Oil investment in the North Sea
Investment in the United Kingdom Continental Shelf (UKCS) involves three separate but highly interrelated activities: exploration, development and production. The exploration and extraction decisions were analysed recently by Pesaran (1990) and Favero (1990).<br/><br/> The aim of this pa...
| Main Authors: | , |
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| Format: | Working paper |
| Language: | English |
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Oxford Institute for Energy Studies
1991
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| Summary: | Investment in the United Kingdom Continental Shelf (UKCS) involves three separate but highly interrelated activities: exploration, development and production. The exploration and extraction decisions were analysed recently by Pesaran (1990) and Favero (1990).<br/><br/> The aim of this paper is to provide a model of the investment decision in the UKCS, where the development process is explicitly modelled within an intertemporal optimization framework. The model highlights the importance of the lengthy time lags that exist between price and tax changes and changes in oil supplies from the UKCS. The empirical results show significant improvements over the previous studies, demonstrate the importance of theoretical considerations in modelling the oil supply process, and illustrate the pitfalls involved in relying on standard unrestricted distributed lag models in econometric analysis of oil investment. |
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