Modeling oil production with new empirics

David Hudgins and Jim Lee

The International Trade Journal, 2019, vol. 33, issue 5, 469-488

Abstract: This article first provides an overview of some stylized features of upstream oil production in light of recent developments in the US shale industry. Empirical observations motivate the formulation of a dynamic optimization model for oil extraction, in which an oil producer determines the optimal “intensity” of drilling wells. Given the intensity, oil production is a state variable where oil flow is characterized by a hyperbolic decline curve that captures the effects of geological constraints. Numerical simulations of the model highlight the importance of both output prices and cost efficiencies in understanding historical dynamics of shale oil production.

Date: 2019
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DOI: 10.1080/08853908.2019.1575299

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