¹ The research reported on in this paper was completed in 1961 while the author was on the faculty of the University of Michigan. It was financed with funds made available to the Department of Economics of the University of Michigan by the Ford Foundation, and the author wishes gratefully to acknowledge this support. My thanks are also due to Mr. William Ladd and Mrs. Renate Shearer who assisted in the collection and processing of the data, and to Mr. Jack L. Wiggins, International Oil Scouts Association, and Mr. W. P. Allen, Imperial Oil Company, for assistance in finding and interpreting the data.

² Detailed annual descriptions of developments in Canadian oil fields are to be found in the annual survey articles appearing in the June issue of the Bulletin of the American Association of Petroleum Geologists (hereafter cited as the AAPG Bulletin), and in frequent articles in such trade journals as World Oil and the Oil and Gas Journal. The World Oil Atlas, later called the International Operations Issue, published as a supplement to World Oil, maintains a continuous set of statistics on important facets of such developments. Similar statistics are available in governmental publications. For general discussions of the development of the industry see, for example, Davis, John, Canadian Energy Prospects, a Study for the Royal Commission on Canada's Economic Prospects (Ottawa, 1957)Google Scholar; Royal Commission on Energy, First Report (Ottawa, 1958)Google Scholar; Hanson, E. J., Dynamic Decade (Toronto, 1958).Google Scholar

³ Lahee, Frederick H., “Classification of Exploratory Drilling and Statistics for 1943,” AAPG Bulletin, XXVIII, 06, 1944, 704.Google Scholar

⁴ Compiled from various issues of the AAPG Bulletin.

⁵ Ibid.

⁶ Lahee, F. H., “Degrees of Success in Wildcat Drilling,” AAPG Bulletin, XL, 07, 1956, 1678–81.Google Scholar Lahee reports that based on classification of new field wildcats as successful or unsuccessful in the year of completion, the indicated success ratio in a seventeen-state area of the United States in the period 1944–49 was 11.3 per cent. Based on six years of development history for each of these fields he suggested that the correct figure was 9.6 per cent (7.1 per cent discovered oil). Some 1.5 per cent of the wells drilled as new field wildcats and reported as successful turned out to be long extensions of known pools. Inasmuch as the point is peripheral to the present analysis no attempt was made to make similar calculations for Western Canada. That the same general principle applies is suggested by the fact that ninety-seven fields discovered in the period 1948 through 1954 produced some oil in 1958. In this period the AAPG reported 3036 completed new field wildcats. Thus 3.2 per cent of the new field wildcats resulted in oil fields still producing in 1958.

Lahee suggests in this article that “on the average” an oil field having a total ultimate recovery of one million barrels is “near the economic limit.” Accepting this as a rough criterion, and using the 1958 estimates of ultimate recoverable reserves, 58 fields with reserves in excess of “the economic limit” were discovered in the period 1948 through 1954. This represented 1.9 per cent of the new field wildcats completed in this period. These figures are in no way comparable with Lahee's and should not be so interpreted.

⁷ The data for 1949 to 1954 were compiled from the yearbook of the National Oil Scouts and Landmen's Association, Oil and Gas Field Developments in the United States and Canada. The data for 1945 through 1947 were compiled from the June issues of the AAPG Bulletin, 1946–48. The data for 1948 were very kindly supplied by Mr. W. P. Allen of the Imperial Oil Company. On the general matter of differences in classification and reporting procedures, particularly in the United States, see H. J. Struth, “Investigation of Statistical Reporting and Procedures,” presented to the meeting of the American Petroleum Institute, Committee on Petroleum Statistics, Colorado Springs, June 26, 1959.

⁸ Two points should be noted. For much of the following analysis failure to identify all major participants would only affect the results if the unidentified firms were in a different national classification than the identified firms. For the final section relating to asset sizes, this does not hold. Failure to identify all participants might have distorted the distribution of firms by size in the various classes. Secondly, it must be admitted that a firm could be a minor participant in each well in which it participated, and yet be a major factor in the total exploration program. This limitation of the data should be kept in mind.

