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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, , vol. 19(4), pages 133-142, October.
    • Handle: RePEc:sae:enejou:v:19:y:1998:i:4:p:133-142
    DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No4-6
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    References listed on IDEAS

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    1. Magliolo, J, 1986. "Capital-Market Analysis Of Reserve Recognition Accounting," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 24, pages 69-108.
    2. repec:aen:journl:1994v15-03-a01 is not listed on IDEAS
    3. repec:aen:journl:1993v14-02-a01 is not listed on IDEAS
    4. James L. Paddock & Daniel R. Siegel & James L. Smith, 1988. "Option Valuation of Claims on Real Assets: The Case of Offshore Petroleum Leases," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(3), pages 479-508.
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    Cited by:

    1. Cairns, Robert D., 2014. "The green paradox of the economics of exhaustible resources," Energy Policy, Elsevier, vol. 65(C), pages 78-85.
    2. 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.

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