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- Title
Drilling Deadlines and Oil and Gas Development.
- Authors
Herrnstadt, Evan; Kellogg, Ryan; Lewis, Eric
- Abstract
Oil and gas leases between mineral owners and extraction firms typically specify a date by which the firm must either drill a well or lose the lease. These deadlines are known as primary terms. Using data from the Louisiana shale boom, we first show that well drilling is substantially bunched just before the primary term deadline. This bunching is not necessarily surplus‐reducing: using an estimated model of firms' drilling and input choices, we show that primary terms can increase total surplus by countering the effects of leases' royalties, as royalties are a tax on revenue and delay drilling. These benefits are reduced, however, when production outcomes are sensitive to drilling inputs and when drilling one well indefinitely extends the period of time during which additional wells may be drilled. We enrich the model to consider mineral owners' lease offers and find small effects of primary terms on owners' revenue.
- Subjects
LOUISIANA; ROYALTIES (Copyright); SHALE oils; OIL &; gas leases; PETROLEUM industry; NATURAL gas production; GAS extraction; DEADLINES; INTERNAL revenue
- Publication
Econometrica, 2024, Vol 92, Issue 1, p29
- ISSN
0012-9682
- Publication type
Article
- DOI
10.3982/ECTA18436