Learning Where to Drill: Drilling Decisions and Geological Quality in the Haynesville Shale

Abstract

We often link increasing productivity in resource extraction to innovation in how firms extract. Yet resource quality - where firms extract - is a key driver of productivity. Using a structural model and data from Louisiana's Haynesville shale, I disentangle the impacts of how and where firms extract natural gas. Mineral lease contracts, learning about geology, and prices actually explain more than half of growth in output per well not just technological change. Neglecting this may lead to over-optimistic long-run supply forecasts. I also show that growth in output per well masked large distortions caused by mineral lease contracts, which reduced resource rents.