`Oil'igopoly Exploration: Why Smaller Producers Explore More

The ‘oil’igopoly theory of oil production with fixed reserves predicts that firms with larger reserves will extract a larger quantity but a smaller proportion of their reserves. While this theory is supported when looking at production data, it is not supported when looking at changes in proven reserves data. This paper develops a theory of ‘oil’igopolistic oil exploration to explain trends observed in the world oil industry over the past fifty years. The ‘oil’igopoly theory of oil exploration predicts that firms with smaller proven reserves will do more exploration than firms with larger proven reserves, as well as reproducing the predictions of the ‘oil’igopoly oil production model. These predictions are consistent with international production and reserve data in the post-World War II era.