Oil reserve life and the influence of crude oil prices: An analysis of Texas reserves

- Cointegration between oil reserve life and real oil prices
- Asymmetries exist between oil reserve life and real oil prices in the long-run and short-run.
- The effect of positive changes in real oil prices on reserve life is greater than negative changes.

Oil producing exploration and production companies generate revenue from reserves which, from any given well, are depleting over time. The reserve life index measures how long reserves would last at the current production rate if there were no additions to reserves. In this study, we examine the time series behavior of the reserve life index for each of the twelve onshore oil producing districts in Texas. Specifically, we model the relationship between reserve life and the real price of oil within a nonlinear ARDL framework. Among the results, we find evidence of both long-run and short-run asymmetries in the response of reserve life to increases/decreases in real oil prices. Further, the magnitude of the effect is greater for positive changes in real oil prices than for negative changes in real oil prices. The findings are important to operators, investors and policymakers interested in sustainability.