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ECONOMIES OF SCALE IN A MULTIPLANT TECHNOLOGY: EVIDENCE FROM THE OILPATCH
Author(s) -
GRIFFIN JAMES M.,
JONES CLIFTON T.
Publication year - 1988
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1988.tb01672.x
Subject(s) - economics , economies of scale , marginal cost , scale (ratio) , crude oil , function (biology) , production (economics) , oil field , econometrics , microeconomics , petroleum engineering , engineering , physics , quantum mechanics , evolutionary biology , biology
A unique micro data set detailing operating costs and technical characteristics of 133 Texas oil leases was used to estimate an econometric cost function, yielding a number of interesting findings. First, evidence of economies of scale in crude extraction implies additional gains from oil field unitization and helps explain the paradox that voluntary unitization often occurs in the later stages of a field's life. Second, marginal operating costs per well were found to be about 30 percent below average costs, explaining why many wells remain operational despite falling crude oil prices. Finally, the results confirmed a number of plausible technical relationships. For example, operating costs rise sharply with depth, explaining the existence of shallow, low‐production stripper wells.