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Simple Analytics of Valuing Producing Petroleum Reserves

Author

Listed:
  • Graham A. Davis
  • Robert D. Cairns

Abstract

We modify the approach to valuing mineral reserves that is current in economic literature by considering a net present-value rule under uncertainty. Direct application of Hotelling's rule is found to be inappropriate. The modification is such that the present value is approximately half that proposed by the Hotelling Valuation Principle.

Suggested Citation

  • Graham A. Davis & Robert D. Cairns, 1998. "Simple Analytics of Valuing Producing Petroleum Reserves," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 133-142.
    • Handle: RePEc:aen:journl:1998v19-04-a06
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    Citations

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    Cited by:

    1. Weston, J. Fred & Johnson, Brian A. & Siu, Juan A., 1999. "Mergers and restructuring in the world oil industry," Journal of Energy Finance & Development, Elsevier, vol. 4(2), pages 149-183.
    2. Soren T. Anderson & Ryan Kellogg & Stephen W. Salant, 2018. "Hotelling under Pressure," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 984-1026.
    3. Richard G. Newell & Brian C. Prest & Ashley Vissing, 2016. "Trophy Hunting vs. Manufacturing Energy: The Price-Responsiveness of Shale Gas," NBER Working Papers 22532, National Bureau of Economic Research, Inc.
    4. Hansen, T.A., 2022. "Stranded assets and reduced profits: Analyzing the economic underpinnings of the fossil fuel industry's resistance to climate stabilization," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
    5. Davis, Graham A., 2001. "The Credibility of a Threat to Nationalize," Journal of Environmental Economics and Management, Elsevier, vol. 42(2), pages 119-139, September.
    6. Cairns, Robert D., 2014. "The green paradox of the economics of exhaustible resources," Energy Policy, Elsevier, vol. 65(C), pages 78-85.
    7. James L. Smith, 2015. "Valuing Barrels of Oil Equivalent," The Energy Journal, International Association for Energy Economics, vol. 0(Adelman S).
    8. Johnson Kakeu, 2023. "Concerns for Long-Run Risks and Natural Resource Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(4), pages 1051-1093, April.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

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