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Common Stock Returns around Farmout Announcements in the Oil and Gas Industry

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  • Luiz Fernando Distadio
  • Andrew Ferguson
  • Peter Lam

Abstract

We examine market reactions to farmout agreements, a common form of strategic alliance undertaken by oil and gas explorers internationally. Using an Australian sample of 722 farmout agreements announced during the 1990–2016 period, we find that farmout announcements generate a positive cumulative average abnormal return of 3.60% for farmors and 1.90% for farminees over a 3-day event window. Cross-sectional analysis of farmors’ event returns provides results consistent with the resource pooling hypotheses. We also find that farmors’ announcement returns are sensitive to the underlying oil price volatility, consistent with the real options view of farmout arrangements.

Suggested Citation

  • Luiz Fernando Distadio & Andrew Ferguson & Peter Lam, 2023. "Common Stock Returns around Farmout Announcements in the Oil and Gas Industry," The Energy Journal, , vol. 44(4), pages 171-194, July.
    • Handle: RePEc:sae:enejou:v:44:y:2023:i:4:p:171-194
    DOI: 10.5547/01956574.44.4.ldis
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    References listed on IDEAS

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    1. Corrado, Charles J. & Zivney, Terry L., 1992. "The Specification and Power of the Sign Test in Event Study Hypothesis Tests Using Daily Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(3), pages 465-478, September.
    2. James W. Kolari & Seppo Pynnönen, 2010. "Event Study Testing with Cross-sectional Correlation of Abnormal Returns," The Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 3996-4025, November.
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