The Effects Of Technology And Basin Specific Learning On The Discovery Rate

Abstract

Abstract Technological innovation and basin specific learning are identified as potential sources of improvement in the discovery rate. Examples of both exist in the drilling history of Canada's Scotian Shelf This paper presents an historical analysis of the impacts of both on the Shelf's discovery rate. This was accomplished using a simulation modelling framework that treats the probability of discovering a natural gas pool as proportional to pool size. The model includes a discovery efficiency parameter which measures the geologic learning and technological sophistication of exploration firms. Repeated simulations allow the calculation of discovery efficiency parameters at discrete points in the exploration history of the Shelf. These, in turn, were used to measure the impact of technological innovation and increments in basin specific learning in the context of the Scotian Shelf's exploration history. Introduction Technological innovation during the 1970s and 1980s changed the methods of exploring, developing and producing petroleum resources. It will continue to play an important role in determining the character and pattern of future petroleum developments, particularly as the industry begins to rely increasingly on the resources located in frontier areas. Work to date on the impacts of technological innovation has focussed on its effects on drilling costs(1–4). These studies concluded that technological change during the 1950s and 1960s more than kept pace with the tendency of the oil and gas industry to move toward the exploration and development of more costly resources. Technological innovation, however, affects more than drilling costs. Rensburg and Malik(5) have suggested that technological change may be divided into two categories:changes in exploration technology; andchanges in drilling technology. Changes in exploration technology tend toward increasing the quantity of resources discovered, increasing the discovery rate, and lowering discovery costs. Changes in drilling technology tend toward lowering the costs associated with exploration and extraction, and can affect the discovery rate by putting previously unavailable resources within technological and economic reach. Technology, however, is not the only source of potential improvement in the discovery rate. Ryan(6) postulated that the rate at which oil is discovered is proportional to "the amount of undiscovered oil and the knowledge of where the oil resides". When the number of completed wells in a basin is small, the geologic knowledge of the basin is also likely to be small. As more wells are drilled, firms learn progressively more about the geologic characteristics of the basin. Ultimately, knowledge of the basin's geology will no longer increase and, with the exhaustion of identified exploration prospects, drilling in the basin will come to an end. The approach is consistent with Arrow's(7) "Learning by doing" hypothesis "that technical change (here measured by the discovery efficiency parameter) in general can be ascribed to experience" and "that it is the very activity of production which gives rise to problems for which favourable responses are selected over time". Thus, accumulated experience in a given exploration environment produces the information on which future decisions can be based.