Drilling to Learn: Information, Royalty Rates and Drilling Decisions in the Haynesville Shale

• Departmental Seminar

Date and Location

Wednesday, February 7, 2018, 10:30 AM - 11:50 AM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Geological characteristics are key determinants of oil and gas production outcomes, but these are not fully known by rms until actual drilling occurs. To study the precision of rms' prior beliefs about geological quality in Louisiana's Haynesville shale, I estimate a strucural model that combines initial mineral lease terms, rms' dynamic, discrete choices to drill wells, and the production outcomes of these wells. These three components are linked by learning. I nd that rms' initial signals about geology are only somewhat informative. Mineral owners are successful in capturing some of rms' initial information about geolical quality, and the informational value of exploratory drilling is likely to have accelerated the U.S. shale boom.