Petroleum reserve responsiveness in the United States : a comparison of alternate forecasting methods

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1988

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Abstract

In measuring petroleum reserve responsiveness in the United States, this thesis meets three specific goals: (a) it provides a post mortem of the Epple model first introduced in Petroleum Discoveries and Government Policies, (b) it develops an effective alternate forecasting model that follows along the lines of Fisher's seminal piece, and (c) it provides a plausible framework for measuring the impact of federal tax policy within each model. Epple provides a forecasting framework within a strict theoretical model that explicitly accounts for depletion through an aggregate supply function for oil-bearing land. The post mortem of Epple's work first duplicates results presented in Petroleum Discoveries and Government Policy. Modifications focus on improved data. A primary concern with the model is that t-statistics values are low, for both Epple's original model and the modified model. Data corrections and data extensions improve the coefficient values, but fail to improve the coefficient's significance. The "Fisher" type model performs much better. The importance of industry specific traits is apparent in the estimation of each component of reserve change. New field discoveries, old field discoveries, extensions, revisions, and production equations are estimated. The breakdown of reserve growth into components provides a clear picture of how different segments of reserves respond over time to price change. The unit price framework introduced in the thesis, measures the expected net present value of a barrel of undeveloped petroleum reserves. The framework is modified to include all federal tax policy implications. A separate review of the role of the windfall profit tax provides a clear analysis of the ability of the unit price framework to measure the impact of federal tax policy on reserve growth.

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Keywords

Petroleum industry and trade, Government policy, Petroleum industry and trade, Forecasting

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