Working Paper: NBER ID: w4605
Authors: Kenneth Hendricks; Robert H. Porter
Abstract: This paper documents exploratory drilling activity on offshore wildcat oil and gas leases in the Gulf of Mexico that were sold between 1954 and 1990, with emphasis on the period before 1980. For each year of the lease, we study the determinants of the decision whether or not to begin exploratory drilling, and the outcome of any drilling activity. Our results indicate that equilibrium predictions of plausible noncooperative models are reasonably accurate, and more descriptive than those of cooperative models of drilling timing. We discuss why noncooperative behavior may occur, and the potential gains from coordination.
Keywords: Exploratory Drilling; Offshore Wildcat Tracts; Industrial Organization
JEL Codes: L71; Q32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Auction price of the lease (D44) | Decision to explore (D87) |
| Initial bid levels (D44) | Predictive power of exploration decision (D80) |
| Local drilling activities (L71) | Decision to explore (D87) |
| Determinants of drilling activity (L71) | Drilling outcomes (L71) |
| Lease term approaching (D25) | Number of tracts drilled (L71) |
| Noncooperative behavior (C72) | Timing decisions in drilling (C41) |