much revenue is generated from the aforementioned infill dril',ing

recovery. This analysis is conducted using the San Andres LndClearfork infill drilling projects in the previous chapter. Theresults are extrapolated to account for the rest of the Clearfork

and San Andres reservoirs in the Permian Basin.

4.2 Basic Assumptions

The following major assumptions are made using thecomputer program PROPHET, provided by Energy SoftwareInternational (ENSYTE).17 The first assumption is that the averagewater injection to oil production ratio (WIOPR) is used instead of

the actual monthly water injection for the years beyond 1991.Before 1991, the actual water injection rates are used. The WIOPR

is defined as the average amount of water injection required forproducing one barrel of oil over the life of the infill drillingproject. The monthly water injection beyond 1991 is computed

by the product of the monthly oil production rate from the declinecurve analysis multiplied by the WIOPR.

The second assumption is the incremental oil and gas

production data used to calculate the monthly gas production

beyond 1991. The gas to oil ratio (GOR) is calculated by dividingthe total gas produced from the start of infill drilling by the totaloil produced during the infill drilling period. Then, take that GORand multiply it by the incremental infill oil recovery for each yearto find the incremental gas production for the years beyond1991.17 Incremental gas production will only be used in the IORC

30

data base units economic analysis and will not be extrapolated forthe Clearfork and San Andres reservoirs in the Permian Basin.

The following minor assumptions are also used in theeconomic evaluation. First, the evaluation for infill drilling overcontinuing waterflood operations start at the inception of the infilldrilling. The royalty is 12.5%, the cost of injected water is $0.20per barrel and the oil and gas prices are assumed to be constantover the project life. The infill drilling costs are allocated for eachyear when drilled but the well workover costs are expensed at thestart of infill drilling. Also, all economic indicators are evaluatedbefore and after federal income tax. The drilling & completioncosts, conversion costs, production and injection equipment costs,operating and maintenance costs, and workover costs are from theDOE Technical Report' and modified by a factor of 1.25 - 1.5.Some of these factors are tabulated in Table on p.39..Furthermore, the drilling and completion costs, and the productionand injection equipment costs are 30% tangible and 70%intangible. Finally, the combined state and local tax for oil is 4.6%of gross revenue and for gas it is 7.5% and the current federalincome tax laws are applied for the duration of the projects. 16

The net present value (NPV), discounted cash flow rateof return (DCFROR), and discounted profit to investment ratio(DPI) are used to evaluate the economics of infill drilling.However, the payout is not used for evaluation because allinvestments are not expensed up front at the beginning of eachproject.16

4.3 Revenue From Incremental Infill Drilling Production

Table on p.39 explains the parameters used in the tables tofollow. The results of the IORC data base units economic analysisare shown in Tables on p.40 through p.45. Three oil prices($18.00, $20.00 and $22.00 per barrel) and two values of WIOPR(8 & 10) are used to evaluate the economics of all 37 infill drillingprojects. In this study, the profitability is defined as a positive

31

net present value at a 15% discount rate. For comparison, Shell OilCorporation's goal is 12 percent return on their investment. 21 TheIORC data base units which have undergone C02 flood are notused in the analysis due to the high tertiary recovery rate. Basedon this assumption, the results are presented and discussed infour cases classified according to the reservoir, oil price and thevalue of WIOPR.

Table on p.40 shows the Clearfork units with the WIOPR of8. When the oil price is $18.00/BBL and the gas price is$1.80/MSCF, thirteen infill drilling projects are profitable. Whenthe oil price is $20.00/bbl and gas price is $2.00/MSCF fourteenprojects are profitable. When the oil price is $22.00/BBL and thegas price is $2.00/MSCF 18 projects are profitable.

Table on p.41 shows the Clearfork units with the WIOPR of10. When the oil price is $18.00/BBL and the gas price is$1.80/MSCF, thirteen infill drilling projects are profitable. Whenthe oil price is $20.00/bbl and gas price is $2.00/MSCF fourteenprojects are profitable. When the oil price is $22.00/BBL and thegas price is $2.00/MSCF 18 projects are profitable.

Table on p.42 shows the San Andres units with the WIOPRof 8. When the oil price is $18.00/BBL and the gas price is$1.80/MSCF, thirteen infill drilling projects are profitable. Whenthe oil price is $20.00/BBL and gas price is $2.00/MSCF fifteenprojects are profitable. When the oil price is $22.00/BBL and gasprice is $2.00/MSCF all 16 projects are profitable.

Table on p.45 shows the San Andres units with the WIOPRof 10. When the oil price is $18.00/BBL and the gas price is$1.80/MSCF, thirteen infill drilling projects are profitable. Whenthe oil price is $20.00/BBL and gas price is $2.00/MSCF fourteenprojects are profitable. When the oil price is $22.00/BBL and gasprice is $2.00/MSCF all projects are profitable.

32

4.4 Extrapolating Out to the Entire San Andres and ClearforkReservoirs in the Permian Basin

The IORC data base units economic evaluation is nowextrapolated to all the Permian Basin's Clearfork and San Andresreservoirs. Table on p.48 combines all the Clearfork IORC database units to compute the combined incremental infill drillingproduction per year. As shown in Tables on p.18 and p.21, all theinfill drilling projects were started at about 1981 so the beginningof all the projects were started at time zero before they wereadded together. This procedure is performed in this way in orderto create a typical profile of an infill drilling project in theClearfork or San Andres reservoirs as shown in Fig. on p.35through p.38. Table on p.48 also shows how long the overallcombined infill drilling projects will last. The Clearfork projectsfor example, will last 36 years. Then, the percentage of the totalinfill drilling production per year is computed. This percentage ofthe total infill drilling recovery per year will be used toextrapolate 36 years to find the yearly infill drilling productionfor the entire Clearfork reservoir in the Permian Basin as shownin Table on p.58. When this infill drilling production isextrapolated, the production is adjusted depending on how manyinfill drilling projects are economical at that oil price. Forexample, as shown in Table on p.48, only 14 out of 21 infilldrilling projects are profitable at $18.00/BBL producing 195MMSTB. This production is compared to the total possible infilldrilling recovery of 219 MMSTB, at the bottom of Table on p.27 inthe previous chapter, and then compute a multiplier of 89.02%.This multiplier assumes that only 89.02% of the possible 219MMSTB infill drilling recovery is profitable at $18.00/BBL asshown at the bottom of Table on p.58. Next, the yearly productionis multiplied by $18.00/BBL for the IORC projects and theClearfork reservoirs in the Permian Basin as also shown in Tableon p.58.

33

Tables on p.52 and p.62 shows the same procedure for the

San Andres infill drilling projects. The combined IORC San Andresunits will last 48 years. The yearly production and revenue forthe IORC data base units and all the Permian Basin San Andresreservoirs are calculated to 48 years as shown in Table on p.62.

For the IORC data base units, Fig. on p.35 shows theincremental production versus years for $18.00/BBL, $20.00/BBL,

and $22.00/BBL and Fig. on p.36 shows generated revenue versus

years for all three oil prices as well. The curves in these profiles

should be smooth but they have some anomalies and rough spots

due to moving large amounts of data from one large data base to

another. For the Clearfork and San Andres reservoirs in thePermian Basin, Fig. on p.37 shows the incremental productionversus years for $18.00/BBL, $20.00/BBL, and $22.00/BBL and

Fig. on p.38 shows generated revenue versus years for all three oilprices. Notice that when the oil prices increase, more oil is

economically recoverable. To find the results of other oil pricesnot listed above, the curves can be extrapolated proportionally up

or down to determine the reserve recovery or revenue for theother oil prices. Also, the total revenues increase at each rise inthe price of oil per barrel due to higher oil recovery and higher oil

sales price. In 1994, for every $1.00 change in the average price

of oil, the infill drilling incremental oil production changes

approximately 3 million barrels of oil a year or 8,400 bbl/day,roughly 0.4% of the total oil production from Texas. The State of

Texas produces 1.9 million barrels of oil per day.

4.5 Percent of Federal Income Tax

Tables on p.42 and p.45 show the percent of federal income

tax collected from the IORC San Andres infill drilling project.After analyzing the data, a mean of 45% is used to find out how

much federal tax is paid for the IORC data base Clearfork infill

drilling projects as shown in Tables on p.40 and p.41. The total

federal taxes paid for all the IORC data base Clearfork and San

34

Andres infill drilling projects are directly read from Table on p.40through p.45 Taxes are further discussed in Chapter VI. Thispercentage is used in Chapter VI to compute the taxes generatedfrom all the San Andres and Clearfork reservoirs in the PermianBasin.

4.6 Rule of Thumb in Computing Revenue

The U.S. Department of Commerce, Economic Development,ency uses a rule of thumb to calculate how much revenue will

be generated from investments in the communities. For everyoutside dollar that is introduced into the local economy 7additional dollars will be generated. An outside dollar forexample is like a tourist dollar. Another rule of thumb is from theCenter for Energy and Economic Diversification at the Universityof Texas at the Permian Basin. They use a rule of thumb thatevery dollar introduced in the community which was earned inthe community will generates 3 additional dollars for the samecommunity. This rule of thumb applies to the oil companiesbecause the table in appendix B shows that for every I oil fieldworker, 3 secondary jobs are created in the local community or

three additional paychecks from one paycheck. See Fig. 4.1through 4.4 and Tables 4:1 through 4.10 as follows.

35

INCREMENTAL OIL PRODUCTION PER YEAR FOR"IORC UNITS

28 $ 2 0 / B

24

~20

@$18.OOIBBL

Total Incremental Oilo 12Production =343 (MMBBLS)

A ... Average =7 (MMBBLSIYear)

08

4

00 10 20 30 40 s0

1995 YEARS

Fig. 4.1-Combined incremental oil -production per yearfor 1ORC Clearfork and San Andres units.

36

INCREMENTAL OIL PRODUCTION REVENUEPER YEAR FOR IORC UNITS

$600 $22.00/BBL

~ $500@ $20.00/BBL

00 $300

z $200

$300

Fig. .2-Cmbind inremetal oIlnproductaion Prevenuper earorIRCCearfork $6nd7 San llAndre

u t . ................

37

INCREMENTAL OIL PRODUCTION PERYEAR FOR PERMIAN BASIN RESERVOIRS

400 r

:3000BB

z

@ $18.OO1bbl

o100

00 10 20 3'0 40 5

199S YEAR

Fig. 4.3.-Combined Incremental oil production per yearfor all Permian Basin Clearfork and San Andresreservoirs.

38

F INCREMENTAL OIL PRODUCTION REVENUEPER YEAR FOR PERMIAN BASIN RESERVOIRS

~$8000$2C0/B

z o ~ otalRevenue =$72,800 (Million)~ $000AveageRevenue =$1,517 (Million/Year)'

$2000

00

0 1,0 T 20 3'0 4.0 501

199S YEARS

Fig. 4.4-Combined incremental oil production revenueper year for all Permian Basin Clearfork and SanAndres reservoirs.

39

TABLE 4.1-PARAMETERS USED IN TABLES

ARor DEFINITION

DCFROR Discounted cash flow rate of return

DPI Discounted profit to investment ratio

C02 Injected with carbon dioxide

EXCL Projects excluded from calculation

FED TAX Federal income tax.

INFINITY A DCFROR greater than 1.000.

LIFE Life of the Project.

NPV Net present value

NPV BEFORE TAXES NPV computed before federal income tax

NPV AFTER TAXES NPV computed after federal income tax

NPV DIFF. NPV before taxes minus NPV after taxes

NPV DIFF. % NPV Diff. divided by NPV before taxes

TOT RCVY Total amount of oil recovered in the project

TOTAL OIL RCVY The sum of oil recovered for that period.

% OF TOTAL RCVY TOTAL OIL RCVY1TOT RCVY.

