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Efforts and Efficiency in Oil Exploration: A Vector Error-Correction Approach

Klaus Mohn

Year: 2008
Volume: Volume 29
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No4-3
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Abstract:
High oil prices and gradual resource depletion have raised global concerns for security of energy supply. Successful exploration activity is a critical factor for future oil production. Based on standard neoclassical producer behavior and modern time series econometrics, this study reveals new insights into the process of oil and gas exploration. I find that reserve additions are enhanced by an increase in the oil price, due to responses both in effort and efficiency of exploration. Moreover, oil companies accept higher exploration risk in response to an oil price increase, implying lower success rates and higher expected discovery size.





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