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Exploration and development of U.S. oil and gas fields, 1955-2002

  • Boyce, John R.
  • Nøstbakken, Linda

We study the exploration and development of oil and gas fields in the U.S. over the period 1955-2002. We make four contributions to explain the economic evolution of the oil and gas industry during this period. First, we derive a testable model of the dynamics of competitive oil and gas field exploration and development. Second, we show how to empirically distinguish Hotelling scarcity effects from effects due to technological change. Third, we test these hypotheses using statewide panel data of exploration and development drilling. We find that the time paths of exploration, development and total wells drilled are dominated by Hotelling scarcity effects. Finally, we offer an explanation for why fixed costs from exploration can make the contracting equilibrium in the mineral rights market efficient.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 6 (June)
Pages: 891-908

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:6:p:891-908
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Gary D. Libecap & James L. Smith, 1999. "The Self-Enforcing Provisions of Oil and Gas Unit Operating Agreements: Theory and Evidence," NBER Working Papers 7142, National Bureau of Economic Research, Inc.
  2. Margaret E. Slade & Henry Thille, 1997. "Hotelling Confronts CAPM: A Test of the Theory of Exhaustible Resources," Canadian Journal of Economics, Canadian Economics Association, vol. 30(3), pages 685-708, August.
  3. Hendricks, Kenneth & Porter, Robert H, 1996. "The Timing and Incidence of Exploratory Drilling on Offshore Wildcat Tracts," American Economic Review, American Economic Association, vol. 86(3), pages 388-407, June.
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  5. Chermak, Janie M. & Patrick, Robert H., 2001. "A Microeconometric Test of the Theory of Exhaustible Resources," Journal of Environmental Economics and Management, Elsevier, vol. 42(1), pages 82-103, July.
  6. Gary D. Libecap & James L. Smith, 2002. "The economic evolution of petroleum property rights in the United States," ICER Working Papers 25-2002, ICER - International Centre for Economic Research.
  7. Chermak, Janie M. & Patrick, Robert H., 2002. "Comparing tests of the theory of exhaustible resources," Resource and Energy Economics, Elsevier, vol. 24(4), pages 301-325, November.
  8. Robert Halvorsen & Tim R. Smith, 1991. "A Test of the Theory of Exhaustible Resources," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 123-140.
  9. Lasheng Yuan, 2002. "Divide and conquer: multiple leasing in common pool oil fields," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 36-51, February.
  10. Paul W. MacAvoy & Robert S. Pindyck, 1973. "Alternative Regulatory Policies for Dealing with the Natural Gas Shortage," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 454-498, Autumn.
  11. Livernois, John R & Uhler, Russell S, 1987. "Extraction Costs and the Economics of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 195-203, February.
  12. Chermak Janie M. & Patrick Robert H., 1995. "A Well-Based Cost Function and the Economics of Exhaustible Resources: The Case of Natural Gas," Journal of Environmental Economics and Management, Elsevier, vol. 28(2), pages 174-189, March.
  13. Black, Geoffrey & LaFrance, Jeffrey T., 1998. "Is Hotelling's Rule Relevant to Domestic Oil Production?," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 149-169, September.
  14. John T. Cuddington & Diana L. Moss, 2001. "Technological Change, Depletion, and the U.S. Petroleum Industry," American Economic Review, American Economic Association, vol. 91(4), pages 1135-1148, September.
  15. Halvorsen, Robert & Smith, Tim R, 1984. "On Measuring Natural Resource Scarcity," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 954-64, October.
  16. Arrow, Kenneth J. & Chang, Sheldon, 1982. "Optimal pricing, use, and exploration of uncertain natural resource stocks," Journal of Environmental Economics and Management, Elsevier, vol. 9(1), pages 1-10, March.
  17. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, vol. 78(5), pages 865-83, December.
  18. Richard B. Norgaard & Gwo Jiun Leu, 1986. "Petroleum Accessibility and Drilling Technology: An Analysis of U.S. Development Costs from 1959 to 1978," Land Economics, University of Wisconsin Press, vol. 62(1), pages 14-25.
  19. Smith, James L, 1987. "The Common Pool, Bargaining, and the Rule of Capture," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 631-44, October.
  20. Kenneth S. Corts, 2008. "Stacking the Deck: Idling and Reactivation of Capacity in Offshore Drilling," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 271-294, 06.
  21. Wiggins, Steven N & Libecap, Gary D, 1985. "Oil Field Unitization: Contractual Failure in the Presence of Imperfect Information," American Economic Review, American Economic Association, vol. 75(3), pages 368-85, June.
  22. Bohn, Henning & Deacon, Robert, 1997. "Ownership Risk, Investment, and the Use of Natural Resources," Discussion Papers dp-97-20, Resources For the Future.
  23. Libecap, Gary D & Wiggins, Steven N, 1984. "Contractual Responses to the Common Pool: Prorationing of Crude Oil Production," American Economic Review, American Economic Association, vol. 74(1), pages 87-98, March.
  24. Miller, Merton H & Upton, Charles W, 1985. "A Test of the Hotelling Valuation Principle," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 1-25, February.
  25. Smith, V Kerry, 1979. "Natural Resource Scarcity: A Statistical Analysis," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 423-27, August.
  26. Slade, Margaret E., 1982. "Trends in natural-resource commodity prices: An analysis of the time domain," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 122-137, June.
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