• Herrnstadt, Evan, Ryan Kellogg, and Eric Lewis, The Economics of Time-Limited Development Options: The Case of Oil and Gas Leases, NBER working paper #27165. Working paper (May, 2020). Revise-and-resubmit at Econometrica.


    Oil and gas leases between mineral owners and extraction firms ubiquitously include royalty and primary term clauses. The royalty denotes the share of revenue that is paid to the mineral owner, and the primary term specifies the date by which the firm must complete a well, lest it lose the lease. Using data from the Louisiana shale boom, we first show that wells' drilling timing is substantially bunched just before lease expiration, raising the question of why leases include development deadlines that distort drilling decisions. We then develop a contracting model in which mineral owners face firms with private information and have the ability to contract on both realized revenue and drilling timing. We show that primary terms can increase both the owner's expected revenue and total surplus because they counteract the delay incentives imposed by the royalty.

  • Covert, Thomas R. and Ryan Kellogg, Crude by Rail, Option Value, and Pipeline Investment, NBER working paper #23855 (revised 2018). Working paper (December, 2018), Original NBER working paper #23855 (2017)


    The U.S. shale boom has profoundly increased crude oil movements by both pipelines---the traditional mode of transportation---and railroads. This paper develops a model of how pipeline investment and railroad use are determined in equilibrium, emphasizing how railroads' flexibility allows them to compete with pipelines. We show that policies that address crude-by-rail's environmental externalities by increasing its costs should lead to large increases in pipeline investment and substitution of oil flows from rail to pipe. Similarly, we find that policies enjoining pipeline construction would cause 80-90% of the displaced oil to flow by rail instead.