Date of Award

1984

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

Abstract

The geologic characteristics of an oil field, most importantly its depth and surface area, have significant impacts on the average cost of extracting petroleum. These characteristics of petroleum habitat constitute a measure of "deposit quality," as ore grade does in the production of metals. This measure can be used to separately evaluate the effects on cost, over time, of changing depost quality and technological advance. A sample of 156 U.S. fields, with average estimated ultimate recovery of 50 million barrels, was analyzed to quantify the cross-sectional differences in average production cost on the basis of depth, area, productive capacity, reservoir lithology and reservoir drive mechanism. Changes each year between 1942 and 1972 in the quality of new discoveries was computed on the basis of depth, surface area and productive capacity. Increasing average depth and decreasing productive capacity during the period would have produced annual increases in average cost of 2.4%, in the absence of technological change. Using the year of field discovery to measure variation in cost attributable to technological change, the negative influence on cost arising from this factor exceeded the increase from declining deposit quality to produce a net decline in average cost of 0.74%/year. Statistical insignificance and inconsistency of the parameter estimate on technological change late in the time series indicated that the magnitude and direction of the net change in average cost may have been changing by the late 1960s. Increases in the price of inputs, particularly capital, may have been responsible, along with transition of the U.S. resource base from one of increasing to decreasing production. Integration of field characteristics into modified Cobb-Douglas and engineering production/cost functions demonstrated the value of these parameters in analysis of variation in average cost of extracting crude oil. The additional information produced by this approach enhances usefulness of average cost as an indicator of scarcity of mineral resources. The research also showed that in the case of petroleum, decreases in deposit quality were not associated with increases in the physical quantity of the mineral resource in place.

Pages

153

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