DEA AR EFFICIENCY AND PROFITABILITY OF 14 MAJOR OIL COMPANIES IN US EXPLORATION AND PRODUCTION

With a U. S. focus, the efficiency and profitability of 14 integrated oil companies (Majors) were analyzed for the years 1980-1991. The data base represented primarily Arthur Andersen's oil and gas disclosures. Data Envelopment Analysis (DEA) and Assurance Region (AR) methods wer e applied. Unique optimal solution pairs of primal slacks and dual mul tipliers were found for almost all of the inefficient firms; these sol utions provided unique projections to the DEA frontier. Separable inpu t and output AR bounds were placed on the modelled prices (multipliers ) to proceed from technical toward overall efficiency. Significantly f ewer extreme-efficient DMUs and lower levels of efficiency were found in the presence of these bounds than in their absence. There was a 21% level of average inefficiency present in the findings across the 12 y ears analyzed. Linked input and output bounds provided measures of max imum and minimum profit ratios. Profit potential was found for a high percentage of the Majors; only modest downside risk indications were f ound. In this linked case, efficiency measurement requires a practical algorithm to compute optimal solutions to the nonlinear problem.