TOTAL REVENUE TOTAL OIL RCVY*OIL PRICE

TABLE 4.2-THE ESTIMATE OF COSTS

INTERVAL DRILLING WORKOVER OPERATING

OF DEPTH COSTS COST COSTS

ft) (WLM1L LL (MSwellJ. (Ml/well/lvear

4100-4500 produce 297.598 14.535 11.916

(Avg.4275) Injector 280.564

4600-4900 Producer 344.955 17.086 12.688

(Avg. 4826) Injector 325.092

5100-5350 Produce 379.852 18.969 13.208

(Avg. 5178) Injector 358.027

40

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68

CHAPTER V

OIL PRODUCTION CREATMS JOBS

5.1 General Description

Now that the amount of incremental oil productionrevenue is computed, the link between revenue and jobs isanalyzed. The revenue for the IORC units is computed on anannual basis as shown in tables on p.58 and p.62, therefore, thejobs will be computed per year. Similarly, the projectedincremental oil production revenue for the Permian Basinreservoirs are computed per year as shown in tables on p.58and p.62, so, the number of jobs will be per year as well.

5.2 Jobs From Revenue

Tables on p.79 and p.84 show the number of jobs createdfrom the incremental infill drilling recovery revenues by usingthe computations from the Texas Input/Output Model.29 Tableon p.7 9 shows the number of jobs created from the infilldrilling recovery in the Clearfork reservoirs. Jobs created inassumption with the incremental infill drilling oil production iscomputed as follows. The revenue generated by theincremental recovery is multiplied by 7.3256 jobs per milliondollars 29 to compute the number of jobs created in the oilindustry. Next, the revenue is multiplied by 25.7044 jobs permillion dollars29 to find the quantity of oil industry jobs plussecondary jobs that will be created in the communities wherethe oil field workers reside. Secondary jobs are created whenoil industry workers spend wages in the community. Thesewages create jobs for the community such as medical servicesand retail employment. For comparison, Mr. Dwane Phillips ofUnion Pacific Resources stated that his company creates 6 oil

69

industry jobs and 20 secondary jobs per every million dollars

they spend in Brazos County.4° Continuing on, the upper half ofTables on p.79 and p.84 show for the IORC units, the price ofoil in millions of dollars and the amount of jobs created fromincremental infill drilling. As shown in Fig. on p.75 the averagenumber of jobs created by the IORC units per year is 2,600 jobsper year for 48 years. The total number of job-years that arecreated by the IORC units is 151,500 job-years. The lower half

of Tables on p.79 and p.84 shows the same information for theextrapolated data on the Permian Basin Clearfork and SanAndres reservoirs. As shown in Fig. on p.76, the averagenumber of jobs created by the Permian Basin reservoirs peryear is 30,500 for 48 years. The total number of job-years that

could be created by the Permian Basin reservoirs is 1,462,000job-years. In 1994, at $18.00/bbl, every $1.00 change in theoil price means a change of 1200 jobs. These job figures arecompared to the total number of industrial jobs in the State ofTexas which is 7,152,000 jobs per year. The oil industry

employs 4.0% of Texas workers which is the third largestpercent next to real estate at 4.4% and maintenance and repairat 4.1%.29

5.3 The Texas Input/Output Model

Mickey Wright 40 at the Texas Comptrollers points out

that the Input/Output Model shows that crude oil and naturalgas generates 7.3256 oil industry jobs per million dollars 2 9

produced at the well head, 13.8684 oil industry plus generalindustry jobs per million dollars29 produced at the well headand 25.7044 oil industry plus general industry plus secondaryjobs per million dollars29 produced at the well head. Theproduction of oil and gas includes the gross value of the

product and excludes contracted drilling services. In the TexasInput/Output model, the output of oil and gas mining is

estimated by multiplying volumes of production by yearly

70

average prices for 1986. The source of this data is the TexasRailroad Commission's report "Indicators May 1988,"29 which

provides volumes of production, and the Texas Comptroller'sOffice data files which lists prices. 29

The Texas Input/Output Model table of employmentmultipliers, called "Effects in Jobs per Millions of Dollars", isincluded in appendix B for comparing the oil industry to otherindustries. For example, the automobile manufacturingindustry (sector 80) accounts for 13,824 jobs in Texas and thepetroleum industry (sector 11 through 15) accounts for289,304 jobs. Almost 21 times more jobs than in the autoindustry.

29

5.4 The U.S. Department of Commerce Method

The Department of Commerce (DOC) Bureau of EconomicAnalysis has an Input/Output Model, but it differs from the

State of Texas model in that the amount of jobs cannot bedetermined from this 1-0 model. However, the DOC modelpresents data in five tables. (1) the make of commodities byindustries, (2) the use of commodities by industries, (3) the

commodity-by-commodity direct requirements, (4)commodity-by-commodity total requirements, and (5) theindustry-by-industry total requirements. The second part ofthe 1-0 model is a list of the amount of earnings per workergrouped into geographical regions. 39 This model is not used inthis study.

5.5 Southwest Econometrics Model

A private Input/Output Model 25 which can be contractedis an econometrics model by Southwest Econometrics in Austin,Texas. The Bureau of Economic Geology contracted SouthwestEconometerics services to conduct a study on a secondary

incremental recovery project which included infill drilling and

71

to find the quantity of jobs created if the secondary infilldrilling project is developed and produced. The results were

included in a report to the Governor of Texas in September1990.25 The results were 13 oil industry jobs plus generalindustry jobs per million dollars produced at the well head.

This number is very close to the number of jobs per milliondollars found in the Texas Input/Output Model furnished inAppendix B. The 1-0 model is 13.8684 oil industry jobs plusgeneral industry jobs per million dollars of gross revenue.

5.6 Types of Jobs Created by the Increased Revenues

Now that the number of jobs created from infill drilling iscomputed, the types of jobs that are created and their annualsalaries are studied. According to the Bureau of Labor andStatistics, oil and gas industry workers earn $14.02/hr on theaverage compared to manufacturing which earns $9.91/hour

on the average. 37

Many job opportunities will be created within the

exploration field in both the private and government sectors as

the infill drilling projects are being put together.Paleontologists, hydrologists, mineralogists, seismologists,

stratigraphers, geologists and geophysicists will be needed for

underground mapping, sampling, and coring. The salary for ageologist with a BS degree starts at $18,400 per year, and withan MS degree, $22,500, and $32,600 with a Ph.D. In the federal

government, a geologists average annual salary is $37,500 andgeophysicists earn $40,900. Some secondary jobs which

support exploration are drafters, engineering technicians,science technicians, engineers, surveyors, physicists, chemists,

meteorologists, mathematicians, computer scientists, and

cartographers. 20

As the drilling rig moves in to drill new infill drilling

wells, people working in the oil fields also benefit from theincrease in activity. Drilling and production engineers along

72

with company representatives earn $33,000 per year. The

regional manager drilling superintendent earns $47,000, the

toolpusher at $39,000, driller $32,000, roughnecks, floormanand motorman at $22,000, and the derrickman at $24,000.Also, the crane operator earns $22,000, electrician and

mechanics at $30,000, welders at $26,000, and roustabouts at$20,000 annually. Other jobs that ,benefit are pit diggers, truck

drivers, rig movers, bit companies, pipe testers, logging

companies, cementing companies, acidizing companies, blowout

preventer crews and jobs clearing well sites. 20

The jobs that bring oil and gas infill drilling wells on line

benefit as well. The production engineer makes $33,000 and

the reservoir engineers earn $40,000 annually. Other jobs are

the mud logicrs and refinery workers. The companies that willprosper are the logging company and crews, casing and pipemanufacturers, Christmas tree and valve companies, pumping

units and rods, submersible pumps, workover units, tank

rentals and pipeline construction. 20

The jobs that are created for the people who maintain the

new infill drilling oil wells are the pumpers or gaugers earning

$20,000, laborers at $14,000, tank truck drivers, pipe line

monitors, operators, pipeline construction workers, oil

dispatchers, dock supervisors, compression station workers,

distributica workers, construction and maintenance inspectors,oil pumpers, station engineers, barrel fillers, gas-transfer

operators, and loaders. 20

Some of the incremental infill recovery oil is sent to the

petro-chemical refineries on the Gulf Coast. Jobs that are

affected are process engineers and chemical engineers making$29,000 a year, refinery gaugers, petroleum refinery and

control panel operators, gas plant operators, petroleum pumpsystems operators, and labor analysts. 20

The jobs in the administration environment are

administration personnel, computer programmers and operator

specialists, and advertising personnel earning $27,000 per year

73

$32,800 and $35,400 respectively. Other jobs are computeranalysts and systems engineers, accountants, comptrollers,

public relations personnel, management personnel, salespersonnel, wholesale, clerical personnel, customer servicerepresentatives, acc.•untants, attorneys, statisticians, data

processing specialists, and public relations, and marketing. 20

Support staff are health and safety engineering, biochemistry,

plant pathology, toxicology, mathematics, statistics, research

department R&D, chemists at $23,400 a year, science

technicians, petroleum technicians, and scouts at $22,000 ayear.

20

5.7 Jobs for Petroleum Engineers

As the number of infill drilling projects increase, the needfor petroleum engineers will increase. The Department ofLabor Occupational Outlook Handbook 37 states that a 6% drop

in employment will occur over the next fifteen years in the

mining industry due to the continual drop in domestic oilproduction and the sharp rise in oil imports as shown in Fig. onp.77. 37 Infill drilling could help improve this economic

situation. The handbook 3 7 states that 17,000 engineers out of1,412,300 engineers or 1.2% in the United States are petroleum

engineers as shown in Fig. on p.78. Most of these engineers are

in the petroleum industry or allied fields. The number ofdegrees granted in engineering has declined recently with

about 62,000 receiving engineering degrees in 1991. The

Center for Education Statistics 37 said 1,719 Bachelor's of Science

degrees in petroleum engineering were granted in theacademic year of 1984-85 starting at $33,000 per year. Duringthat same year, 265 or 15.4 % of petroleum engineers received

their master's of science degrees starting at $33,100, while 24

or 1.4% earned doctorate degrees starting at $42,200.20

Opportunities in Petroleum Careers 20 states employment ofpetroleum engineers is expected to grow slightly through the

....... .........-... -.. -.. : :•#]' :• %:r.

74

year 2000.20 Infill drilling would insure that this trendcontinues to grow.

As shown in table on p.90, petroleum engineers are thehighest paid of all the engineering professions. In 1986, theaverage starting salary for a petroleum engineer 3 7 with abachelor of science degree was $32,016. This is substantiallyhigher than the $29,101 average starting salary for all otherengineers.

5.8 Rules of Thumb in Creating Jobs

Rule of thumb methods are used to link oil production tojobs. One of these rule of thumb methods is from the Centerfor Energy and Economic Diversification at the University ofTexas at the Permian Basin. Their rule of thumb is for everyrig, one hundred new jobs are created. This rule of thumb canbe correlated to our study by using appendix B. The cost ofdrilling a well as noted in Table 4.2 is $340,000 per well. If theassumption is made that one rig drills a well in 30.4 days, thenone rig can earn an annual income of $4.08 million per year.Now adjust the income back to 1986 by dividing by a factor of1.28 computes to $3.2 million per year in 1986 dollars. Go tothe table in appendix B and the jobs per million dollars for oiland gas drilling is 33.3089 jobs per million dollars whichcomputes to 106 jobs per drilling rig. This number could beused when following the rig count in the local papers. See Fig.5.1 through 5.4 and Tables 5.1 through 5.3 as follows.

75

INCREMENTAL JOBS CREATED PER YEARFOR IORC UNITS

12000

10000------ @ $00/B

S8000 @ s80/B0

.i~6000

@ $18.OO1bbl

4000

2000

0 10 2'0 30 40 5'01995 YEARS

Fig. 5.1-Incremental jobs created per year from thecombined revenue of the Clearfork and SanAndres IORC units.

76

INCREMENTAL JOBS CREATED PER YEARFOR PERMIAN BASIN RESERVOIRS

160000

140000

@$20.00/BBL120000 "

W 100000 .. @ $18.00/BBL

0

S80000

6 0@ $18.O0/bbl

- Total=1,462,OOO JOB-YEARSiii!!i~ii!ii~~ii .0i:•i! -Avg.=3o,5oo JOBS

0... -:-: ...... i . ... ..........

4 0000 ••:; --:•:•:: ......... ••

20000 i iiili ...

