UNCERTAINTY IN THE OIL AND GAS EXPLORATORY PROCESS: A FRAMEWORK FOR ANALYSIS AND ECONOMETRIC ESTIMATION by

This paper attempts to provide a unified framework that takes into account various aspects of the oil and natural gas exploratory process such as the depletion of the resource base with time, uncertainty in drilling, changing economic incentives and the joint product aspects of the oil and gas exploration. The equilibrium in the market for oil and natural gas prospects is first described and the individual explorer's decision process is analyzed in the light of the the characteristics of the equilibrium. This analysis leads us to anticipations regarding the nature of economic relationships satisfied by the relevant variables. The goal here has been to derive relationships that follow naturally from a description of the choice behavior of an individual explorer. An attempt has also been made to avoid econometric biases that may have crept into some of the earlier estimations. All the implied economic relationships have been estimated and appear in the last section of the paper.