The costs of exploratory and development/production drilling and 

 other services incidental to offshore exploitation have risen particularly 

 steeply. For example, a jackup rig which cost $8-9 million in 1971, 

 cost close to $20 million by 1976. 



Market trends are very important. The current and future price of 

 oil and gas, their demand outlook, and the cost and availability of 

 petroleum from alternative sources all have significant influence on the 

 decision to proceed with development. During the past few years, the 

 above factors have become somewhat unpredictable due to the instabilities 

 in the world market. For example, since Middle East production costs 

 are a fraction of the U.S. production costs offshore, these nations have 

 a great deal of flexibility in manipulating the market, such as increasing 

 production and simultaneously lowering oil prices, which could undermine 

 investment in U.S. offshore development. 



The location of a promising field, and the distance to the desired 

 market is important. If oil and gas are discovered in a frontier area, 

 they must be transported to a refining center to be nrocessed and readied 

 for distribution. A field in close proximity to a refining center will 

 probably require a much lower threshold of reserves to make development 

 economically feasible. Oil can be transported by tanker from remote 

 areas, but the threshold of reserves required to encourage an investment 

 for the construction of oil storage and transfer systems or a pipeline 

 to shore may be quite large. 



Technical Constraints : The difficulty of recovery of oil and gas 

 resources is a function of the hardship and complexity of exploration 

 and development. This in turn depends upon both the location of the 

 frontier area in which drilling is planned and its characteristics. 



A major factor which affects the cost of exploration and feasibility 

 of development of the frontier area is the degree of remoteness from 

 sources of supply for steel, pipe, concrete, platform jackets, and other 

 heavy industrial goods. All of the Alaskan frontier areas are remote 

 from the source of supplies, especially those basins north of the 

 Aleutians. Here, transportation costs add significantly to the cost of 

 development. In contrast, the U.S. Atlantic frontier areas are all 

 relatively near supply areas. 



Another important locational constraint affecting the difficulty of 

 developing an offshore field is the distance between the offshore oil or 

 gas field and the shore. The cost of transporting men, fuel, materials, 

 and drilling equipment is a function of distance travelled. In storm- 

 swept areas such as the Gulf of Alaska, Bristol Bay, and the 

 Bering Sea, distance is especially critical, because of weather changes 

 during the long trip; for example a supply vessel can depart in good 

 weather but encounter adverse conditions before reaching the platform 

 and off-loading. Supply may be impossible for many days while costly 

 drilling rigs or platforms stand idle. 



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