01 0 T 2'0 30 40 5 0

1995YEARS

Fig. 5.2-Incremental jobs created per year from the

combined revenue of the Clearfork and SanAndres formations in the Permian Basin.

77

ROWTH OF UNITED STATES INDUSTRIES

40 EO Goods-producing

M Service-producing

20 %

10

FA 40 'A_ C

_ 3 Z

.C-

- C W2 C

Souce Bueuo aorSaitc

Fig. ~ ~ ~ ~ E a.- rwh o nutis n teU ie tts

78

NUMBER OF ENGINEERS EMPLOYEDIN THE UNITED STATES IN 1989

e4

400

Employment (Thousands)

300

200

100 0-

0• W • "E -• .- o

Source: Bureau of labor statistics

Fig. 5.4-Number of engineers employed in the United

States.

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90

TABLE 5.3-EARNINGS OF U.S. ENGINEERS PER YEAR, 1989

TYP3 OF ENGINEER STARTING SALARY

PETROLEUM ................................................ $35,202

CHEMICAL .................................................. $35.122

METALLURGICAL ......................................... S32.23S

MECHANICAL .................................................. $32.064

ELECTRICAL .............................................. $31.788

NUCLEAR ........................................................ $31.750

INDUSTRIAL .................................................... $30.535

AEROSPACE .................................................. $30.509

MINING ........................................................... S29.383

CIVIL .............................................................. $28,136

91

CHAPTER VI

ILL DRILING OIL PRODUCTION GENERATES TAX REVENUE

6.1 General Description

The oil industry is normally taxed by three differentgovernment agencies: the county, state and federal governments.The county tax is called advalorem tax; the state government taxis called severance tax; and the federal government tax is calledcorporate income tax. The aforementioned taxes are computedfrom the infill drilling recovery revenue calculated using an oilprice ranging from $18.00/bbl to $22.00/bbl. Only the oilproduction is used for advalorem and severance tax computations.For the purpose of this study, gas production is not used in thesecomputations. However, oil and gas production is used to computethe federal corporate income tax.

6.2 Advalorem Tax Revenue

The first tax revenue computed is the advalorem tax.Caution must be used in computing this tax because every countyhas their own way of computing the tax. The counties in thePermian Basin follow this axiom as well. This tax is based on thepresent worth of the oil and gas property. The county normallyhas an independent agency to calculate the present worth of eachproperty being taxed. The present worth changes with the priceof oil and the amount of recoverable oil left in the reservoir.

The average advalorem tax for the State of Texas is 4.0% ofthe oil and gas produced. 3 ' As shown in Fig. on p.95, multiply theIORC unit's infill drilling oil recovery revenue computed at$18.00/bbl by a tax rate of 4.0% for a total advalorem tax revenueof $247 million for the 48 year life of the project. The average taxrevenue is $5.2 million per year from the IORC units.

92

Fig. on p.96 shows the advalorem tax revenue computed forthe entire Clearfork and San Andres reservoirs in the PermianBasin. The yearly average is $61 million per year divided by 50counties in the Permian Basin and equals $1.2 million per county.Fig. on p.97 and p.98 show an oil and gas revenue for Midland andEctor Counties of $1.4 million and $2.5 million, respectively for1992.31.32 If the arrow shown in Fig. on p.96 is assumed to be1995, the Permian Basin counties should be collecting $1.2 millionper year from the infill drilling of the San Andres and Clearforkreservoirs. This estimate seems a bit too high thus illustrating thefact that using the 4% advalorem tax rate is a very rough estimate.The amount of taxes from oil and gas property for Ector County isan approximate because the Ector County tax collector does nothave a separate line item for property taxes and mineral propertytaxes. The assumption is made that Midland and Ector Countieshave the same percentage of mineral property tax to the overallproperty tax. The oil and gas tax is approximated from MidlandCounty property taxes by multiplying the Ector County propertytax by 25% which is the percent of Midland County mineralproperty tax to the overall property tax for Midland County.Table on p.103 shows the results. Table on p.103 also shows theoil property taxes deducted from Midland and Ector Counties.Either all taxes are raised 10% or all services would have to bereduced by 10%. The tax revenue and expenditure categories andhow they are affected are shown in Table on p.103.

6.3 Severance Tax Revenue

The next tax revenue computed is the severance tax. Forthe State of Texas, the average severance tax is 4.6% of the oil and7.5% of the gas produced. 38 This tax is computed directly fromthe well head price. Only oil revenue is used in this computation.As shown in Fig. on p.99, multiply the IORC unit's infill drilling oilrecovery revenue computed at $18.00/bbl by a tax rate of 4.6%for a total severance tax revenue of $284 million for the 48 year

93

life of the project. The average tax revenue is $5.9 million peryear from the IORC units.

Fig. on p.100 shows the severance tax revenue computed forthe entire Clearfork and San Andres reservoirs in the PermianBasin. The yearly average is $10 million per year. Fig. on p.101show an oil and gas revenue for the State of Texas of $1 Billion for1992.33 If the arrow shown in Fig. on p.100 is assumed to be1995, the state should collect $70 million or 7% annually from theinfill drilling of the San Andres and Clearfork reservoirs. Also,looking at 1995, for every $1.00 change in the oil price, theseverance tax revenue changes approximately $6.5 million justfrom infill drilling in the Clearfork and San Andres reservoirs.Table on p.103 shows the results if the State of Texas did not haveoil property taxes to collect. Either all taxes are raised 3.5% or allservices would have to be reduced by 3.5%. The categories andhow they are affected are shown in Table on p.103.

6.4 Federal Income Tax Revenue

The amount of federal income tax paid by the IORC units isdirectly read from Tables on p.40 and p.42 in Chapter IV. Tableon p.107 shows for example that at $18.00/bbl, the IORC ClearforkUnits paid $153 million for the 48-year life of the projects. If theincome tax is divided by the total production of the IORC Clearforkunits, 194 million barrels, a value of 0.79 cents/bbl is computed.Now the total amount of oil produced by infill drilling from theClearfork formation is 1,108 million barrels and multiplied by0.79 cents/bbl is $876 million for the life of the 48 year project.Adding this value to the projected infill drilling recovery from theSan Andres reservoirs, the total amount is $7,041.6 million for thelife of the project or $146.7 million per year. Fig. on p.102 showsthat $146.7 million is only 0.17% of the $87 billion of thecorporate income tax collected in 1992. This is a humbling factbecause one can see how much effort it takes to generate 0.17% ofthe federal revenue every year. As a reminder, this study covers

94

the incremental infill drilling recovery of 75% of the OOIP of thelargest oil region in the United States. 34

6.5 Expenditures of the Department of Energy Tax Revenues

The oil industry could receive back some of the corporateincome tax it pays through the programs available from theDepartment of Energy (DOE). The budget of the DOE in 1992 was$15.5 billion. Most of this money is spent on Energy projects. 34

On energy supply, energy conservation and emergency energypreparedness the DOE spent $4.789, $0.511, and $0.282 billionrespectively. For energy information, policy, and regulation, theDOE spent $0.513 billion for a total of $6.095 billion. The DOE gavethe State of Texas $35 million for research in the energy industry.Most of the money went to Universities.3 The Department of

Commerce, Economic Development Agency4 is always looking forprojects to invest federal tax dollars to increase jobs. But up to

the present date, no oil companies have submitted proposals tothe subject office. See Fig. 6.1 through 6.8 and Tables 6.1 and 6.2as lollows.

95

ADVALOREM TAX PER YEAR FOR THE IORC UNITS

$25•@ $22.OO/BBLI

S'$20 @ $20.00/BBL

@ 18.0/bblO $10 ,-Total Adv. Tax = $ 247 (Million)

"Average = $ 5.2 Million / Year

$5

$00 10 20 30 40 50

1995

YEARS

Fig. 6.1-Advalorem tax per year for the IORC units.

96

ADVALOREM TAX PER YEAR FOR THE PERMIANBASIN RESERVOIRS

$3500/ $22.00/BBL .. ..

S$1300 ~ 8 OibAev-ra ., * . ..... in, / ~

@ 2100

$50

$00 10 20 3o 40 30

$509

YEARS

Fig. 6,2-Advalorem Ias per year for Ihe Permian Basin

reservoirs.

97

MIDLAND COUNTY BUDGET (In Millions)

gFVjzNIJ = S20.0 Miflion t $6

$2.01&2%Property Tax

Fiae* &ae Interest

Licesi.u & Serwvo .'.

So~s TaxOil reperty Tax

Iplagediturti a 120,1- Milo MIBtbm

Cemeral Advai..

Fig. 6.3-Midland County 1992 budget.

98

ECTOR COUNTY 1992 BUDGET (In Millions)

All OthersREVENUE = S25,6 Mfllign S1.2 7.801

Ak,.Properly Tax

Special Revenue

Fine,

Charges for Sgrt'lC# Oil Property Tax

EXPENDITURES S 24.9 Million3&4 1319,

Special Revenve

Ls- Inforce

S2.6 10.5%

Fig. 6.4-Ector County 1992 budget.

SEVERANCE TAX PER YEAR FOR THE IORC UNITS

$30

$2S

i@ $22"00/BBL-----

w $15Qz @ $18.00/bbl

- hTotal Sev. Tax , $ 284 (Million)

> $10 •Average = $ 5.9 Million / Year

so0 10 20 30 40 50

1 qS

YEARS

Fig. 6.5-Severance tax per year ror the IORC units.

100

SEVERANCE TAX PER YEAR FOR PERMIANBASIN RESERVOIRS

$400

@ $20.00/BBL

0$300

@ 18.00/BBL

c-,

S@ $18.00bblS' • Total Sty. Tax = $ 3,249 (Million)

S$0 :•:•, A vera,. . $ 70 Million I Year

$100

0 10 20 30 40 s0

199SYEARS

Fig. 6.6-Severance tax per year for the Permian Basinreservoirs.

101

STATE OF TEXAS 1992 BUDGET (In Billions)

REVENUE = 122.3 Billion

Federal Taxes571 25.1% SISAS5.5%

Licenses, Feesand PermitsSIA6 5.6%

Investment IncomeS1.I 4.2%

All Others

Severance Toaq..S1.0 2.7%b

EXPENDITURFS z S27.2 BillionG(;n. GovernmentSSLIO 3.7%,

All Ot1hers..US• 9.2%k

S2.6 9.6% Eduation$32 30.1%"... "''...... . 8. 2 . J

Public Safe Iy ..•....•......,and CorrectionsSI.& 5.9%

Health95S1. 6.69

Fg67San of Texs 99t2 ugt

Fig. 6.7--State of Texas 1992 budget.

102

FEDERAL GOVERNMENT 1992 BUDGET (In Billion)

Corperate Income TaxREVENUE - 11.091 Billion $8"7 8.0%1

S~~$44 COS4I

Social Insurance ExciseS334 31% X Taxes

t • Individual

IncomeBorrowing ,TaxSIBS 17% $03 37

EXPENDITURES : 11.467 Billion

Other Federal eposil InsuranceOperation$ SIS 1%b

Grants to SlateS22O Is%--))

Nei Intere.stS20S 14%

Direct BenefitNational Defense PaymentsS264 IlU3 or Individuals

SF6 e 46et

Fig. 6.8-Federal Government 199:2 budget.

