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Investment and uncertainty in the international oil and gas industry

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  • Mohn, Klaus
  • Misund, Bård

Abstract

The standard theory of irreversible investments and real options suggests a negative relation between investment and uncertainty. Richer models with compound option structures open for a positive relationship. This paper presents a micro-econometric study of corporate investment and uncertainty in a period of market turbulence and restructuring in the international oil and gas industry. Based on data for 115 companies over the period 1992-2005, we estimate four different specifications of the q model of investment, with robust results for the uncertainty variables. The estimated models suggest that macroeconomic uncertainty creates a bottleneck for oil and gas investment and production, whereas industry-specific uncertainty has a stimulating effect.

Suggested Citation

  • Mohn, Klaus & Misund, Bård, 2009. "Investment and uncertainty in the international oil and gas industry," Energy Economics, Elsevier, vol. 31(2), pages 240-248, March.
  • Handle: RePEc:eee:eneeco:v:31:y:2009:i:2:p:240-248
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    Cited by:

    1. Jouvet, Pierre-André & Le Cadre, Elodie & Orset, Caroline, 2012. "Irreversible investment, uncertainty, and ambiguity: The case of bioenergy sector," Energy Economics, Elsevier, pages 45-53.
    2. Recalde, Marina, 2011. "Energy policy and energy market performance: The Argentinean case," Energy Policy, Elsevier, vol. 39(6), pages 3860-3868, June.
    3. Naser, Hanan & Ahmed, Abdul Rashid, 2016. "Oil Price Shocks and Stock Market Performance in Emerging Economies: Some Evidence using FAVAR Models," MPRA Paper 77868, University Library of Munich, Germany.
    4. Wang, Yong & Xiang, Erwei & Cheung, Adrian (Wai Kong) & Ruan, Wenjuan & Hu, Wei, 2017. "International oil price uncertainty and corporate investment: Evidence from China's emerging and transition economy," Energy Economics, Elsevier, pages 330-339.
    5. Brueckner, Jan K. & Proost, Stef, 2010. "Carve-outs under airline antitrust immunity," International Journal of Industrial Organization, Elsevier, pages 657-668.
    6. Libo Yin, 2016. "Does oil price respond to macroeconomic uncertainty? New evidence," Empirical Economics, Springer, pages 921-938.
    7. Caglayan, Mustafa & Xu, Bing, 2016. "Inflation volatility effects on the allocation of bank loans," Journal of Financial Stability, Elsevier, pages 27-39.
    8. H. Rajesh Acharya & C. Anver Sadath, 2016. "Energy Price Uncertainty and Investment: Firm Level Evidence from Indian Manufacturing Sector," International Journal of Energy Economics and Policy, Econjournals, pages 364-373.
    9. Jouvet, Pierre-André & Le Cadre, Elodie & Orset, Caroline, 2012. "Irreversible investment, uncertainty, and ambiguity: The case of bioenergy sector," Energy Economics, Elsevier, pages 45-53.
    10. repec:eee:eneeco:v:65:y:2017:i:c:p:240-250 is not listed on IDEAS
    11. Julien-Joern Mueller & Liam Wagner, 2013. "The Devil’s Tears from the Tournament of Shadows: Oil Supply, Markets and Unstable Producers," Energy Economics and Management Group Working Papers 5-2013, School of Economics, University of Queensland, Australia.
    12. Marc Gronwald & Janina Ketterer, 2009. "Evaluating Emission Trading as a Policy Tool - Evidence from Conditional Jump Models," CESifo Working Paper Series 2682, CESifo Group Munich.
    13. Henriques, Irene & Sadorsky, Perry, 2011. "The effect of oil price volatility on strategic investment," Energy Economics, Elsevier, vol. 33(1), pages 79-87, January.
    14. Zhu, Lei & Zhang, ZhongXiang & Fan, Ying, 2015. "Overseas oil investment projects under uncertainty: How to make informed decisions?," Journal of Policy Modeling, Elsevier, pages 742-762.
    15. Sabet, Amir H. & Heaney, Richard, 2016. "An event study analysis of oil and gas firm acreage and reserve acquisitions," Energy Economics, Elsevier, pages 215-227.
    16. Marmer, Vadim & Slade, Margaret, 2016. "Investment and Uncertainty With Time to Build: Evidence from U.S. Copper Mining," Microeconomics.ca working papers vadim_marmer-2016-14, Vancouver School of Economics, revised 22 Dec 2016.

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