Economies of Scale in a Multiplant Technology: Evidence from the Oilpatch

James M Griffin and Clifton T Jones

Economic Inquiry, 1988, vol. 26, issue 1, 107-22

Abstract: A unique micro data set detailing operating costs and technical characteristics o f 133 Texas oil leases is used to estimate an econometric cost functi on, yielding a number of interesting findings. First, evidence of eco nomies of scale in extraction implies additional gains from oil field unitization and helps explain the paradox that voluntary unitization often occurs in the later stages of a field's life. Second, marginal operating costs per well are found to be about 30 percent below avar age costs, explaining why many wells remain operational despite falli ng crude oil prices. Finally, the results confirm a number of plausib le technical relationships. Copyright 1988 by Oxford University Press.

Date: 1988
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