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Supply Flexibility in the Shale Patch: Evidence from North Dakota

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  • Hilde C. Bjørnland

  • Frode Martin Nordvik

  • Maximilian Rohrer

Abstract

We analyse if output flexibility in oil production depends on the extraction technology.In particular, we ask to what extent shale oil producers respond to price incentives by changing completion of new wells as well as oil production from completed wells. Using a novel well-level monthly production data set covering more than 15,000 crude oil wells in North Dakota, we find large differences in response between conventional and unconventional (shale) extraction technology: While shale oil wells respond significantly to spot future spreads by changing both well completion and crude oil production, conventional wells do not. Our results indicate that firms using shale oil technology are more flexible in allocating output intertemporally. We interpret such output pattern of shale oil wells to be consistent with the Hotelling theory of optimal extraction.

Suggested Citation

  • Hilde C. Bjørnland & Frode Martin Nordvik & Maximilian Rohrer, 2017. "Supply Flexibility in the Shale Patch: Evidence from North Dakota," Working Papers No 2/2017, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    • Handle: RePEc:bny:wpaper:0051
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    References listed on IDEAS

    as
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    2. Soren T. Anderson & Ryan Kellogg & Stephen W. Salant, 2018. "Hotelling under Pressure," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 984-1026.
    3. Ramcharran, Harri, 2002. "Oil production responses to price changes: an empirical application of the competitive model to OPEC and non-OPEC countries," Energy Economics, Elsevier, vol. 24(2), pages 97-106, March.
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    7. James L. Smith, 2009. "World Oil: Market or Mayhem?," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 145-164, Summer.
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    Full references (including those not matched with items on IDEAS)

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