Omowumi O. Iledare

Simulating the effect of economic and policy incentives on natural gas drilling and gross reserve additions

A supply model of natural gas reserve additions is developed and estimated using data on 18,000 new wells drilled in West Virginia between 1977 and 1987. The model is used to quantify the responsiveness of drilling effort and gross reserve additions to changes in the expected wellhead price, taxes, resource depletion and reserve-life index. All the results of the hypotheses tested are in line with conventional wisdom, and their consistency suggests that the model structure offers a useful approach to modeling resource supply in a mature geologic setting like West Virginia. The model structure is well-suited for regions where drilling activities and outcomes cut across formations of varying depth and is more flexible than aggregate models. The model has the capacity to evaluate the response of activity within individual geologic series to prices, taxes and costs.

Sources of change in petroleum drilling productivity in onshore Louisiana in the US, 1977–1994

Abstract Productivity of petroleum exploration and development drilling in the contiguous US has increased over the last 15 years, thereby suggesting that the effects of some other factors may be offsetting the expected negative effect of resource depletion. In this paper, we disentangle empirically, using a region-specific petroleum drilling and discovery model, the effects of resource depletion and other intervening factors on petroleum reserve additions in a typical mature petroleum basin in the US — Louisiana onshore basin. Our empirical results confirm the expectation of diminishing marginal returns to exploration and development drilling with increasing drilling effort. The results also indicate that while technical progress significantly reduced the negative effects of depletion on petroleum reserve additions by as much as 7.5% in north Louisiana and 6.7% in south Louisiana, its overall impact on reserve additions has not dominated the effects of depletion in Louisiana state jurisdiction.

Forecasting Petroleum Drilling Outcomes for Firms of Different Sizes Operating in the Gulf of Mexico OCS Region

The purpose of this paper is to forecast petroleum drilling activity and outcomes for firms of different sizes using a model of hydrocarbon reserve additions developed for the Gulf of Mexico OCS region. Our empirical results provide evidence of statistically significant diminishing returns on drilling effectiveness with the growing maturity of the OCS region, but are inconclusive, statistically, as to whether technological change boosts drilling effectiveness differently among firms of different sizes. The response of drilling to economic incentives is inelastic among the independents but nearly unitary-elastic for the majors. Overall, there is no persuasive evidence to suggest a less aggressive drilling pace or less efficient hydrocarbon resource development on the Gulf OCS because of an increasing role of independents in the region.