⁹ With respect to firms for which information on stock ownership during the period in question was publicly available, this method of classification approximates that employed by the Dorrunion Bureau of Statistics. Their criterion for a foreign-controlled firm is that foreign investments in the firm “… are sufficiently concentrated to constitute control.… potential control is implied rather than an actual exercise of control over business policy…” Operationally this includes firms “… known to have 50 per cent or more of their voting stock held in one country outside Canada…,” and a few firms “… where it is known that effective control is held by a parent firm with less than 50 per cent of the stock.” Canada's International Investment Position, 1926–1954 (Ottawa, 1956), 21, 24.Google Scholar Information available to the author was not adequate to apply the DBS procedure consistently. It seems unlikely, however, that the differences in the two systems of classification would have a major impact on the findings of this study. The firms in question are mainly small, aside from one or two which are classified here in the mixed category.

¹⁰ Harrington, J. W., “Philosophy of Petroleum Exploration,” AAPG Bulletin, XLIV, 02, 1960, 227–34.Google Scholar

¹¹ Of course, the owner of the producing well may attempt to keep pertinent data secret. Geological information discovered in the process of drilling which might give some indication of the direction, magnitude, and the depth of the potential producing area, as well as information on initial testing, may be withheld. However, all major companies employ “oil scouts” for the purpose of obtaining such information. One observer has concluded that for this reason, “… despite precautions, the desired information nearly always leaks out, although it may be extremely difficult to sift fact from fancy.” Gatlin, C., Petroleum Engineering (Englewood Cliffs, NJ, 1960), 38.Google Scholar

¹² Cf. Hanson, , Dynamic Decade, 40–109.Google Scholar The same point is obvious in the descriptions of field developments which appear regularly in such trade publications as World Oil and the Oil and Gas Journal.

¹³ The basic source employed for this identification was the annual list of important wildcats published in the June issue of the AAPG Bulletin. Where this was not adequate resort was made to the listings of the National Oil Scouts and Landmen's Association, which, while more complete, provided less information on each well and hence proved less adequate for the identification of particular field discovery wells. In the case of most of the major fields, both of these findings were cross-checked against annual surveys of important developments in Canadian oil fields appearing in World Oil and the Oil and Gas Journal, and against descriptions of particular fields appearing occasionally in the same publications. These descriptions invariably dealt with the largest fields only. As a result, the accuracy of identification decreases sharply as the fields considered get smaller.

¹⁴ The staff of World Oil has estimated that on July 1, 1955, Canadian interests owned approximately 15 per cent of Canada's proven oil reserves while foreign interests owned some 85 per cent. One would expect that the firm discovering a given field would obtain a major interest in that field. The Canadian system of lease granting, however, opens significant portions of semi-proven acreage for public bidding. If we allow for the possibility of some of this acreage being taken up by Canadian firms, and for the fact that part of the proven reserves at this date were in fields discovered before 1946 in which Canadian firms had part interest, then the World Oil estimate would seem crudely consistent with the estimates of reserves discovered presented here. It cannot be taken as confirmation, of course. Cf. Fanning, L. M., “Growing Share of World's Oil Is Held by American Firms,” World Oil, CXLI, 08 15, 1955, 132–4.Google Scholar

¹⁵ Data on the methods of location of exploratory wells are published occasionally in the annual survey articles, “Developments in Canada,” in the June issue of the AAPG Bulletin. F. H. Lahee has made the most comprehensive surveys of the relative successes of the various techniques of exploration, with special reference of the US. See, for example, his annual survey articles, “Exploratory Drilling,” in the AAPG Bulletin, and “Statistics Play a Vital Role in Exploration,” World Oil, CXLIV, 04, 1957, 129–34, 138.Google Scholar See also Gatlin, , Petroleum Engineering, 34–40.Google Scholar

¹⁶ Oil and Gas Field Developments report detailed breakdowns for Saskatchewan and Manitoba in 1952, 1953, and 1954. The proportions are roughly the same as for all of Western Canada in 1950 and 1951. Occasional articles in the Oil and Gas Journal report data for these and earlier years. While a detailed breakdown is not given, evidence of concentration in the hands of a few large firms—primarily foreign-controlled—is presented in a few instances.