103

TABLE 6.1-TAX REVENUE AND EXPENDITURESEctor County, Texas (1992 Budget)

I(WITH OIL REVENUE) j(WITHOUT OIL REV.)REVENUES I FUNDS ($) % FUNDS I FUNDS ($) % FUNDSPROPERTY TAX, PENT. & INT. $10,354.867 40.4% $11.379.999 44.4%FROM OIL FIELD PROPERTY $2.531.886 9.9% $0 0.00%LICENSES AND PERMITS S71.370 0.3% S78.436 0.3%CHARGES FOR CUR. SERV. $2.624.456 10.2% $2.884,277 11.3%FINU AND FORFEITURES S1.070.256 4.2% $1.176.211 4.6%INTERGOVERNMENTAL CHRGS $0 0.0% $0 0.0%flETEST $412,400 1.6% $453,228 1.8%OTHER REVENUE $83,717 0.3% $92,005 0.4%SPECIAL REVENUE FUNDS S7.266.034 28.4% 5$7985.371 31.2%DEBT SERVICE FUNDS $962,275 3.8%1 $1.057.540 4.1%CAPITAL PROJECTS FUNDS $242,794 0.9%; $266.831 1.0%

I 0.0%.1. non;,

TOTAL REVENUES 25.620.055 100.0% 25.620.055 100.0%

EXPENDITURESCURRENT

ADMINISTRATIVE $436.651 1.8% $392,244 1.6%JUDICIAL $3.4198942 13.7% $3,072.044 12.3%FINANCIAL ADMIN. $1.598.719 6.4%! $1,427.146 5.7%

LAWENFORCEMENT $2.449.194 9.8%i $2.200,111 8.8%CORRECTION $2.062.491 8.3%9j $1,852,736 7.4%HEALTHAND WELFARE $729.781 2.9% $655.562 2.6%FIRE PROTECTION 571.500 0.3%1 $64,228 0.3%CULTURAL -RECREATON $261.999 1.1%1 5235.354 0.9%LIBRARY S633.086 2.5% S56i.701 2.3%MANST.ENANCE S1,878.241 7.5%1 $1.687.224 6.8%CONSERV.OFNAT.RES. S73.738 0.3%1 $66.239 0.3%HIGHWAYS & STREETS $2,622,277 10.5%; $2,355.591 9.5%

NONDEPART. AND OTHER $1.820,276 7.3%, $1.635.154 6.6%CAPITAL OUTLAY $529.919 2.1%1 $476,026 1.9%SPECIAL REVENUE FUNDS $6.320.107 25.4% $5.677.352 22.8%TOTAL EXPENDITURES 24.897.821 100.0% 122.365.713 89.8%

104

TABLE 6.1-ContinuedMidland County, Texas (1992 Budget)

(WITH OIL REVENUE) (WITHOUT OIL REV.)REVENUE I FUNDS ($) % FUNDS FUNDS (S) % FUNDS

PROPERTY TAXES $5,823.497 29.1% $6.238,388 31.2%OILTAXES S1.423.913 7.1% So 0.0%SALES TAXES S5,045,608 25.2% S5,405,079 27.0%LICENSES $190,945 1.0% $204,549 1.0%CIIARGES FOR SERVICES $1.652,577 8.3% S1.770.314 8.9%S$195.029 1.0% $208.924 1.0%FINES AND FORFEITURES S843,022 4.2% $903.083 4.5%

INrERGOVUNMENTAL so 0.0% so 0.0%MISCELLANEOUS S1.651.360 8.3%1 1.769.010 8.9%ROAD AND BRIDGE $2.030.320 10.2%1 $2.174.969 10.9%LAW LIBRARY $47,871 0.2% $51.282 0.3%

OTHER FINANCING SOURCES $309,320 1.5% $331,357 1.7%nlr-T-q7RV1F t77) 271 1914L t277 01~4 41%q

TOTAL R•EVFNE $19,986.333 100.0% 19.986.333 100.0%

EXPENDITURES

GENERAL ADMINISTRATION S4.903.870 25.1% S4.546.839 23.2%

JUDICIAL S3.139.365 16.1%1 $2.910.800 14.9%FINANCIAL ADMIN. $835.363 4.3%1 $774.544 4.0%

ELECTIONS $138.119 0.7%1 $128.063 0.7%PUBLIC SAFETY AND CORR. $5,499,785 28.1% S5.099.368 26.1%HEALTH AND WELFARE S62,976 0.3% $58,391 0.3%CULTURE AND RECREATION $890.498 4.6% 5825,664 4.2%CONSERVATION & NATL RES. $124,081 0.6% $115.047 0.6%

CAPITAL OUTLAY $609.832 3.1% S565.433 2.9%DEBTSERVICE S964.763 4.9%1 $894.522 4.6%ROAD AND BRIDGE $2,342.922 12.0%j $2.172.343 11.1%

LAW LIBRARY $45.963 0.2%; S42.617 0.2%

rOTAL EXPENDITURES $19.557.537 100.0% 118.133.631 92.7%

105

TABLE 6.1-ContinuedState of Texas (1992 Budget In $ Millions)

(WITH OIL REVENUE) (WITHOUT OIL REV.)REVENUE I FUNDS (S) S FUNDS FUNDS S) % FUNDSTAXES $15.785 54.8% $16,357 56.7%OIL TAXES £1,000 3.5 % SO 0.0%FEDERAL $7.224 25.1% $7,486 26.0%LICENSE, FEES AND PERMITS £1.594 5.5% $1.651 5.7%ITEREST AND INVEST. INC. SI.209 4.2% $1,253 4.3%

LANDINCOME £14 0.0% $14 0.0%SALES OF GOODS AND SEVICES S354 1.2%. $367 1.3%OTHER1INCOM $1,648 5.7% $1,707 5.9%

TOTAL REVENUE $28.827 100.0% $28.827 100.0%

GENERAL GOVERNMENT $986 3.6%; $951 3.5%EDUCATION $8.177 29.9%1 $7,891 28.9%1b4PLOYEE BENEFITS $609 2.2% $5587 2.2%HEALTH $1,854 6.8%1 $1,789 6.6%HUMAN SERVICES $9,592 35.1%1 S9,256 33.9%PUBUC SAFETY AND COR. $1,631 6.0%1 $1.574 5.8%TRANSPORTATION $2.567 9.4%1 S2.477 9.1%NATURAL RESOURCES AND 0.0%! So 0.0%

REC. SERVICES $489 1.8%1 $472 1.7%REGULATORY AGENIES $215 0.8%1 $207 0.8%DIBTSERVICE S657 2.4%i $634 2.3%CAPITAL OUTLAY £531 1.9%: £512 1.9%

TOTAL EXPENDITURES $27.306 100.0% $26,350 96.5%

106

TABLE 6.1-ContinuedFederal Government (1992 Budget in Billions)

FUNDS ($) % FUNDSINDIVIDUAA. INCOME TAXES $403 37.0 %SOCIAL INSURANCE RECEIPTS $338 31.0 %BORROWING $185 17.0 %CORPORATE INCOME TAX $87 8.0 %OTHE $44 4.0 %EXCISE TAXES $33 3.0%

TOTAL REVENUE $1,091 100.0 %

DIRECT BENEFIT PAYMENTS $675 46.0 %FOR INDIVIDUALS

NATIONAL DEFENSE $264 18.0 %NET INTEREST $205 14.0 %GRANTS TO STATE AND $220 15.0 %

LOCALITIESOTIHER FEDERAL OPERATIONS $88 6.0 %DEPOSIT INSURANCE $15 1.0 %

TOTAL EXPENDnTURES $1.467 100.0 %

107

TABLE 6.2-FEDERAL INCOME TAX CALCULATIONS

FORMATION TAX PAID TOTL OIL PROD TAX/BBL

(Million) (Barrels) (S/bbl)

IORC CLEARFORK UNITS

@18.00/BBL $153,230 194,963,993 0.79

@20.00/BBL $193,660 195,168,402 0.99

@22.001BBL $233,246 207,841,040 1.12

IORC SAN ANDRES UNITS

@1S.00/BBL $311,447 148,268,998 2.10

*20.00/BBL $361,687 172,469,742 2.10

@22.001BBL $412,789 174,193,191 2.37

PERMIAN BASIN CLEARFORK RESERVOIRS

@18.00/BBL $875,600 1,108,299,000 0.79

@20.00/BBL $1,098,000 1,109,544,000 0.99

@22.00/BBL $1,323,000 1,181,505,000 1.12

PERMIAN BASIN SAN ANDRES RESERVOIRS

@18.00/BBL 6,166,000 2,936,173,500 2.10

@20.001BBL 7,171,000 3,414,684,000 2.10

@22.00/BBL 8,165,000 3,445,000,000 2.37

108

CHAPTER VII

CONCLUSIONS AND RECOMMENDATIONS

7.1 Conclusions

The methodology presented in this thesis is in a format inwhich any one can acquire the tools needed to calculate revenue,jobs and taxes from infill drilling in the San Andres and Clearforkreservoirs in the Permian Basin.

7.1.1 Revenue From Oil Reserves

The incremental oil and gas production from infill drilling iseconomical for investors in the majority of infill drilling projects ifthe price of oil averages above $18.00/bbl. The correlationbetween oil prices and infill drilling recovery in the two subjectformations has been established in this study. When the oil pricesincrease, more oil is economically recoverable. Also, the totalrevenues increase with each rise in the price of oil per barrel dueto higher oil recovery and higher oil sales price. In 1994, forevery $1.00 change in the average price of oil, the infill drillingincremental oil production changes approximately 3 millionbarrels of oil a year or 8,400 bbl/day roughly 0.4% of the total oilproduction from Texas. The State of Texas produces 1.9 million

barrels of oil per day. Also, the rule of thumb to compute revenueapplies to the oil companies in that every dollar introduced in thecommunity which is earned in the community will generates 3additional dollars for the same community.

"7.1.2 Jobs From Oil Revenue

The results of this thesis shows that crude oil and naturalgas generate 7.3256 oil industry jobs per million dollars 2 9

109

produced at the well head, 13.8684 oil industry plus generalindustry jobs per million dollars 29 produced at the well head and25.7044 oil industry plus general industry plus secondary jobsper million dollars 29 produced at the well head. The production ofoil and gas includes the gross value of the product and excludescontracted drilling services. This compares to the econometricsmodel by Southwest Econometrics in Austin, Texas whose resultsare 13 oil industry jobs plus general industry jobs per milliondollars produced at the well head. Another comparison is madeby Mr. Dwane Phillips of Union Pacific Resources who stated thatthey create 6 oil industry jobs and 20 secondary jobs per everymillion dollars they spend in Brazos County. 40

The revenue from the infill drilling projects creates jobs andincreases the prosperity in the Permian Basin communities. Theaverage number of jobs created by the Permian Basin reservoirsper year is 30,500 for 48 years. In 1994, at $18.00/bbl, every$1.00 change in the oil price means a change of 1,200 jobs. Thetotal number of job-years that could be created by the PermianBasin reservoirs is 1,462,000 job-years. These job figures arecompared to the total number of industrial jobs in the State ofTexas which is 7,152,000 jobs per year. The oil industry employs4.0% of Texas workers which is the third largest employer next toreal estate at 4.4% and maintenance and repair at 4.1%.29 Anotherexample is the automobile manufacturing industry (sector 80)which accounts for 13,824 jobs in Texas and the petroleumindustry (sector 11 through 15) accounts for 289,304 jobs.Almost 21 times more jobs than in the auto industry.29 One ruleof thumb method for computing jobs in the oil industry is 106jobs per drilling rig.

7.1.3 Tax Revenue From Oil Reserves

The increase in county tax revenue from these projectscreates jobs and stimulates the local economy. The advalorem taxrevenue computed for the entire Clearfork and San Andres

110

reservoirs in the Permian Basin per year averages $61 million peryear which equals $1.2 million per county. Furthermore, if the oil

property taxes from Midland and Ector Counties are deducted

from their budgets, either all taxes are raised 10% or all serviceswould be reduced by 10%.

The increase in state tax revenue from these projects will

create jobs and stimulate the State of Texas economy. The state

should collect $70 million or 7% annually from the infill drilling of

the San Andres and Clearfork reservoirs. In addition, in 1994, for

every $1.00 change in the oil price, the severance tax revenue

changes approximately 6.5 million just from infill drilling in the

Clearfork and San Andres formations. If the State of Texas did not

have oil property taxes to collect, either all taxes are raised 3.5%

or all services would be reduced by 3.5%.The increase in federal tax revenue from the infill drilling

projects will create jobs and stimulate the United States economy

and strengthen our position worldwide. The Permian Basin

Clearfork and San Andres formations contribute an average of

$146.7 million or 0.17% of the $87 billion of the corporate incometax collected in 1992 to the federal government.

