An Econometric Analysis of Exploration and Extraction of Oil in the U.K. Continental Shelf.

This paper develops an econometric model for the analysis of exploration and production policies of "price-taking" suppliers, and derives theoretically consistent exploration and output equations for oil which explicitly take account of the oil discovery process and the intertemporal nature of exploration and production decision. The model is then applied to an empirical analysis of oil exploration and extraction on the United Kingdom Continental Shelf (UKCS) over the period 1978(1)-1986(4). The analysis explicitly takes account of the available engineering information concerning the pressure dynamics of the petroleum reserves and the geological knowledge pertinent to the discovery process, and presents formal statistical tests of the significance of these factors for the explanation of output and exploration in the North Sea. Copyright 1990 by Royal Economic Society.