EXPLORATION, RECOVERY, AND TRANSPORTATION 69
for petroleum exploration. Nevertheless, the techniques that are
described here are included since it is valuable to know their nature
and how they might be applied to subsurface exploration.
It should also be noted that such terms as geophysical borehole logging may imply the use of one or more of the geophysical
exploration techniques. This procedure involves drilling a well and
using instruments to log or make measurements at various levels in
the hole by such means as gravity (density), electrical resistivity, or
radioactivity. In addition, formation samples (cores) are taken for
physical and chemical tests.
Exploration is an economic activity and, like other economic
activities, marginal benefit and marginal cost play a key role
in determining how much exploration occurs. Expenditures
on exploration and development reduce current profit with an
expected return of adding valuable reserves for future exploitation. The efficient level of exploration activity balances the
expected marginal cost of exploration with the expected benefit
of exploration.
The expected marginal benefit of exploration is not just the discovery and development of new reserves but comes from the discovery of reserves whose cost of development and extraction is less
than or equal to the cost of the reserves currently being depleted.
In other words, the marginal value of new reserves equals the user
cost of current resource depletion along an efficient time path of
extraction and new reserve development.
In addition, when reserves are allowed to vary with economic
and technological conditions, the upward movement of prices may
no longer hold. Depending on the degree to which current extraction costs are rising as a consequence of depletion and the cost
of new reserve additions, including their user cost, it is possible
for new discoveries to outstrip depletion. The ability to enlarge
reserves through technological breakthroughs that increase recoverability and lower the costs of extraction from existing deposits,
or make new deposits easier to find and access (lowering reserve
replacement costs), likewise could exert downward pressure on
prices, possibly for a long period of time. However, given the
uncertainties surrounding the exploration process the assumption that reserves are found on average in order of increasing cost
and can be found in infinitely divisible amounts is a very serious
oversimplification.
for petroleum exploration. Nevertheless, the techniques that are
described here are included since it is valuable to know their nature
and how they might be applied to subsurface exploration.
It should also be noted that such terms as geophysical borehole logging may imply the use of one or more of the geophysical
exploration techniques. This procedure involves drilling a well and
using instruments to log or make measurements at various levels in
the hole by such means as gravity (density), electrical resistivity, or
radioactivity. In addition, formation samples (cores) are taken for
physical and chemical tests.
Exploration is an economic activity and, like other economic
activities, marginal benefit and marginal cost play a key role
in determining how much exploration occurs. Expenditures
on exploration and development reduce current profit with an
expected return of adding valuable reserves for future exploitation. The efficient level of exploration activity balances the
expected marginal cost of exploration with the expected benefit
of exploration.
The expected marginal benefit of exploration is not just the discovery and development of new reserves but comes from the discovery of reserves whose cost of development and extraction is less
than or equal to the cost of the reserves currently being depleted.
In other words, the marginal value of new reserves equals the user
cost of current resource depletion along an efficient time path of
extraction and new reserve development.
In addition, when reserves are allowed to vary with economic
and technological conditions, the upward movement of prices may
no longer hold. Depending on the degree to which current extraction costs are rising as a consequence of depletion and the cost
of new reserve additions, including their user cost, it is possible
for new discoveries to outstrip depletion. The ability to enlarge
reserves through technological breakthroughs that increase recoverability and lower the costs of extraction from existing deposits,
or make new deposits easier to find and access (lowering reserve
replacement costs), likewise could exert downward pressure on
prices, possibly for a long period of time. However, given the
uncertainties surrounding the exploration process the assumption that reserves are found on average in order of increasing cost
and can be found in infinitely divisible amounts is a very serious
oversimplification.