Finding and developing costs in the USA 1945-1985
Name
MIT-EL-88-003WP-19737424.pdf
Size
3.09 MB
Format
Adobe PDF
Checksum (MD5)
f02fe53ecb503827c9c188e891ebe7fc
Author(s)
Adelman, Morris Albert
Date Issued
1988
Publisher
MIT Energy Lab
Series/Report no.
MIT-EL
88-003WP
Abstract
Development cost is defined as the ratio of development
expenditures in a given year to reserves added in that year.
Changes in development cost are a good proxy for changes in
finding cost and in user cost, because discovery, development,
and postponement or holding of hydrocarbons in place, are three
competing forms of investment.
Popular definitions of "finding" cost are an illogical and
useless mixture of discovery and development.
Although the discovery of large oil fields peaked before
1930, oil reserves added by development increased then stabilized
around 1960. Costs tended if anything to decrease through 1972,
but the decrease was mostly a one-time gain through the retreat
from a costly regulatory scheme.
The first price explosion in 1974 saw a strong decline in
oil reserves added. The second price explosion was followed by
an increase, but the best performance since 1949-51 came in 1983-
85, when oil prices were declining by nearly one fourth in real
terms. High oil and gas prices promoted a drilling boom, which
raised factor prices and lowered efficiency. Old-field
development was therefore inhibited, but then helped as the boom
deflated. Therefore the effect of the steeper price decline of
1986-87 has been mitigated by the decline in cost.
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