Supply Flexibility in the Shale Patch: Evidence from North Dakota

42 Pages Posted: 17 Jul 2017

See all articles by Hilde C. Bjørnland

Hilde C. Bjørnland

Norwegian School of Management (BI); Norges Bank

Frode Martin Nordvik

Kristiania University College

Maximilian Rohrer

NHH - Norwegian School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 30, 2017

Abstract

We analyse if supply flexibility in oil production depends on the extraction technology. In particular, we ask to what extent shale oil producers respond to price incentives by changing completion of new wells as well as oil production from completed wells. Using a novel well-level monthly production data set covering more than 15,000 crude oil wells in North Dakota, we find large differences in response between conventional and unconventional (shale) extraction technology: While shale oil wells respond significantly to spot future spreads by changing both well completion and crude oil production, conventional wells do not. Our results suggest that firms using shale oil technology are more flexible in allocating output intertemporally. We interpret such output pattern of shale oil wells to be consistent with the Hotelling theory of optimal extraction.

Keywords: Oil extraction, crude oil prices, US oil shale boom, Hotelling theory

JEL Classification: C33, L71, Q31, Q40

Suggested Citation

Bjørnland, Hilde C. and Nordvik, Frode Martin and Rohrer, Maximilian, Supply Flexibility in the Shale Patch: Evidence from North Dakota (May 30, 2017). Norges Bank Working Paper 9/2017, Available at SSRN: https://ssrn.com/abstract=3003086 or http://dx.doi.org/10.2139/ssrn.3003086

Hilde C. Bjørnland (Contact Author)

Norwegian School of Management (BI) ( email )

P.O. Box 580
N-1302 Sandvika
Norway

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Frode Martin Nordvik

Kristiania University College ( email )

Prinsensgate 7
Oslo, 0152
Norway

Maximilian Rohrer

NHH - Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway

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