Economics of Research

Abstract Research has become essential to maintain the health of a modern-day, technically oriented company; yet, on a project-by-project basis, research is a project-by-project basis, research is a high-risk operation. In oil exploration and production, research is a team effort not easily separated from operations. Based upon 25-years of experience, it appears that research is resulting in a very attractive economic return. Attempts to evaluate and select research projects by analytic approaches have not projects by analytic approaches have not been particularly successful. Reliance, therefore, must be on judgments, both technical and business, to determine total size of the research program as well as the nature and priorities of individual projects. Several factors related to spreading the risk and taking advantages of technical opportunities are reviewed. Research demands to meet increased petroleum requirements of the future will petroleum requirements of the future will surely increase. More industry cooperative type projects seem to be one step in controlling industry costs. Introduction When your program committee asked that I discuss the economics of research today, I accepted the request as a challenge, knowing that it is a subject not easily settled with either straightforward analyses or broad generalizations. Research is a high-risk business with many "dry holes," and neither the selection of lines of investigation nor evaluation of results can be handled with mathematical exactness. If you came expecting me to offer some fancy formulas for doing so, I'm afraid you will go away disappointed. The very first problem in approaching the subject of economics of research is that research is not a separable part of a complex, industrial activity. This is more or less true in any modern, technically oriented business; but I believe it is particularly so in oil exploration and production and perhaps equally so in other mineral recovery industries. In our business, research and field activities blend or interfinger almost continuously.