The timing and incidence of exploratory drilling on offshore wildcat tracts

Journal Article · Sat Jun 01 04:00:00 EDT 1996 · American Economic Review

OSTI ID:458700

Hendricks, K ^[1]; Porter, R H ^[2]

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1. Univ. of British Columbia, Vancouver (Canada)
2. Northwestern Univ., Evanston, IL (United States)

This paper is an empirical study of learning and strategic delay in exploratory drilling. The specific context is drilling on federal land off the coast of Texas and Louisiana. Between 1954 and 1990, the US federal government held a number of sales in which it sold the oil and gas rights to thousands of parcels of its offshore land. These parcels, known as tracts, each cover an area of five thousand acres on average. The typical sale involves more than a hundred tracts. Most sales are wildcat sales, which consist of tracts located in areas where there has not been prior exploratory drilling, and on-site drilling is not permitted prior to the sale. Firms have access only to seismic information and as a consequence face considerable uncertainty. The rights to the tracts are sold individually using a first-price sealed-bid auction, and ownership of tracts in an area is typically distributed among several firms. Tracts within an area often share common geological features, and a subset may be located over a common pool. In either case, the ex post value of nearby leases will be correlated and, as result, there is an information externality associated with exploratory drilling. 20 refs., 1 fig., 5 tabs.

• OSTI ID: 458700
• Journal Information: American Economic Review, Journal Name: American Economic Review Journal Issue: 3 Vol. 86; ISSN 0002-8282; ISSN AENRAA
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
DECISION MAKING
NATURAL GAS INDUSTRY
OFFSHORE DRILLING
PETROLEUM INDUSTRY