L A CRISIS POLÍTICA DE 1956-1957.

Our data set is retrieved from the data bases of the Norwegian Petroleum Directorate, who has collected and processed information and statistics on Norwegian oil and gas activities since the early 1970s. We have time series for all variables over the period 1965-2004, split between the three major offshore regions on the Norwegian Continental Shelf.16 The upper bound for the number of observations in our panel is 40x3 = 120. However, observations are missing for some of the regions in some of the years. For example, the

16

Norwegian Sea and the Barents Sea were not opened for exploration drilling before 1980.

Figure 3. Key variables of the data

Oil price USD/bbl, 2004 prices 0 25 50 75 100 1966197219781984199019962002

Exploration and appraisal wells 0 10 20 30 40 50 60 1966 1972 1978 1984 1990 1996 2002

Exploration and appraisal wells 0 10 20 30 40 50 60 1966 1972 1978 1984 1990 1996 2002 Barents Sea Norwegian Sea North Sea

Acreage and discoveries

USD/bbl, 2004 prices 0 20 40 60 80 100 1966197219781984199019962002 0 2 4 6 8 10 Open acreage (1,000, sq km) Acc. discoveries (bn scm, rhs

Sources: Oil price: http://EcoWin.com. All other numbers: The Norwegian Petroleum Directorate.

Our data set contains regional-specific information for discoveries and licensed exploration acreage, whereas our proxy for the marginal value of new reserves is the same across the three regions. We allow for regional variation in the constant term. At the same time, our model implicitly excludes any variation in economic effects across regions, as the coefficients are assumed to be the same for the three regions involved. In practice, a quite stable group of oil and gas companies have had comparable access to the three regions of

Efforts and efficiency in oil and gas exploration

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our data set over the sample period. The political and regulatory regime is also the same for the three regions, producing a unified business framework. We therefore assume that the underlying economic behaviour represented by our data set does not vary across regions.17

Our choice of number of wells as the dependent variable is a result of tests and comparisons of a variety of activity measures. An econometric appraisal of various activity measures in NCS exploration reveals that a model explaining drilling activity in terms of number of wells outperforms specifications with alternative activity measures, including drilling footage, annual number of drilling days and annual exploration expenditures. Annual well-count is a simple and plain activity measure, has an easy interpretation, and agrees well with our theoretical specification. The two top panels of Figure 3 illustrate how exploration drilling on the NCS has been on a downward trend over the last 10 years, in spite of the recent increase in oil prices. NPD’s data base system provides characteristics of 3840 wells over the period 1965-2004. 30 per cent (1201) of these wells relate to exploration. Further, exploration wells are split between wildcats (844) and appraisal wells (367). Some exploration wells are oil-prone and others are gas prone, but the ex ante uncertainty is very large when it comes to expected type of hydrocarbons that is likely to be found. A typical feature for decision concerning exploration activities on the NCS is that no clear distinction is made between exploration wells for oil and exploration wells for natural gas. Consequently, specific data for oil- or gas-targeted exploration is not available. We therefore regress the total sum of exploration wells, as well as the two specific subgroups (wildcats and appraisal wells), against the explanatory variables.

The first explanatory variable is the oil price, as illustrated by the left-hand bottom panel of Figure 3. Our choice is Brent blend, the standard reference for North Sea crude oil. Preliminary estimations were run on both NOK and USD denominations for the oil price, and we have tested the properties of nominal versus the real price. Based on these tests, we have come to prefer a real USD denomination.18 The result is the oil price series illustrated Figure 3.

17

Ringlund et al. (2004) demonstrate that the oil price sensitivity of exploration drilling may vary across regions in an international context. However, they also argue that regulatory heterogeneity across countries is the most likely explanatory factor behind the regional variation in the economics of the exploration process.

18

Statistical inference was the key criteria for this selection. However, we also looked at the explanatory power of the various model versions, and how different oil price variables interfered with the quality of the other coefficient estimates of the model. Based on these considerations, the real USD denomination was selected for our preferred versions of the

We would also like to include a variable for the cumulation of oil and gas resources. Based on various econometric specifications and definitions, we arrived at NPD’s estimate for total oil and gas resources on the NCS net of undiscovered resources and historic production as the best suited resource variable for our modelling purpose. In other words, our resource variable (rest) include estimates for recoverable resources in fields and discoveries as

defined by the NPD. Resource estimates for fields include reserves and contingent resources, where contingent resources also include estimates for IOR potential. Based on alternative sources, we find that changes in our resource variable closely resemble the history of discoveries on the NCS.19 The development of our measure of cumulated discoveries (net of production) is illustrated in the bottom right-hand panel of Figure 3. Strong resource growth was provided by huge discoveries during the 1970s and 1980s, but over the last 15 years, the stock oil and gas resoures has stagnated, due to falling drilling activity and poor exploration results. At the same time, solid production rates now contribute to gradual depletion. These are typical symptoms of a maturing oil and gas province.

Finally, the bottom right-hand panel of Figure 3 illustrates how exploration acreage (acrt) has been regulated by the Norwegian Government. Some

42,000 km2 were awarded in the 1st licensing round in 1965, ahead of the opening of the Norwegian Continental Shelf. Licenses that were handed back to the Government towards the mid 1970s reduced the cumulative open exploration acreage, before new licensing rounds added new frontier acreage in the Norwegian Sea and in the Barents Sea from 1980. Licensing policies have been adjusted over the last few years to spur exploration activity, and large areas were awarded in mature areas and frontier areas both in 2003 and 2004.