An Econometric Model of Oil and Gas Exploration Development and Production in the UK Continental Shelf: A Systems Approach

The petroleum supply process takes place in stages. Decisions at any stage are based on information obtained at the preceding stage. The present paper develops an econometric model incorporating the feedback structure of the process. The model framework consists of a system of simultaneous equations. Using UKCS data the model was estimated, tested for stability and predictive power, and used to conduct a structural analysis, investigating the effects of market conditions on activity levels in a mature hydrocarbon province. The results provide useful insights into the feedback nature of the petroleum supply process and the importance of market conditions to continued activity levels in a mature province.