Accounting for the Time Delay Between Oil Drilling and ProductionSupplement toWhy “Drill, Baby, Drill!” is Not a National Energy Policy Timothy D. KailingElliptical Research September 2008 |

relationship between oil drilling and oil production. We can account for this by using the methods in the main

article but adding a lag to the production. Rather than simply relating:

Again, a power law relationship is apparent in the data. Looking at this data logarithmically, as before gives the

following relationship:

following relationship:

Note that the relationship for the main (older) data in blue has strengthened a bit: the variance explained has

increased to 94%, compared to 91% for the case not accounting for the lag. Though the lag was determined by

other methods, this supports the case for about a five year lag found empirically from drilling to production. (One

important point: by no means does this mean that such a five year delay is somehow a universal lag, or even the

most common lag, between drilling and production in individual cases of oil exploration and development; it just

means that, empirically, it is the average effective lag seen in the overall data.)

For the recent data in red one might naively have some hopes, when comparing to the delay-agnostic analysis in

the main article. While the relationship is still strongly negative, the slope is a little less negative (-1.02

compared to -1.30) and the R-squared is notably lower (0.71 compared to 0.95). Perhaps the relationship is

breaking down?

Unfortunately it does not appear to be the case. By adding the five year lag, we lose the last five years of data,

because while we know the number of rigs drilling these last five years, we don’t yet have production for 2008-

2013. However, it turns out that we can make a reasonable estimate the next five years of production

independently of the relationship between drilling and production. Here’s how. If we graph the production data

vs. time since 1985 we find that, despite the great variation in oil prices and drilling activity lately, the relationship

has been very simple over these last 30+ years:

increased to 94%, compared to 91% for the case not accounting for the lag. Though the lag was determined by

other methods, this supports the case for about a five year lag found empirically from drilling to production. (One

important point: by no means does this mean that such a five year delay is somehow a universal lag, or even the

most common lag, between drilling and production in individual cases of oil exploration and development; it just

means that, empirically, it is the average effective lag seen in the overall data.)

For the recent data in red one might naively have some hopes, when comparing to the delay-agnostic analysis in

the main article. While the relationship is still strongly negative, the slope is a little less negative (-1.02

compared to -1.30) and the R-squared is notably lower (0.71 compared to 0.95). Perhaps the relationship is

breaking down?

Unfortunately it does not appear to be the case. By adding the five year lag, we lose the last five years of data,

because while we know the number of rigs drilling these last five years, we don’t yet have production for 2008-

2013. However, it turns out that we can make a reasonable estimate the next five years of production

independently of the relationship between drilling and production. Here’s how. If we graph the production data

vs. time since 1985 we find that, despite the great variation in oil prices and drilling activity lately, the relationship

has been very simple over these last 30+ years:

A simple model of exponential decay in production fits these data very well, explaining over 98% of the variation

in domestic oil production. We then use this model to project the next few years. These projected data are

shown in orange on the graph.

If we take these production projections, which were produced independently of any drilling information, and use

them to project the production from the drilling we know from the last five years (including an annualized

adjustment of the drilling in 2008 so far) we get:

in domestic oil production. We then use this model to project the next few years. These projected data are

shown in orange on the graph.

If we take these production projections, which were produced independently of any drilling information, and use

them to project the production from the drilling we know from the last five years (including an annualized

adjustment of the drilling in 2008 so far) we get:

With the projected data included, the relationship is again very strong, with rig number explaining an impressive

94% of the oil per rig data. And, like before, the relationship is strongly negative, with the steepest slope of all at

-1.35.

Using projected data always makes conclusions conditional. But in this case it is simply that unless the

exponentially decaying U.S. production turns sharply up in the next few years—of which there is no indication,

despite the incentive of recent high prices—there is no reason to expect that drilling will have any significant

impact at all. It is important to keep in mind that even the most optimistic interpretation of the relationship of

drilling and production, including excluding all projected data, still gives a profoundly pessimistic assessment of

the feasibility of significantly increasing domestic oil production by means of even an enormous increase of

drilling activity. And, as the main article points out, whether doing this is in the United States’ long term interest is

highly questionable.

If we are to solve our domestic energy problems, it must be through other means than increased drilling.

Back to the main article on the relationship of oil drilling and oil production

94% of the oil per rig data. And, like before, the relationship is strongly negative, with the steepest slope of all at

-1.35.

Using projected data always makes conclusions conditional. But in this case it is simply that unless the

exponentially decaying U.S. production turns sharply up in the next few years—of which there is no indication,

despite the incentive of recent high prices—there is no reason to expect that drilling will have any significant

impact at all. It is important to keep in mind that even the most optimistic interpretation of the relationship of

drilling and production, including excluding all projected data, still gives a profoundly pessimistic assessment of

the feasibility of significantly increasing domestic oil production by means of even an enormous increase of

drilling activity. And, as the main article points out, whether doing this is in the United States’ long term interest is

highly questionable.

If we are to solve our domestic energy problems, it must be through other means than increased drilling.

Back to the main article on the relationship of oil drilling and oil production

Timothy D. Kailing is the principal at

Elliptical Research.

He wears another hat as an

advocate for the benefits of early

literacy in children; in this effort he

authored the book:

*Native Reading: How to **Teach Your *

*Child to Read, Easily and Naturally, *

*Before the Age of Three*.

Elliptical Research.

He wears another hat as an

advocate for the benefits of early

literacy in children; in this effort he

authored the book:

Copyright © 2008 Timothy D. Kailing