Simulating the discovery rate implications of technological innovation in oil and gas exploration

Abstract

Technological innovation has been an important source of continued improvements in the discovery rate of oil and gas. Previous work, however, has suggested that there were diminishing returns to successive improvements in exploration technology. The effects of introduced technological innovation were studied using a simulation modeling framework that relies on geologic data. The modeling framework treats the probability of discovery as being proportional to pool size, the number of pools remaining to be discovered, and conditions predictions of future discoveries on the number of previous discoveries. The framework includes a discovery efficiency parameter which represents the degree of technical advancement possessed by exploration firms. Increments were made in the parameter at varying stages in the exploration history of a hypothetical area of interest, and the resulting cumulative discoveries, average discoveries, and average finding costs were calculated. The pattern of results suggested that while early introductions of technological advancements were capable of improving discovery efficiency, in terms of the amounts discovered per unit of effort, they were not capable of maximizing total discoveries. Similar technological changes introduced later in the discovery history of an area of interest, however, had the reverse effect: they decreased discovery efficiencies but maximized total discoveries.