7.2 Recommendations and Commentary

7.2.1 Enacted Legislation

To stimulate the oil production in the Permian Basin, thelocal, state and federal governments could enact legislation whichwould improve the oil recovery economics. The United States

Congress has passed legislation to stimulate the oil industry in

1989. The Enhanced Oil and Gas Recovery Tax Act of 1989

(S.828)2 is designed to provide incentives to U.S. oil producers to

increase recovery of the large volume of immobile (residual) oilremaining in domestic reservoirs through the use of enhanced oil

recovery (EOR). S.828 effectively addresses and encourages

techniques that would foster residual oil recovery. However,

111

there remains in existing reservoirs such as the Clearfork and San

Andres formation an additional recoverable resource that is not

addressed in S.828. This resource is the remaining movable oil

(exclusive of reserves) that is contained in reservoirs of such

complexity that improved recovery is limited due to economic

uncertainties. The nation's 100 billion barrels (Bbbls) of

unrecovered mobile oil is a resource of enormous potential.2 5

The passing of Bill S.828 will increase oil production in the

Permian Basin and help to reduce the value of imports thus

translating into net impact on the balance of trade. The positive

impact on that trade balance, which today is approximately -$130

billion per year could, in the extreme, amount to an improvement

of $3.0 Billion per year(in 1985 dollars) by the year 2000.

Whether the net impact of tne bill amounts to a positive impact on

the balance of trade depends to some extent on the ultimate

impact on the federal budget and whether such an investment

stimulus makes the U.S. more or less competitive in worldmarkets.

2 5

Furthermore, the passing of Bill S.828 helps in the

redistribution of economic activity among the regions of the U.S.

such as the Permian Basin area in West Texas. The stimulus to

economic growti, in the oil-producing states certainly will not

amount to a net redistribution o, economic activity without an

impact on economic growth for the U.S. That is, stimulus to

growth in the under-employed regions of the country, e.g. West

Texas, will most likely result in an aggregate increase in U. S.

economic activity. 25

Finally, the most important positive economic impact of

S.828 is the United States reduced dependency upon imported oil

especially at the time of a future crisis such as a foreign oil

shortage. 25

7.2.2 Future of Petroleum Industry

The crude oil production in the Permian Basin continues to

112

oil needs in the face of the lowest level ot domestic production in

35 years. 2 1 The United States imported an average of almost 8.5

million barrels of crude oil and refined products per day, a record

49.5 percent of its total supply. The previous record was 47.7

percent in 1977. Imports increased 7.8 percent primarily becausedomestic production fell by 4.3 percent or 300,000 barrels per

day. Demand rose by only 0.4 percent for 1993. Domestic

production, about 6.9 million barrels per day, was at its lowestlevel since 1958 and 25 percent below the level of 1973, the year

of the Arab oil crisis. 2 1

The trend is likely to continue because of low crude oil

prices and federal policies that hinder permanent development ofthe most likely new sources of domestic production such as infill

drilling. Rising dependence on imported oil increases the chancesthat the U. S., including the West Texas economy, will suffer from

another interruption of supplies by foreign producers with their

own political goals. 2 '

Although domestic oil production, including West Texas, has

been declining steadily for eight years, the Independent

Petroleum Association of America, iin December 1993, asked the

Clintan administration to take emergency action now to stem the

rising tide of imports. The independents argued that the dip in oil

prices last fall will accelerate the decline by forcing producers to

shut in many marginal wells. The administration is considering

the petition, but it is not expected to impose an oil import fee or

take any other action. However, current drilling activity is not

expected to offset losses in production. 2 1

MvC-

113

RENERS

1. Lewin and Associates, Inc.: "Economics of Enhanced OilRecovery, Final Report," DOE Technical Report,DOE/BETC/2628-2, (1981)

2. Stiles, L.H.: "Optimizing Waterflood Recovery in a MatureWaterflood, the Fullerton Clearfork Unit," SPE paper 6198,prepared for the 51st Annual Fall Technical Conference and

Exhibition of the SPE of AIME, (October 1976).

3. Magnuson, W.L. and Knowles, J.D.: "Denver Unit 10-AcreInfill Pilot Test and Residual Oil Testing," SPE paper 6385

prepared for the 1977 Permian Basin Oil and Gas RecoveryConference, Midland, (March 1977).

4. Georges, C.J. and Stiles, L.H.: "Improved Techniques forEvaluating Carbonate Waterfloods in West Texas," JPT(November 1978) 1547-1554.

5. Ghauri, W.K.: "Production Technology Experience in a Large

Carbonate Waterflood, Denver Unit, Wasson San AndresField," JPT (September 1980) 1493-1502.

6. Barber, A.H.Jr., George, CJ., Stiles, L.H., and Thompson, B.B.:

"Infill Drilling to Increase Reserves - Actual Experience in

Nine Fields in Texas, Oklahoma, and Illinois," JPT (August

1983) 1530-1538.

7. Barbe, ].A. and Schnoebelen, D.J.: "Quantitative Analysis ofInfill Performance: Robertson Clearfork Unit," SPE paper

15568 presented at the 61st Annual Technical Conferenceand Exhibition, New Orleans, (October 1986).

114

8. Reviere, R.H. and Wu, C.H.: "An Economic Evaluation ofWaterflood Infill Drilling in Nine Texas Waterflood Units,"SPE paper 15037 presented at the Permian Basin Oil & GasConference, Midland, (March 1986).

9. Laughlin, M.A., Jardon, M.A., and Wu, C.H.: "Infill DrillingEconomic Analysis of Carbonate Oil Reservoirs in WestTexas," SPE paper 16854 presented at the 62nd AnnualTechnical Conference and Exhibition, Dallas, (September1987).

10. Wu, C.H., Laughlin, B.A., and Jardon, M.: "Infill DrillingEnhance Waterflood Recovery," JPT (October 1989) p. 1088-1095.

11. Wu, C.H., Flores, D.P., Briens, F.J.L., Brimhall, R.M., and Poston,S.W.: "An Evaluation of Waterflood Infill Drilling in WestTexas Clearfork and San Andres Carbonate Reservoirs," SPEpaper 19783 presented at the SPE 64th Annual TechnicalConference and Exhibition, San Antonio, (October 1989).

12. Driscoll, V.J.: "Recovery Optimization Through Infill Drilling -Concepts, Analysis, and Field Results," SPE paper 4977prepared for the 49th Annual Fall Meeting of the SPE ofAIME, Houston, (October 1974)

13. McMillon, M.D., French, R., Brimhall, R.M. and Wu, C.H.:"Clearfork and San Andres Waterflood Infili Drilling Study -

Waterflooding and Infill Drilling Program," IORC QuarterlyReport: "(March 1990).

115

14. Jiang, C.H., Mensa-Wilmot, G., Brimhall, R.M. and Wu, C.H.:"Clearfork and San Andres Waterflood Infill Drilling Study -Waterflooding and Infill Drilling Program," IORC QuarterlyReport: " (September 1990).

15. French, R. L.: "A Statistical and Economic Analysis ofIncremental Waterflood Infill Drilling Recoveries in WestTexas Carbonate Reservoirs," MS Thesis, Texas A&MUniversity, College Station Texas, (August 1990).

16. Lu, G.F., Brimhall, R.M. and Wu, C.H.: "San Andres andClearfork Waterflood and CO 2 Flood Database -Waterflooding and Infill Drilling Program," IORC QuarterlyReport, August 1992.

17. Lu, G.F., Malik, Z.A., Shao, H., Brimhall, R.M. and Wu, C.H.: "SanAndres and Clearfork Waterflood and CO2 Flood Database -Waterflooding and Infill Drilling Program," IORC QuarterlyReport,: June 1993.

18. Walton, Richard J. : The Power of Oil: Economic, Social,Political, The Seabury Press, New York, New York (1979).

19. Kim, Young Y. and Thompson, Russell G. : New Oil and GasSupplies in the Lower 48 States, Gulf Publishing Company,Houston, Texas (1978).

20. Krueger, Gretchen Dewailly: Opportunities in PetroleumCareers, VGM Career Horizons, Lincolnwood (Chicago), Illinois(1990).

21. Houston Chronicle, "Business Section," Houston ChroniclePublishing Company, Houston Texas, (1993-1994).

116

22. Petroleum Industry Statistics: "Basic Petroleum Data Book,American Petroleum Institute, Washington D.C., Vol XIII,number 3, September (1993)

23. United States Government: "Budget of the United StatesGovernment, Fiscal Year 1994," U.S. Government PrintingOffice, Washington D.C., (1993).

24. Sharp, John: "Comprehensive Annual Financial Report," TexasComptroller of Public Accounts, Austin Texas, (1992).

25. Holtz, Mark: An Evaluation of Incentive Effects of a ModifiedEnhanced Oil and Gas Recovery Tax Act of (S.828) ThatIncludes Advanced Secondary Recovery," U. of Texas atAustin, Bureau of Economic Geology, Austin, Texas (1990)

26. Gatlin, Carl: Drilling and Well Completion, Prentice-Hall, Inc.,Englewood Cliffs, NJ (1960).

27. Texas Representative Early, Robert, Chairman, Texas HouseEnergy Committee: Speech given at a seminar for PetroleumEngineering Graduate Students, Texas A&M Univeýrsity,College Station, Texas 2 November 1993.

28. Tyler, Noel and Banta, Nacy J.: "Oil and Gas ResourcesRemaining in the Permian Basin: Targets for AdditionalHydrocarbon Recovery, " U. of Texas at Austin, Bureau ofEconomic Geology, Austin, Texas (1989).

29. Wright, M.L., Glasscock, A.H., Easton, R.: "The TexasInput/Output Model," 1979, Texas Department of WaterResorces, March 1983.

117

30. Fairchild, Sharon: "Brazos County Texas ComprehensiveAnnual Financial Report for the Year Ended September 30,1992," County Auditor, Brazos County, Texas, (1992).

31. Midland County: "Financial Statements and IndependentAuditors' Report, September 30, 1992," Elms, Faris &Company, Midland County, Texas, (1992).

32. Ector County: "Financial Statements and IndependentAuditors' Report, September 30, 1992," Ector County, Texas,

(1992).

33. John Sharp: "Comprehensive Annual Financial Report," TexasComptroller of Public Accounts, Austin Texas, (1992).

34. Clinton, William: "Budget of The United States GovernmentFinscal Year 1994," U.S. Printing Office, Washington D.C.,(1994).

35. American Petroleum Institute: "Basic Petroleum Data Book,"

Petroleum Industry Statistics, Washington D.C., Vol XIII, No.

3, September (1993).

36. Galloway, W.E. et.al.: "Atlas of Major Oil Reserves," U. of Texasat Austin, Bureau of Economic Geology, Austin, Texas (1983).

37. Martin, Lynn: "Occupational Outlook Handbook," U.S.Department of Labor, Bureau of Labor Statistics, Washington,D.C., (Edition 1992-1993).

38. Wright, J. D.: "Oil Property Evaluation," Thompson-WrightAssociates, P.O. Box 892, Golden Colorado, 80402, (1985).

118

39. Mosbacher, Robert A.: "Survey of Current Business," U.S.Department of Commerce, Economics and StatisticsAdministration/Bureau of Economic Analysis, Washington,D.C., (April 1993).

40. Personal Communication.

119

APPENDIX A

DESCRIPTION OF PROPOSED S. 828 (THE ENHANCED OIL AND GASRECOVERY TAX ACT OF 1989)

Modifications to S. 828 as evaluated in this include a 10-percentInvestment Tax Credit and broadening of the incentives package

to include Advance Secondary Recovery

120

DESCRIPTION OF S. 828

(ENHANCED OIL AND GAS RECOVERY TAX ACT OF 1989)

Scheduled for a Hearing

Before the

SUBCOMM~rrEE ON ENERGY AND AGRICULTURAL TAXATION

of the

SENATE COMMI`rEE ON FINANCE

on August 3, 1989

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

August 1, 1989

JCX-40-89

121

CON~TENT

Page

INTRODUCTION ....................................................................................................... 122

I. SU M M ARY ........................................................................................................... 123

II. DESCRIPTION OF S. 828 ............................................................................... 124

A . Enhanced Oil and .............................................................................. 124B. Alternative M inim um Tax ............................................................ 128

C Research and Development Tax Credit .................................... 130

122

INTRODUCTION

The Subcommittee on Energy and Agricultural Taxation of

the Senate Committee on Finance has scheduled a public hearing

on August 3, 1989, in S. 828, the "Enhanced Oil and Gas Recovery

Tax Act of 1989" (introduced in April 18, 1989, by Senators

Domenici, Boren, Dole, Nickles, Wallop, Garn, Bingaman, Johnston,

McClure, and Gramm). The bill would provide tax incentives for

the removal of crude oil and gas through enhanced recoverytechniques and a tax credit for research and development to

discover or improve tertiary recovery methods.This document I,.prepared by the staff of the Joint

Committee on taxation, provides a description of S. 828. The first

part of the document is a summary. The second part is a

description of the bill, including present law, effective dates, and

related provisions of the Administration proposal for taxincentives for enhanced oil and gas recovery.

