Economic modeling of oil and gas exploration activities in Alberta

The energy sector is the key driver of Alberta's economy. However, there are externalities associated with the sector. A number of ecological and environmental concerns related to landscape changes and wildlife habitat destruction have been raised in recent years. Improved understanding of oil and gas exploration activities will be useful in assessing the potential impact of energy sector activities on the environment as well as the impact of policy options on exploration behavior. The thesis is organized in three parts.;The second part of the thesis forecasts future drilling activity on the landscape of Alberta up to the year 2020. The model developed in the first part is applied to forecast spatial exploration. The results show that forecasts made using the spatial model perform better than the non-spatial model for the three regions. Sensitivity of drilling forecasts to price changes were examined assuming 10, 20, 50 and 100 percent increase in prices.;The main objective of the third part of the thesis was to test the hypothesis that the energy sector anticipates new environmental regulations and increases exploration activities prior to the regulations being implemented. Three models, a multivariate regression model, the difference in difference method, and propensity score matching methods were used to test the hypothesis. The results indicate that on average drilling density in caribou habitat was higher than in non-caribou habitat. Furthermore, the results suggest that listing caribou as a threatened species has not resulted in reductions in exploration effort in caribou regions and may have generated additional effort in the region. The latter finding can be interpreted as evidence that the sector anticipates potential restrictions on land use.;The first part develops an econometric model of exploration activities by addressing the following questions: (1) What mix of economic and geological factors affect exploration activity in Alberta? (2) How does the energy sector respond to uncertainty associated with exploration? (3) How does exploration activity vary spatially across regions in the province? A spatial exploration effort model is estimated using drilling density as the dependent variable and economic and geological factors as explanatory variables. Regional models within Alberta are also estimated to capture the problem of spatial heterogeneity. Significant differences were observed among the coefficients estimated for Alberta and the three regions within Alberta.