A Model of Optimal Dynamic Oil Extraction: Evidence From a Large Middle Eastern Field

Robin Sickles and Peter Hartley

Journal of Productivity Analysis, 2001, vol. 15, issue 1, 59-71

Abstract: We model the economically optimal dynamicoil production decisions of a representative country whose oilfields resemble the largest developed oil field in Saudi Arabia,Ghawar. A government-controlled enterprise may base its oil productiondecisions on criteria other than maximization of the presentdiscounted value of profits. In particular, oil production decisionsare likely to reflect many political, strategic and geopoliticalmotives of the government. Our analysis of the optimal economicdecisions nevertheless enables one to assess the extent to whichlong-run value maximization is being followed. This in turn allowsone to judge the costs that political decisions are imposingin terms of foregone economic output, government revenue andforeign exchange. These costs ought to be of interest to policy-makerswithin Saudi-Arabia and also to external parties interested inmodifying Saudi pricing and production decisions. Copyright Kluwer Academic Publishers 2001

Keywords: Dynamic structural model; world oil markets; engineering production functions; simulation (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (6)

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DOI: 10.1023/A:1026547923853

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