This document may be cited as follows: Joint Committce on Taxation.

Description of S. 828 (Enhanced Oil and Gas Recovery Tax Act of 1989) (JCX-

40-89). August 1, 1989.

123

I. SUMMARY

S. 828--Enhanced Oil and Gas Recovery Tax Act of 1989

Senators Domenici, Boren, Dole, Nickles, Wallop, Garn, Bingaman,Johnston, Mcclure, and Gramm

The bill would increase the percentage depletion rate fordomestic oil and gas recovered through enhanced recoverytechniques to 27.5 percent, phase-down as the price of crude oilincreases above $30 per barrel adjusted for inflation. The billwould also increase the net income limitation on this oil and gasfrom 50 percent 100 percent. The alternative minimum taxpreferences for percentage depletion and intangible drilling costs(IDC)s would not apply to the deductions attribtable to this oil andgas. Further, a 10 percent research and development tax creditwould apply to research to discover or improve tertiary recoverymethods.

Administration Proposal2

The Administration proposal would replace the 50 percentnet income limitation with a limitation based on 100 percent ofnew income in the case of all percentage depletion to be claimedby a transferee of proven oil or gas producing property. Further,the proposal would eliminate 80 percent of independentproducers for exploratory drilling. The proposal would alsoprovide a 10 percent tax credit for certain projects utilizingtertiary enhanced recovery techniques.

2 As contained in President Bush's budget proposal for fiscal year 1990,

submitted to the Congress on February 9, 1989.

124

1I. DESCRIPTION OF S. 828

A. Enhanced Oil and Gas Recovery Depletion Allowance

Prese~nt LawGeneral rules

Certain costs incurred prior to drilling an oil or gasproducing property are recovered through depletion deductions.

Generally, these include costs of acquiring the lease or otherinterest in the property, and geological and geophysical costs.Depletion is available to any person having an economic interestin a producing property (including a royalty interest, working

interest, overriding royalty interest, or net profits interest).Depletion is computed using whichever of two methods

results in a higher deduction: cost depletion or percentagedepletion (however, the deduction for percentage depletion islimited to certain taxpayers as discussed below).

Under the cost depletion method, the taxpayer deducts thatportion of the adjusted basis of the property which is equal to theratio of units sold from that property during the taxable year to

the estimated number of units remaining to be recovered at thebeginning of the taxable year. The amount recovered under cost

depletion cannot exceed the taxpayer's basis in the property.Under the percentage depletion method, 15 percent of the

taxpayer's gross income from an oil or gas producing property is

allowed as a deduction in each taxable year. The amountdeducted cannot exceed 50 percent of the taxable income from theproperty for the taxable year, computed without regard to

depletion deduction (the "net income limitation"). Additionally,

the allowance for percentage depletion cannot exceed 65 percent

of the taxpayer's overall taxable income, determined before such

deduction and adjusted for certain loss, carrybacks and trust

125

distributions (the "taxable income limitation") 3 . Becausepercentage depletion is computed without regard to the taxpayer'sbasis in a property, cumulative depletion deductions may exceedthe amount expended by the taxpayer to acquire or develop theproperty.

LIMITATION OF DEDUCTION FOR PERCENTATE DEPLETION TO

INDEPENDENT PRODUCERS. ETC,

Under present law, the deduction for percentage depletionfor oil and gas properties is limited to independent producers androyalty owners (as opposed to integrated oil companies), for up to

1,000 barrels of average daily domestic crude oil production, or anequivalent amount of domestic natural gas. For producers of bothcrude oil and natural gas, this limitation applies on a combinedbasis4 .

For purposes of percentage depletion, an independentproducer is any producer who is not a "retailer" or "refiner." A

retailer is any person who directly, or through a related person,

sells oil or natural gas (or any product derived therefrom) (1)though any retail outlet operated by the taxpayer or a relatedperson, or (2) to any person obligated to market or distribute suchoil or natural gas (or product derived therefrom) under the nameof the taxpayer or the related person. Bulk sales to commercial orindustrial users, and bulk sales of aviation fuel to he Departmentof Defense, are excluded for this purpose. Furthermore, a person

is not a retailer within the meaning of this provision if the

combined gross receipts of that person and

3 An amount disallowed as a result of this rule can be carried forward as a

percentage depletion deduction in the following taxable year, subject to the

65 percent taxable income limitation for that year.

4 Certain regulated natural gas, natural gas sold under a fixed contract, and

natural gas from geopressed brine is exempt from the 1000-barrel-per-day

limitation.

126

all related persons from the retail sale of oil and natural gas (orany product derived therefrom), do not exceed $5 million for ataxable year.

A refiner is any person who directly, or through a relatedperson, engages in the refining of crude oil, but only if suchtaxpayer and related person have refinery runs in excess of50,000 barrels on any day during the taxable year.

Percentage depletion is not allowed with respect to thetransferee of a transferred proven oil or gas nroducing property.Generally, a proven property is a property that, at the time oftransfer, has had its principal value demonstrated by prospecting,exploration, or discovery work.

Explanation of the BillDepletion rate for enhanced recovery

S. 828 wotud provide a 27.5 percent depletion rate withrespect to the production of domestic incremental tertiary crudeoil and natural gas during the enhanced recovery period. Thisdeduction would be available to all taxpayers (includingindependent and integrated producers) for an unlimited amountof production. Under the bill, the 27.5 percent rate would bephased-down to 15 percent by one percentage point for everydollar that the taxpayer's average removal price of oil for thecalendar year exceeds $30 per barrel 5 . Under the bill, ataxpayer's average annual removal price for any calender yearwould be computed by dividing the aggregate dollar amount for

domestic crude oil was sold by the taxpayer during the calendryear, by the taxpayer's aggregate production of such oil 6 .

5 The $30 per barrel threshold will be adjusted annually for inflation, as

measured by the GNP implicit price deflator, beginning in 1991

6. As drafted, the bill contains a technical error in the definition of the

term "average annual removal price," by defining such term as the

aggregate production of crude oil, divided by the aggregate receipts from

the sale of such oil.

127

For purposes of the bill, incremental tertiary oil and gas

includes incremental tertiary oil as defined for prior law windfallprofit tax purposes (Code sec. 4993(a), using the current Energy

Department (DOE) regulations). Under DOE regulations, tertiaryrecovery techniques include miscible fluid displacement, steamdriven injection, microemulsion or micellar emulsion flooding, in

situ combustion, polymer augmented water flooding, cyclic steaminjection, alkaline or caustic flooding, carbon dioxide augmentedwater flooding, and immiscible carbon dioxide displacement.Reservoir improvements (including infill patterns and pattern

conformance) incident to a qualified tertiary recovery projectwould be treated as a project which is otherwise a qualified

tertiary project. Oil and gas produced from nonhydrocarbon gas

flooding, tight formation gas, and certain tight formation oil wouldalso qualify as incremental tertiary oil and gas under the bill.

The enhanced recovery period is a period, as determined bya schedule to be published by the Secretary of the Treasury,

based on the average period for a project to recover the expensesof the type of project involved for that geographic region. Theenhanced recovery period would not end earlier than six months

after the publication of the schedule by the Secretary.The bill would not amend present law treatment

applicable to the deduction for percentage depletion byindependent producers and royalty owners for property other

than enhanced tertiary recovery property. Additionally, the billgenerally would not treat barrels of enhanced domestic tertiaryoil and gas produced by an independent producer or royaltyowner as barrels of oil or gas produced by such person in applying

the 1,000 barrel per day limitation on such deduction.

Net income limitation

In addition, the bill would increase the net income limitation

from 50 percent to 100 percent of net income in the case of

128

depletable property which produces domestic incremental tertiarycrude oil or natural gas during the enhanced recovery period.

Effective date

The provision would be effective for oil and gas productionafter the date of enactment and before January 1, 2010. Theprovision would apply after December 21. 1999, only toproduction form a project begun before January 1, 2000.Expansion of a project begun on or after the date of enactmentwould be treated as a separate project. In the case of productionfrom a project begun on or before the date of enactment, the ratefor percentage depletion would be 18 percent rather than 27.5percent.

B. Alternative Minimum Tax

Present Law

Depletion

Under present law, the deduction for depletion is anitem of tax perference for purposes of the individual andcorporate alternative minimum taxes, to the extent that thedepletion deduction constitutes excess percentage depletion.Excess percentage depletion is defined as the excess of taxpayer'sallowable depletion deduction for the taxable year with respect toa particular oil or gas producing property over its adjusted basisin such property at the end of the year (prior to adjusting thebasis for current year allowable depletion) 7 .

7. Additionally for this purpose, the adjusted basis does not include

intangible drilling costs attributable to the property that have been

previously deducted by the taxpayer.

129

Intangible drilling and development costs

Under present law, the deduction for intangible drilling anddevelopment costs (IDCs) on a successful oil and gas wells is anitem of tax preference for purposes of the individual andcorporate alternative minimum taxes, to the extent that thetaxpayer's excess IDCs exceed 65 percent of its net income fromoil and gas properties. (Geothermal properties are treated in asimilar manner). Excess IDC's are defined generally as (1) IDCdeductions (attributable to successful wells) for the taxable year,minus (2) the amount that would have been deductible in thatyear had the IDCs been capitalized and recovered over a 10-yearamortization schedule in determining the amount of taxpreference8.

IDCs are not treated as an item of tax preference if thetaxpayer elects to amortize such costs over a 10-year period.

Explanation of the bill

Depletion and IDCs as tax preference items

S. 828 would repeal the treatment of excess depletion andexcess IDCs as items of tax preference with respect to domesticproperties that produce oil and gas through the use of enhancedtertiary recovery techniques if the average annual removal priceof oil for the taxable year is less than $30 per barrel (adjusted forinflation beginning in 1991)9.

8. In addition, for taxable years beginning after December 31, 1989.

corporations are subject to an alternative minimum tax adjustment for

adjusted current earnings. In computing adjusted current earnings, IDCs

on successful wells must be amortized over the longer of 60 months or the

period used by the corporation for financial accounting purposes.

9. See discussion of oil and gas recovered through enhanced tertiary

recovery techniques (A., above).

130

Effective dateThe provision would be effective with respect to production,

or costs paid or incurred, after the date of enactment and beforeJanuary 1, 2010. Additionally, the provision would not apply toproduction, or costs paid or incurred, after December 31, 1999,unless such production or costs are attributable to a project begunbefore January 1, 2000.

Administration Proposal

The administration proposal would eliminate 80 percent of

the present-law minimum tax preference for IDCs attributable toexploratory drilling incurred by independent producers.

C. Research and Development Tax Credit

Present Law

Present law provides for the allowance of a tax credit withrespect to certain costs incurred by taxpayers for increasing

qualified research activities (the "R&D credit"). The amount of thecredit is equal to 20 percent of the excess of current qualifiedresearch expenses over the average of such expenses incurred by

the taxpayer over the preceding three taxable years' 0 . Also, a 20percent credit is allowed for certain costs incurred domesticallyfor an original investigation for the advancement of scientificknowledge which does not have a specific commercial objective.

Research which qualifies for the R&D credit includesresearch which is undertaken for the purpose of discoveringinformation which is technological in nature, and the application

of which is intended to be useful in the development of a new or

10. However, in no event can the thrcc-year base period average be less

than one-half of the current qualified research expenses.

