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Limits to international diversification in oil & gas – Domestic vs foreign asset control

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  • Kretzschmar, Gavin L.
  • Sharifzyanova, Liliya

Abstract

We provide evidence that international diversification in the oil and gas sector comes at an important cost; lower control over foreign oilfield assets (and therefore reduced control over oilfield cash-flows). This work examines the factors that drive companies to diversify despite the loss of control over oilfields. Detailed worldwide data for 293 companies owning 6633 field stakes enable us to demonstrate that diversification increases with firm size but results in lower asset control – with an important caveat – companies seek to retain minimum control blockholdings in ‘foreign oilfield assets’. We conclude, therefore, that companies seeking reserve replacement are forced to diversify but need to accept lower control over foreign asset cash-flows.

Suggested Citation

  • Kretzschmar, Gavin L. & Sharifzyanova, Liliya, 2010. "Limits to international diversification in oil & gas – Domestic vs foreign asset control," Energy, Elsevier, vol. 35(1), pages 468-477.
    • Handle: RePEc:eee:energy:v:35:y:2010:i:1:p:468-477
    DOI: 10.1016/j.energy.2009.10.013
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    Cited by:

    1. Botelho, Tatiana & Magrini, Alessandra & Schaeffer, Roberto, 2014. "Plumbing the depths: Utilizing O&G reserve profiles to develop forward-looking risk assessments for exploration and production activities," Energy Policy, Elsevier, vol. 69(C), pages 489-500.
    2. Yang, Yuying & Li, Jianping & Sun, Xiaolei & Chen, Jianming, 2014. "Measuring external oil supply risk: A modified diversification index with country risk and potential oil exports," Energy, Elsevier, vol. 68(C), pages 930-938.
    3. Scholtens, Bert & Wagenaar, Robert, 2011. "Revisions of international firms’ energy reserves and the reaction of the stock market," Energy, Elsevier, vol. 36(5), pages 3541-3546.
    4. Egging, Ruud & Holz, Franziska & Gabriel, Steven A., 2010. "The World Gas Model," Energy, Elsevier, vol. 35(10), pages 4016-4029.

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