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Resource Depletion and Technical Change: Effects on U.S. Crude Oil Finding Costs from 1977 to 1994

A dramatic decline in U.S. crude oil finding costs has provoked intense interest in the extent to which technical progress has mitigated the effects of resource depletion. Analysis of depletion and technical change using data for 27 large U.S. oil producers from 1977-1994 is conducted using a translog cost function. The translog provides a flexible representation of the underlying production function, and controls for changing factor prices. The model also controls for the effect of prospect highgrading. Results show that an accelerating rate of technical change reduced average finding cost 15 percent (onshore) and 18 percent (offshore) per year by 1994. Resource depletion increased cost at an average annual rate of 7 percent onshore and 12 percent offshore. Technical change was relatively labor-using bothonshore and offshore.

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Energy Specializations: Petroleum – Exploration and Production; Petroleum – Policy and Regulation; Energy Modeling – Sectoral Energy Demand & Technology

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, Q35: Hydrocarbon Resources, Q31: Nonrenewable Resources and Conservation: Demand and Supply; Prices, Q24: Renewable Resources and Conservation: Land, Q21: Renewable Resources and Conservation: Demand and Supply; Prices, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels

Keywords: Oil exploration, Oil finding costs, Depletion, Technical change, US

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No4-4

Published in Volume18, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.