131

improved business component of the taxpayer. Under present

law, qualified research can include certain costs incurred withrespect to the development of new methods for extracting mineraldeposits, including tertiary recovery methods".

Explanation of the Bill

Research credit for tertiary recovery methods

S. 828 would treat any research to discover or improve oneor more tertiary recovery methods for domestic crude oil ornatural gas as research which qualifies for the R&D credit if theresearch is based on accepted principles of engineering. The billwould apply the credit for tertiary recovery research separately

from the credit for other R&D, including the determination of the

three-year base period average applicable to such research. Withrespect to such research, the credit would be at a 10 percent

rate12

Effective DateThe provision would be effective for amounts paid or

incurred after the date of enactment, and before January 1, 2010.Amounts paid or incurred before the date of enactment would be

taken into consideration in determining base period researchexpenses.

Administration Proposal

The administration proposal would provide a 10-percent tax credit for all capital expenditures on projects that

represent the initial application of tertiary enhanced recoverytechniques to a property. Additionally, with respect to the R&D

11. See, for example, Rev. Rul. 74-67, 1974-1 C.B. 63.

12. Under the bill, it is unclear whether such research that would qualify

for the R&D credit under present law would be creditable at the present-law

rate of 20 percent instead of the 10 percent rate as provided in the bill.

132

credit, the Administration proposal would (1) compute the baseperiod amount as an amount equal to 102 percent of thetaxpayer's average qualified research expenses for the years 1983through 1987, indexed for inflation, and (2) allow for an optionalcredit, in addition to the regular credit, equal to 7 percent of thecurrent year's qualified research expenses in excess of 75 percentof the base period amount.

133

APPENDIX B

THE TEXAS INPUT/OUTPUT MODEL, 1986 UPDATE

164-Sector Multiplier Tables

TEXAS COMPTROLLER OF PUBLIC ACCOUNTS

DECEMBER 1989

134

APPNIDIX TABLE 6.6

TVXAS EIPLOYMENT IMLTIPUERS (TYP V,(EFFECTS DN JOBS PER MILLION DOLLARS OF @.TIrTr)

DIRECT TOTAL TOTAL

SECTOR SECTOR AIME EFFECT • EFFECT VIPLOV"W

1 Irrigated Crops 43.7919 54.4250 SS432 Oryland Crops 31.408 42.1o05 9586453 Range Livestock 17.1250 24.9987 30527

4 Feedlot Livestock 2.0887 14.1344 4090S Dairy 36.3310 51.3339 20044

& Poultry and Eggs 31.7037 52.584 202207 Cotton Ginning 50.12*7 61.6*28 6231

8 Agricultural Services 36.6740 48.7893 578739 Primary Forestry 2.9852 14.1964 1577

10 Fisheries 13.5836 22.7764' 3347

11 crude Petroleum and Natural Sas 7.3254 13.8f40 146865

12 Natural Gas Liquid 1,7873 7.7762 627113 Oil and "a Drilling 9.8219 Z0.3533 30938

14 oil and "a Eixploration 9.2S93 13.7475 IS47515 oil and gas Field Services 9.8215 13.6813 8975516 Lignite and Other Surface mining 4.7812 10.9721 1213017 New Residential Construction 6.,833 24.7808 45926

18 New Light Construction 2.6604 11.6901 15793

19 New Industrial Construction 19.3133 29.5952 569820 mew Road/mighmay Construction 27.2843 38.8053 S322021 New Heavy Construction 74.2249 84.S862 151738

22 Miaintenance and Repair 40.6693 47. 454 29377423 meat and Poultry Products 6.0609 21.1313 26936

24 Caevred and Preserved Foods 6.7364 18.8048 1028525 Bakery Products 4.7005 13.3487 11026

26 Beverages 3.888M 13..673 16805

27 Other Food Products 4.7099 14.S333 31953

28 Textile hills 19.1108 26.55O 453529 Apparel and Other Textile Products 20.7943 24.5959 53938

30 Logging. Sawmills. Planing mills 12.45,6 22.5298 7362

31 Mil•work and Wood 13.8657 22.5424 2603732 Prefabricated Homa and buildings 13.3689 22.2:20 6395

33 Furniture and Fixtures 19.6637 26.7347 1872534. Paper and Paper fills S.1254 11.7637 6648

35 mliscellaneous Converted Paoer 8.0654 13.8419 8260

36 Boxes and Paper Containers 8.1-15 14.1797 832737 Newspapers 18.3447 23.6528 31173

38 Publishing 15.0717 26.1360 Q88939 Printing 1S.7980 20.1355 29242

40 Photographic and Printing -'Poducts 15.3737 20.0825 10993.1 Industrial Inorganic Chemicals 3.0'23 9.7038. 7012

4Z Plastics and Fibers 2.721; 8.6336 537a43 Synthetic Rubber 3.0117 12.3860 3577

".4 Orugs 4.1373 10.4702 45544S Soaps. Cleansers. and Toiletries 4.3046 12.4401 396454 Paint and Allied Products 4.2039 10.1641 4155

47 Industrial Organic Chemicals 2.5900 11.2814 3083048 Cyclic Crudes and Intermediates 2.S'17 10.7234 383

49 Agricultural Chemicals 3.i313 10.6635 5150

135

APPNIX TAtLE 6.6

TEXA [MPLOVtMKN ftATIPLIERS (TYE 1`0(EFFECTS IN JOS PER MILLION DOLLARS OF OU1PUT)

DIRECT TOTAL TOTAL

SECTOR SKICTO ME EFFECT EFFECT RiIPLOYIUNT

so Other Chemicals 3.4133 12.1288 7117

S1 PttIemlwm Refining 0.6640 7.99"28 30548

32 other Petr•leum Pr.joda 1.3182 10.7326 3053

53 Tirm anid Rubber Proidcts 4.5931 12.9t43 5620

34 Plastic Prato 12.4493 16.0001 2624S

55 Leather and Products 22.2017 29.4684 7200

54 Glass 11.0411 0.7SS3 6801

57 Brick and Clay 15.9064 23.4586 7100

58 Cement and concrete 12.4034 21.9744 23414

59 Nonmetallic Minerals 12.2049 20.2140 12563

60 Blast Furnaces 3.7813 12.0322 6738

61 Iran and Steel Foundries 8.2933 15.4071 7847

62 Primary Nmnferrous Metals 5.9437 13.7618 12224

63 Fabricated Metals and Kir.dare 12.9793 18.4843 23348

64 Fabricated Steel 14.4019 21.7664 20679

6S metal Plate MAr 13.0799 19.4475 18853

66 valves and Pipe Fittings 10.6526 15.4522 9836

67 Heavy Machinery 12.12.36 16.9430 9385

68 Mining Machinery and Equipeent 9.0787 14.2812 280S1

69 Metal Working Machinery 10.4606 16.0449 7842

70 General Indmustrial Machinery 11.51S1 17.9584 8961

71 Computers and Accounting Machinery 6.5297 16.5032 21254

72 Service IndAstry Machinery 12.7576 20.2866 18725

73 Refrigeration Machinery 12.0370 18.3867 13728

74 Electrical Apparatus 17.0346 22.6335 10564

75 Radio. TV and Phonographic Equipemet 11.9983 18.5232 29339

76 Telephone and Telegraph Equipment 13.0233 21.0740 9087

77 Electronic Components and Equipement 14.3535 21.9825 19365

78 Semiconductors 12.4051 19.5189 43165

79 Other Electrical Apparatus 15.6305 24.1398 5642

80 motor vehicles and Parts 12.7113 17.222 13824

81 Other Transportation Equipment 14.3917 23.0,36 3647

82 Aircraft and Parts 8..7473 12.3204 46S43

83 Ship and Bost Building 14.8043 21.3108 4033.

84 Guided •issiles and Space Vehicles 8.2187 13.1064 1570S

83 Scientific Instrumemnts 8.9820 16.2086 10291

86 Photo, Timing and Optical Equ.ipment 11.1285 17.3779 3636

87 medical Instruments 10.3062 17.S603 8533

88 Other Manufacturing 18.1028 25.7313 17285

89 Ordnance 11.7005 20.0493 11387

90 Railroads 11.1219 15.1878 20V81

91 Local and Intercity Transport 12.77,3 18.2358 11753

92 Motor freight and Slorage 20.4255 27.6651 125782

93 Water Transport 6.9615 15.3238 1.r631

94 Air Transport 9.8062 16.5271 50649

95 Pipeline Transport 3.1790 11.3462 4082

0 Other Transportation Services 28.6222 39.1171 24701

97 Telqehone and Telegraph 10.9090 14.4129 65935

98 Radio and TV Broadcasting 11.6257 20.5056 15690

136

APPIENDX TABLE 6.6

TEOAS EMPLOYhEI4T fULTIPLUINS 4TYPE 13'

(EFFECTS IN JOBS PER HILLZOH DOLLARS OF OUTPUT)

DIRECT TOTAL TOTAL

SECTOR SECTOR HM EFFECT EFFECT EMHPLOTIENT

19 Other Commmanicat inm 10.1448 19.7069 959

100 Eleotrie Utilities 2.9656 9.1368 36203

101 Gas Utilities 1.782S 10.1391 20178

102 IWter and Sanitary Services 10.9182 19.9659 24Sa1

103 WIhlesale Auto Parts and Supplies 4.fl60 12.9291 26126

104 Wholesale Machinery and Equipment 16.6443 2S.ZS4 133363

105 Wholesale Groceries 11.6904 17.8681 35933

106 Agricultural Supplies 10.2266 23. 7395 21016

107 Wholesale Petroleum Products 5.2424 11.4492 25461

108 General Wh~olesale 10.3447 16.1946 186193

109 Lumber. Harare and Related 2S.8963 32.9106 55548

110 Department and Variety Stores 35.4393 42.7627 167427

111 Food Stores 40.2790 46.7502 24S493

112 Auto Dealers 33.2761 38.6763 1170S1

113 gasoline Service Statiom 37.9197 43.9423 39471

114 Apparel and Accessory Stores 42.3994 48.7437 91609

115 Home Furnishing Stores 39.5549 49.9195 63147

116 Eating and Drinking Places 70.6918 79.8784 428427

117 other Retail 19.5422 25.9843 225119

118 8anking Institutions 6.9212 13.5576 115635

119 Credit Institutions 8.2860 15.7697 91193

120 Security and Commodity Brokers 10.4S78 19.8467 19761

121 Insurance 11.2461 34.8677 64630

122 Insurance Agents 25.0606 29. 738 65333

123 Real Estate 6.6622 13.2493 315137

124 Lodging Services 29.5325 39.5578 9%622

125 La.ndry and Cleaning Services S3.6780 63.1152 75219

126 Beauty and Barber Shops 99.8629 104.ZS05 50261

127 miscellaneous Personal Services S8.7107 67.6275 446892

128 Advertising 15.6081 27.0787 15196

129 Photo. Video and Film Services 24.6816 32.2219 28680

133 Cleaning and Maintenance Services 107.2960 112.9443 71762

131 Personnel Services 78.037 a 83.5016 96756

132 Computer Processing Services 18.6112 26.2463 70161

133 Research end Development Labs 18.4790 2S.4211 19966

13.. Management and Consulting Services 23.0908 32.9S14 43371

135 Oetective and Protective Services 71.1762 77.3476 44236

136 Equipment Rental 17.2152 24.8738 33726

137 Other Business Services 32.6810 38.3665 73.08

133 Auto Rental 15.0185 23.6064 22106

139 Auto Repair 31.3066 36.8429 65475

140 Electrical and Other Repair Shops 38.37,40 43.6339 . 42005

141 notion Pictures and Amusements 25.6960 3-.6869 75276

142 Physicians and Dentists 12.4072 16.3604 92152

143 Other Medical Services 39.4176 47.0333 67889

144 Hospital Services 21.9971 33.4347 216654

145 Meadical and Dental Labs 18.1673 27.1543 45311

146 Legal Services 15.2759 21.7988 70691

147 Private Education 49.2110 61.3841 11351

137

APPE#1X TAMLE 6.6

TOMXS 1[eLOYttHT IULTIpumS CTYPE 1'

(EFFECTS IN JOBS PER KILLION DOLLARS OF OclTPUT)

