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The Discovery Decline Phenomenon: Microeconometric Evidence from the UK Continental Shelf

Abstract:
The Discovery Decline Phenomenon (DDP) requires that firm-level discoveries of a non-renewable resource depend, non-linearly, upon cumulative industry wide exploration. In this paper, an optimal rule for the exploration. effort that adheres to the DDP is derived. Data from the United Kingdom Continental Shelf (UKCS) are applied to the model where it is found that cumulative exploration is a highly significant determinant of firm-level exploration, and that prices and taxes also determine exploration effort. The 'Hubbert peak' in discoveries in the UKCS is estimated to be 1989 thereby improving upon previous estimates but also implying that the DDP in this region is already quite advanced.

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Energy Specializations: Petroleum – Exploration and Production; Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes: Q21: Renewable Resources and Conservation: Demand and Supply; Prices, Q31: Nonrenewable Resources and Conservation: Demand and Supply; Prices, D21: Firm Behavior: Theory, D22: Firm Behavior: Empirical Analysis, Q35: Hydrocarbon Resources, Q20: Renewable Resources and Conservation: General, Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels

Keywords: Depletable resources, Hubbert, oil, UK, Resource scarcity, oil production

DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No1-3


Published in Volume23, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.