Uncertainty in the Oil And Gas Exploratory Process a Framework for Analysis And
Uncertainty in the Oil And Gas Exploratory Process a Framework for Analysis And
Krishna Challa
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The size variables SIZEN and SIZEA are the average sizes of discovery for non-associated and associated gas respectively. In the case of the total wells equation, the log linear forms are preferred. In addition to the ease of interpretation of the elasticities they have the attractive feature that the implied price and cost elasti- cities are stable across regions and through time. This is resonable since exploration is carried on in many instances by the same firms operating in the various pro...duction districts. Thus drillers do not have rigid geo- graphical preferences apart from the economic and geological factors already included in the model . This explanation does not apply in the case of the success ratio equations, since the elasticities cannot be interpreted directly in the case of logit functional forms. The true estimate of the elasticities can be computed in these cases only by simulating the equations over the relevant period. Further, in these cases the use of a linear model is not inconsistent with roughly equal elasticities across regions and through time as the dependent variables do not change appreciably across regions.
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