O=IECT TOTAL TOTAL

SECTR SfcTO M IEFFECT EFFECT ENPLOYMENT

1" riveate Colleges and Universities 49.20s6 56.9396 39729

149 Other Educational Services 2t.9044 27.3550 13370

M.0 Social Services 2l9.411 44.40t 3"624

151 Day Car ServIcas 23.471 31.S949 27716

152 Nmo",fit gr upswand musm 44.4836 58.2557 57954

153 aeligioum Organizations 35.4528 44.5059 31670

154 Domastic Services 214.4649 218.6616 14740"

155 Engineering &n Architect%" 22.2749 28.7240 11S940

1 Accounting and Bookkeeping 3U.1060 39.6142 66470

157 Scrap and Secwund Goods 12.8244 20.1263 3459

138

APKWOIX TABLE 4.4

TEXAS MIPLOT1IENT MULTIPtEiWS <TYPC g)

(EFFECTS IN JOBS PER MILLION DOLURS OF OUTPUT)

DIM 1T TOTAL TOTALSECTOR SECTOR NIE EFFECT EFFECT EMPOINIT T

1 Irrigated CroP. 13. V19 . 2697 55463a Oryland Crew 31.4065 S7. 3804 V9MS3 Range Livestock 17.1158 43.7218 305274 Feedlot Livestock 1.607 2S.3094 6890S Dairy 36.3310 4S.536 to00o4 Peultry and Eggs 31.7037 61.0703 z0o267 Cotten 8lming S6.1247 76.2483 4131a Agricultural Services 36.6740 60.1278 574739 Primary Forestry 2.966* 24.3752 1577

10 Fisheries 13.5434 37.%% 33711 Crude Petroleum and Natural gas 7.3t34 23.70?4 14684S12 Natural gas Liquids 1.7473 17.0179 42fl13 Oil and S"a Drilling 9.4219 33.3089 309381 Oil and Sa ExPloration 9.2593 27.0283 IS47513 Oil and Sea field Services 9.0215 28.2303 8975516 Lignite and Other Surface Mining 4.711* 22.7252 1213017 Nhem Residentiel Construction 4.6833 37.7379 4S92418 Mea Light Construction Z.4484 25.4665 15793

19 Now Industrial Conetruction 19.3133 4-.1015 S49420 Hew Rood/Iiohmay Construction 27.U063 S3.7601 5322021 New Neavy Construction 74.2249 100.8646 15175822 faintenane and Repair 40."893 62.8867 29377423 meet and Poultry Products 6.46089 31.4736 249362'. Canned and Presaervd Foods 6.7364 28.2583 1028S25 ey ProdUcts 4.790S 26.1965 11028

26 Beverages 3.064 Z2.8187 1400527 Other Food Products 4.7109 21.6449 3195328 Textile Mills 19. 116 36.4365 453329 Apparel and Other Textile Products 20.7903 36.0401 3393830 Logging. 54imills. Planing mills 12.02*6 33.39S3 736231 i1I Work and mood 13.8"57 3.1.1842 2603732 PreffAdicated onmes and uildings 13.3489 34.2016 636533 Furniture and Fixtures 19.4437 38.517. 1872534 Paper and Paper mills S.1254 22.7427 664835 miscellaneous Converted Paper 8.0664' 14.9392 824036 Somes and Pape" Containers 8.171s 24.5445 832737 NeWspapers 18.3447 34.143S 3117338 Publishing is.0717 38.7034 968939 Printing 15.7100 32.8645 2921240 Photographic a Printing Products IS.3787 33.'0648 1099341 Indumtrial Inorganic Chemicals 3.093 17.5S24 7012f2 Plastics and fibers 2.717 15.0-380 537843 Symthetic Rhuber 3.0117 21.00% 3577

,4 orugs 4.1373 2.22287 4'55445 Sooos. Cleansers. and Toiletries 4.3w96 22.9890 3%446 Paint •nd Allied Products 4.2639 21.1383 f13s47 Inlustrial Organic Chemicals 2.3 59 19.1914 3081014 Cyclic Crudes and Intemediates 2.5217 20.2679 3MW•49 Agricultural Chemicals 3.1313 19,5201 5130

139

APP04DIX TA&Lz 6.&

TEXAS EMPLOYtENT MJLTIPIUERS <TWPE 21(EFFECTS IN J093 PIER MILLION DOLLARS OF OUTPUT)

DIRICT TOTAL TOTAL

SECTOR SCTOR NAME EFFECT EFFECT EMPLOYMENT

SO Other Chemicals 3.4133 23.4713 7117

51 Petroelum Refining 4.0844 14.39"3 30548

52 Other Petroleum Products 1.316 21.0908 3055

53 Tirem and Rubber Products 8.5931 23.5189 5620

54 Plastic Pro "a ts I.4493 28.2S28 26245

55 Leather and Pro jts 22.2017 4Z.6?75 7200

56 Glass 11.0411 29.4506 8601

57 brick and Clay 15.9064 35.9077 71u056 Cement and Concrete 12.4454 33.6344 23414

59 Nonmetallic Minerals 12.2069 31.8218 12563

60 Slast Furnace& 5.113 20.6432 8738

61 Iran and Stsal Foundries 8.2933 28.6998 7847

62 Primary Nonferrous Metals 5. 957 24.8613 12224

63 fabricated Metals and Iardware 12.9793 27.9833 23348

44 Fabricated Steel 14.4419 32.8174 20679

6S Metal Plate Work 13.07"9 32.0919 1865366 Valves end Pipe Fittings 10.85-46 30.3129 9836

67 Heavv Machinery 12.1136 27.95.7 9385

468 Mining Machinery and Equipment 9.0787 26.4745 28051

69 Metal Working machinery 10.4646 30.6341 7842

70 General Industrial Machinery 11.5151 30.8052 8981

71 Computers And Accounting Machinery 8.$297 32.0304 2125'.

72 Service !rrsntr~j Machinery 12.7576 34.8804 18725

73 Refrigeration Machi.ery 12.0370 28.7266 13723

74 Electrical Apparatue 17.0346 34.0330 10564

75 Radio, TV and Phonographic Equipment 11.9965 35.7288 29339

76 Telephon and Telegraph Equipement 13.0233 35.9155 908777 Electronic Components and Equipment 14.3535 37.4401 19365

76 semicon jctors 12.4051 35.6321 43165

79 Other Electrical Apparatus 15.4305 35.7148 5642

64 Motor Vehicles and Parts 12.7113 26.2560 13824

01 Other Trensportation Equipment 14.3917 35.4073 3647

82 Aircraft and Parts 8.7473 22,9469 46543

S3 Ship and Beat Building 14.6043 35.4090 4033

64 Guided Missiles and Space Vehicles 8.2147 28.7377 15705

a5 Scientific Instruments 8.9620 24.7599 1029166 Photo. Timing and Optical Equipment 11.1285 32.1114 3636

87 medical Instruments 10.3062 29.0827 e533

60 Other Masnufacturing 18.8028 39.5473 17285

89 Ordnance 11. 705 35.4149 11387

90 Railroads 11.1219 30.8097 20881

91 Local and Intercity Transport 12.7 743 32.8167 11753

92 Motor Freight " Storage 20.42S5 42.4483 125782

93 water Transport &.%15 29.9439 15831

94 Air Trane•prt 9.8362 29.8:55 5064995 Pipeline Transport 3.1790 21.0075 4682

9 Otther Transportation Services 6.48622 52.7350 114701

97 Talepmhoe ad Telegraph 10.9m90 26.7468 65935

96 Radio And TV broadcasting 11.6257 33.8390 IS690

140

APPENDZX TABLE 6.6TEXAS EMlPLOYMENT MULTIPLIERS <TYPE 2)

(EFFECTS IN .1085 PER IIZLLION DOLLARS OF OUTPUTI

DIRECT TOTAL TOTALSECTOR SECTOR NAME EFFECT EFFECT EfIPLOWhENT

99 Other Communications 10.1448 34.SSO 9599

100 Electric Utilities 2.9856 19.2370 36205101 Gas Utilities 1.7813 18.1679 1017810 Water and Sanitary Services 10.9182 35.2843 24521103 Wholesale Auto Parts and Supplies 4.7160 25.9489 26126104 Wholesale hachinery and Equipment 18.6663 39.2869 133363105 Wholesale Groceries 11.6904 33.0837 55935106 Agricultural Supplies 18.2266 39.3057 21016107 Wholesale Petroleu Products 5.2424 24.7983 25N61108 General Wholesale 10.3447 30.6955 186193109 Lumber, Hardware and Related 25.8%3 48.2249 55546110 Department and Variety Stores 35.4393 35.8010 167427111 Food Stores 40.2790 61.8938 248593112 Auto Dealers 33.2761 50.2811 117051113 Gasoline Service Stations 37.9197 52.6684 39471114 Apparel and Accessory Stores 42.3994 62.2759 91609115 Home Furnishing Stores 39.5S49 62.2919 63147116 Eating and Drinking Places 70.6918 93.2174 4C6427117 Other Retail 19.5422 39.6450 225119118 banking Instiiutions 6.9212 31.5090 115635119 Credit Institutions 8.2860 32.5059 91193120 Security and Commodity Brokers 10.4578 32.1839 19761121 Insurance 11.2461 50.8146 89630122 Insurance Agents 25.0606 46.7561 65333123 Real Estate 6.6622 16.1648 315137124 Lodging Services 29.5325 51.6106 94622125 Laundry and Cleaning Services 53.6780 77.1021 75219126 Beauty and barber Shops 99.8629 118.3751 S0:61

127 Miscellaneous Personal Services S8.7107 79.4736 44892128 Advertising 15.6081 42.6701 15196129 Photo. Video and Film Services 24.6816 45.2106 23680130 Cleaniing and Maintenance Services 107.2980 130.7918 71762131 Persctvnel Services 78.0372 101.6007 96756132 Computer Processing Services 18.6112 43.0478 70161133 Research and Development Labs 18.4790 41.5457 19986

134 mlanagement and Consulting Services 23.0908 48.9231 43371135 Detective and Protective Services 71.1762 95.72S5 44236136 Equipment Rental 17.21S2 35.0538 33728137 Other Business Services 32.6810 55.9079 73208138 Auto Rental 15.0185 33.4082 2:106139 Auto Repair 31.3066 48.30O0 65.4751.0 Electrical and Other Repair Shops 38.3740 60.4S03 4.'005141 Mlotion Pictures and Amusements 25.6988 48.S047 75276142 Physicians and Dentists 12.4072 37.0805 '21521.43 Other fmedical Services 39.4176 60.2353 6768914.. Hospital Services 21.9971 4'9.7151 216654145 Mledical and Dental Labs 18.1673 41.6344 '5311140o Legal Services 1S.2.7S9 34.0228 70691147 Private Education 49.2110 77.0323 11351

141

APPENDIX TAILE 6.6TEXAS EMIPLOYMENT MJLTIPLIERS (1W!p 2

IEFFECT$ IN JOBS PER MILLION DOLLARS OF OUTPUT)

oDRECT TOTAL TOTALSECTOR SECTOR M1A~E EFFECT EFFECT EMlPLOYMENT

148 Private Colleges and Universities 49.2083 75.9930 39729149 Other Educationea Services ZZ.9064 45.3940 13370ISO Social Services 29.4121 58.8209 3862'151 Day Care Services 23.4071 '46.2t9 27756152 Norprefit Groups and Musem 44.8838 74.7442 57954153 Religious Organizations 3S.4S28 61.734t 31670154 Domestic Servi•ts 214.4449 238.0470 147406135 Engineering and Architectwu 22.2749 46.Z64Z 11S940156 Accouanting and Bookkeeping 32.1880 S6.444 66870157 Scrap and Secondhand Goods 12.8244 35.6705 3459

142

VITA

Name: Bryan Keith Jagoe

Born: November 7, 1957El Paso, Texas.

Permanent Address: 12107 AdvanceHouston, Texas77065

Education: University of TexasAustin, TX 78745B.S. Petroleum Engineering

(May 1980)

Occupation: Naval Officer

Civil Engineer CorpUnited States Navy