¹⁷ Cf. Chapman, C. J., “Geophysics Scores in Western Canada,” Oil and Gas Journal, LIV, 08 15, 1955, 140–7Google Scholar; Pot, R., “Reefal Oil Discoveries in Western Canada,” Petroleum Engineer, 02, 1953, B61–B86.Google Scholar

¹⁸ Chapman, , “Geophysics Scores,” 147.Google Scholar

¹⁹ Lahee, , “Statistics Play a Vital Role in Exploration,” 132.Google Scholar

²⁰ The Canadian Petroleum Association classifies all “Land Acquisition and Rental” expenditures under “Exploration.” This clearly is not appropriate. While land which is leased will be land on which drilling has not yet occurred, it may well be in an area in which known reserves exist. Further, the most expensive land is in semi-developed areas. Thus, probably only a small fraction of the land acquisition expenditure is for truly exploratory purposes. In correspondence with the author, W. P. Allen, Regional Scout for the Imperial Oil Company, provided estimates of purchases of proven acreage in Western Canada. These have been deducted from the Canadian Petroleum Association figures to derive the figures used in Table V.

²¹ This is probably a low estimate, for several reasons. As noted above, the number of successful wells contains some overstatement. Thus the per well cost figures contain some understatement. The cost of drilling a new field wildcat should be somewhat greater than the cost of drilling new pool or other types of wildcats because of its relative remoteness from established drilling activities. Furthermore, the geological and geophysical costs have been spread over all successful new field wildcats, not just those located on this basis. If that were done, the indicated cost per well would be somewhat higher. On the other hand, to assign all of the geological and geophysical costs to new field wildcats is probably not appropriate. On balance, however, it seems likely that the above estimates involve some understatement. For further discussion of factors affecting the cost of geophysical exploration, see Wendlandt, E. A., “Exploration Planning,” in Haun, John D. and LeRoy, L. W., eds., Subsurface Geology in Petroleum Exploration (Golden, Col., 1958), 822 Google Scholar; and Smith, C. W., “Geophysical Costs Go Up as Profits Sag,” World Oil, CXXXVIII, 04, 1954, 90.Google Scholar

²² This assumption can be defended on a number of grounds. It is a reasonably well documented fact that the predominant sources of funds for capital expenditures in the petroleum industry in the United States have been internal to the firms concerned. Cf. Pogue, J. E. and Coqueron, F. G., “Capital Formation in the Petroleum Industry,” Transactions of the American Institute of Mining and Metallurgical Engineers, Petroleum Branch, CLXXIX, 1949, 385–9Google Scholar; Chase Manhattan Bank, Petroleum Department, Investment Patterns in the World Petroleum Industry (New York, 1956), 26–7.Google Scholar A brief survey of those firms operating in Canada for which adequate data are available indicated essentially the same relationship. While the correlation is not perfect due to variations in profit rates which are not related to size, the magnitude of internal funds available for capital and exploration expenditures should tend to vary with the size of the firm. Clearly, internal funds available to firms with total assets of less than $1 million will be very substantially less than those of firms with total assets in the range $50 to $100 million, or greater. Furthermore, the large operators tend to be firms with diversified holdings, both in terms of producing properties in various fields (and perhaps countries) and in terms of assets in the transportation, refining, and distribution sectors of the industry. Smaller firms tend to be more narrowly specialized, both as to geographical location of producing properties and as to sectors of the industry. This means that the “lender's risk” involved in bond issues should tend to be less for issues of large firms than for small. Accessibility to both bank credit and open market should thus be related to size. For a banker's view or the conditions under which credit is available to firms in the petroleum industry see Cunningham, B. A. Jr., “Notes for Oil Operators Who Need a Loan,” Petroleum Engineer, XXV, 04, 1953, A43–A46.Google Scholar Exploration activities, given the level of risk of failure implied, do not provide bankable security in any case. Thus, a smaller firm (or a new firm) specialized in exploration, with small and geographically specialized holdings in producing wells, would have to rely almost exclusively on the hmited segment of the capital market interested in high risk equity investment. A new firm which is not exceptionally well financed could only expect to grow substantially if it is exceptionally lucky in finding a major reservoir of oil (or gas), or if it merges with other smaller firms consolidating a large number of smaller successes into a major holding.

²³ In addition to the points made in the text, it should be noted that no reference has been made to a number of other factors which may have had a marginal impact on the distribution of exploration activity among firms in the various national categories. Perhaps the most obvious omission is taxation. In general it appears to have had a small impact, Cf. Penner, R. C., Foreign Investment and Canadian Economic Growth (unpublished PhD dissertation, Johns Hopkins University, 1962), chap. III.Google Scholar