Organizational, operational, and natural hazards in the upstream oil and gas industry

This research examines three aspects of upstream oil and gas management covering organizational choice, safety and environmental performance, and hurricane evacuation decision making. The work applies current microeconomic and econometric methods to structure practical management questions within a formal analytic framework. The results provide insight into the complexities of modern day management decision making, and provide guidance to corporate and government policy makers. The first chapter examines the decision of upstream oil companies to vertically integrate into the drilling function within the framework of transaction cost economics. Econometric models are employed to model organizational choice and to estimate the underlying organizational cost functions. Estimation of the underlying cost functions permits isolation of the effects of transaction attributes to each form of organization, shedding light on the relative impact of internal costs versus market hazards on organizational choice. The second chapter investigates health, safety, and environmental performance (HS&E) in offshore drilling. Models of incidence employ standard qualitative response models with binary and ordered dependent variable specifications, and a Poisson specification. Unlike previous studies, additional models are estimated by specifying a reporting function and employing detection control to account for the possibility of incomplete reporting. The third chapter examines the decision made by oil companies to evacuate offshore drilling rigs in the event of a hurricane. The primary goals are to value existing forecast accuracy, to estimate the cost of false evacuations for the industry, to develop a behavioral model of the decision to evacuate, and to introduce the role of risk preferences in the decision to evacuate. The problem is examined from three unique perspectives. The first approach develops a prescriptive, decision analytic model. A second approach begins with a descriptive examination of actual drilling rig evacuation decisions for a sample of fifteen hurricanes in the Gulf of Mexico. A discrete choice model of the evacuation decision is then specified and estimated, identifying variables that influence the propensity to evacuate. The third approach examines the role of risk preferences in the decision to evacuate via specification of a utility function and a structural econometric model of the propensity to evacuate.