Oil and gas drilling

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    maria_lucas

    Hi Matt,

    What information do you have available about the spending necessary for these new oil and gas wells? 

    If the Sector exists in the Region where you are modeling the new wells, then you have the option to simply enter the total cost of new wells into an Industry Change as Industry Sales/Output.

    When you do so, IMPLAN will determine how your entered cost will be distributed. You can find this information in your model from Explore > Social Accounts > Balance Sheets > Industry Balance Sheet, then selected your Sector from the dropdown. The Commodity Demand tab will reveal the Intermediate Expenditure spending IMPLAN will model per dollar of Output in the Sector in the Gross Absorption column. The Value Added tab will reveal how the remaining Output is distributed to the components of Value Added.

    If this distribution varies widely from the way you expect the cost of the new oil and gas wells will be distributed, then Analysis-by-Parts could be appropriate - specially if the variance is in the components of Output that can't be edited in an Industry Change. Also, if the Sector does not exist in the Region, Analysis-by-Parts is the appropriate workaround.

    I will make one correction on how you've described the approach of modeling an impact using Analysis-by-Parts - you are correct that you should model purchases via a Industry Spending Pattern, but the Labor Income should be modeled via a Labor Income Change and not an Industry Change because modeling Labor Income in an Industry Change will also estimate Output and all the other Components of Output for the Industry, including Intermediate Expenditures, therefore this would create an issue of double counting. 

    You are correct that the Direct Output for the oil and gas well drilling sector is the cost of the well drilling even if some of the inputs to drill the well came from outside the study area (when you are in the Commodity Demand tab for the Sector, you'll see a column for RPC which determines what percentage of each Commodity purchase will be treated as a local purchase in an Industry Change). You should think of Output/cost for construction and oil and gas well drilling as the price of the construction or well drilling because it includes not only the purchases of goods and payment of labor, but also Tax on Production and Imports and Other Property Income

    It is true for all Sectors when modeling an Industry Change that the Sector's employment would be considered direct employment, even if some of those workers are non-local.

    Thank you,
    Maria

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    Mflyr

    Maria: 

    Thank you for the very helpful reply! 

    We have information about the total cost of building/drilling the well, so entering the cost into an industry change event seems like a good approach for us. 

    However, if we know that some of the workers required for drilling are not only non-local but also off-site, would it be appropriate to made a reduction to the direct employment and labor income calculated by IMPLAN after running the model to reflect on-site workers only? 

    Similarly, since we know some of the direct workers are non-local, we think it is appropriate to reduce the induced effects for employment and labor income after running the model. However, if my understanding is correct, induced effects are made up of both (1) induced effects stemming from purchases by direct employees, and (2) induced effects stemming from purchases by employees in the indirect (intermediate purchases) sectors. We would only want to reduce the first type to reflect the fact that non-local workers spend most of their income outside the study area. Is there any way to isolate the first type of induced effect? 

    Thanks again!

     

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    maria_lucas

    Hi Matt,

    You are totally on track with your understanding. As for how to apply this adjustment to the model - it would be appropriate to reduce your direct labor income before your run the model within your Event setup.  

    This will in fact affect the induced effects in the way your are hoping - it will reduce induced effects due to the direct labor income earned by non-local/off-site employees but it will not effect induced effects due to the employees in indirect sectors. 

    IMPLAN actually already accounts for the average in-commuting in the region (portion of employee compensation earned by non-residents). Read about how to find IMPLAN's in-commuting rate and adjust labor income based off your own in-commuting/off-site rate for your Event/impact: https://implanhelp.zendesk.com/hc/en-us/articles/115009674628-Estimating-Employee-Compensation-Adjustments-for-Known-Commuting-Rates

    As described in the last paragraph of the linked article, you'll need to adjust your direct labor income in your results to reflect income earned by workers in the region (these workers do not need to live in the region). Now that you mention they are also off-site, you may want to further consider including these workers and their income in your direct effect. If they also don't work in the region then they should not be considered direct. 

    Fun fact about direct employment - if you are using Industry Sales in your Event, the insertion of employment in the Event has no effect on your results other than the direct employment. Indirect Effects are calculated off the Intermediate purchases and Induced Effects are calculated off the Direct and Indirect Labor Income, not at all off of any Employment number. 

    Thank you,
    Maria

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    Mflyr

    Maria: 

    Thank you! I think I'm understanding your guidance:

    1. To adjust for off-site employees (who never come on-site), reduce the direct employment and direct labor income BEFORE running the model. This will reduce the induced effects from these off-site employees but not the induced effects from employees in the indirect sectors. 
    2. To adjust for non-local employees (who ARE on-site), we would also reduce direct labor income BEFORE running the model to ensure that the induced effects from non-local employees are reduced. When making this adjustment, we should consult the SAM to see the existing in-commuter rate, which IMPLAN will use to make an adjustment to induced effects for us. We would then need to add the employee compensation of non-local employees back into the direct labor income results AFTER the model run, since direct labor income includes on-site but non-local EC. 

    Last question for you! I'm a little uncertain how value added fits in to these non-local and/or off-site adjustments. Employee compensation is a component of value added, so would any adjustment we make to labor income direct effects also need to be applied to value added direct effects? 

    Thank you so much for helping with this issue. 

    Matt 

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    maria_lucas

    Hi Matt,

    You are absolutely correct in your breakdown of the modeling approach. And great catch! Yes, you should apply any adjustment made to Employee Compensation (made before running the model from Step 2 in your approach) not only back into your Direct Labor Income in your results but also to the Direct Value Added in your results. I apologize for not also specifying that adjustment.

    Thank you,

    Maria 

     

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