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Simple comparisons of oil and gas statistics across different states – like changes in the number of drilling rigs or well completions – can be limited, since a number of other factors and their interactions usually contribute to the relative differences in drilling activities across oil- and gas-producing states. Modelling changes in oil and gas activity across different states to account for these differences can offer some potential inferences about regional and state-specific differences.

Over the past several years, most major producing states have seen considerable changes in drilling activity. However, the relative changes in drilling activity have not been uniform. Some states, particularly the western states, have seen significant relative increases in drilling activity, while other traditionally attractive states, like those along the Gulf Coast, have seen relatively less activity.

This paper examines interstate differences in drilling activity for the period 1987 to 2003. State-specific activities appear to have some influence on relative drilling levels that may not be readily obvious from a single state analysis of drilling activity. These results are important, since many policy proposals at both the state and federal level are debating the importance of incentives and the overall nature of mineral revenue regime management. Energy producers rely primarily on market price signals for directing the degree and scope of their exploration and production decisions. The price increases of the heating season of 2000 to 2001 sent strong economic incentives to producers to increase their drilling activities to capture what appeared to be considerable profit opportunities. Figure 1 shows the increased drilling activity in the period immediately following the increase in natural gas prices.

Total operational rigs increased from a very low level of 488 in April, 1999 to over 1,293 active rigs in July, 2001.1 This is an increase in the number of active drilling rigs of 165 per cent in a little over two years. During the same period, active gas rigs increased from a low of just under 370 operational rigs, to a high of well over 1,000 rigs. The increased activity signified what appeared to be a dramatic re-emergence of the North American oil and gas industry. The decrease in drilling activity from the 2002 price collapse was short-lived and drilling activity rebounded with extraordinary growth through 2006. The responsiveness of drilling activity to prices is interesting, but not unexpected. What are of greater potential interest are the historical relative differences in activity across the lower 48 oil- and natural gas-producing states.

Figure 2 examines relative drilling trends (active rigs) across the major lower 48 producing states. Drilling rigs have been standardised to a constant year where 2000=100: thus, the series represents deviations, or changes, in drilling activity from what occurred in the year 2000. Values above 100 indicate relative gains in activity, values at or below 100 represent relative drilling contractions.

Some states, such as New Mexico, Oklahoma and Wyoming show incredible drilling rig activity in reaction to price, while other states, such as Louisiana, saw only minimal changes in activity. Clearly, price is not the only driver leading to relative differences in drilling activity. Conventional wisdom would suggest that there are a wide range of other factors such as costs, geological differences between states and different regulatory and tax regimes.

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