IDEAS home Printed from https://ideas.repec.org/a/taf/oaefxx/v5y2017i1p1385443.html
   My bibliography  Save this article

Valuation of proved vs. probable oil and gas reserves

Author

Listed:
  • Bård Misund
  • Petter Osmundsen

Abstract

Oil and gas reserves are the most important assets of oil and gas companies. A source of confusion for investors in oil companies, is that reserves quantities and values are uncertain estimates. Reserves are typically classified according to probabilities of recovery from underground reservoirs. All US-listed companies are required to disclose proved reserves but not probable reserves, thus leaving out potentially important information for investors and financial analysts. This study addresses the impact on market valuation of various classifications of reserves amounts. Using a data sample of 94 companies that do disclose information on probable reserves, we compare the relation between three classifications of reserves and oil company returns. While we find that information on probable reserves do not have an impact on stock returns measured over the entire time period, this is not the case since 2009, coinciding with the onset of the shale gas revolution.

Suggested Citation

  • Bård Misund & Petter Osmundsen, 2017. "Valuation of proved vs. probable oil and gas reserves," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1385443-138, January.
    • Handle: RePEc:taf:oaefxx:v:5:y:2017:i:1:p:1385443
    DOI: 10.1080/23322039.2017.1385443
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/23322039.2017.1385443
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/23322039.2017.1385443?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Timothy Fitzgerald & Randal R Rucker, 2016. "US private oil and natural gas royalties: estimates and policy relevance," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 40(1), pages 3-25, March.
    2. Boyer, M. Martin & Filion, Didier, 2007. "Common and fundamental factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, vol. 29(3), pages 428-453, May.
    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. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-355, December.
    5. Bård Misund, 2016. "Vertical integration and value-relevance: Empirical evidence from oil and gas producers," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1264107-126, December.
    6. Kretzschmar, Gavin L. & Misund, Bard & Hatherly, David, 2007. "Market risks and oilfield ownership--Refining oil and gas disclosures," Energy Policy, Elsevier, vol. 35(11), pages 5909-5917, November.
    7. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    8. Osmundsen, Petter & Mohn, Klaus & Misund, Bard & Asche, Frank, 2007. "Is oil supply choked by financial market pressures?," Energy Policy, Elsevier, vol. 35(1), pages 467-474, January.
    9. Misund, Bård, 2015. "Reserves Replacement and Oil and Gas Company Shareholder returns," UiS Working Papers in Economics and Finance 2015/11, University of Stavanger.
    10. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    11. Ikonnikova, Svetlana & Gülen, Gürcan & Browning, John & Tinker, Scott W., 2015. "Profitability of shale gas drilling: A case study of the Fayetteville shale play," Energy, Elsevier, vol. 81(C), pages 382-393.
    12. Frank Asche & Bård Misund, 2016. "Who’s a major? A novel approach to peer group selection: Empirical evidence from oil and gas companies," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1264538-126, December.
    13. Rajesh Kumar Bhaskaran & Sujit K Sukumaran, 2016. "An empirical study on the valuation of oil companies," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 40(1), pages 91-108, March.
    14. Petter Osmundsen & Frank Asche & Bard Misund & Klaus Mohn, 2006. "Valuation of International Oil Companies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 49-64.
    15. Howard D. Teall, 1992. "Information content of Canadian oil and gas companies' historic cost earnings and reserves disclosures," Contemporary Accounting Research, John Wiley & Sons, vol. 8(2), pages 561-579, March.
    16. Misund, Bård & Asche, Frank & Osmundsen, Petter, 2008. "Industry upheaval and valuation: Empirical evidence from the international oil and gas industry," The International Journal of Accounting, Elsevier, vol. 43(4), pages 398-424, December.
    17. Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
    18. Asche, Frank & Oglend, Atle & Osmundsen, Petter, 2012. "Gas versus oil prices the impact of shale gas," Energy Policy, Elsevier, vol. 47(C), pages 117-124.
    19. Lance J. Bachmeier & James M. Griffin, 2006. "Testing for Market Integration: Crude Oil, Coal, and Natural Gas," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 55-72.
    20. Jeffrey J. Quirin & Kevin T. Berry & David O'Brien, 2000. "A Fundamental Analysis Approach to Oil and Gas Firm Valuation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(7&8), pages 785-820.
    21. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    22. Robert S. Pindyck, 2004. "Volatility and commodity price dynamics," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 24(11), pages 1029-1047, November.
    23. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    24. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-434, November.
    25. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
    26. McConnell, John J. & Muscarella, Chris J., 1985. "Corporate capital expenditure decisions and the market value of the firm," Journal of Financial Economics, Elsevier, vol. 14(3), pages 399-422, September.
    27. Magliolo, J, 1986. "Capital-Market Analysis Of Reserve Recognition Accounting," Journal of Accounting Research, Wiley Blackwell, vol. 24, pages 69-108.
    28. Misund, Bård, 2015. "Accounting for Oil and Gas Exploration Activities: A Triumph of Economics over Politics," UiS Working Papers in Economics and Finance 2015/15, University of Stavanger.
    29. Sadorsky, Perry, 2001. "Risk factors in stock returns of Canadian oil and gas companies," Energy Economics, Elsevier, vol. 23(1), pages 17-28, January.
    30. Fama, Eugene F & French, Kenneth R, 1996. "Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tega Anighoro, 2020. "Value relevance of the components of oil and gas reserve quantity change disclosures of upstream oil and gas companies in the london stock exchange," Papers 2005.14659, arXiv.org.
    2. Vicknair, David & Tansey, Michael & O'Brien, Thomas E., 2022. "Measuring fossil fuel reserves: A simulation and review of the U.S. Securities and Exchange Commission approach," Resources Policy, Elsevier, vol. 79(C).
    3. Equiza-Goñi, Juan & de Gracia, Fernando Perez, 2020. "Impact of proved reserves on stock returns of U.S. oil and gas corporations using firm-level data," Energy Economics, Elsevier, vol. 92(C).
    4. Bård Misund, 2017. "Accounting method choice and market valuation in the extractive industries," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1408944-140, January.
    5. Pellegrini, Lorenzo & Arsel, Murat & Orta-Martínez, Martí & Mena, Carlos F. & Muñoa, Gorka, 2021. "Institutional mechanisms to keep unburnable fossil fuel reserves in the soil," Energy Policy, Elsevier, vol. 149(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Misund, Bård & Osmundsen, Petter, 2015. "Probable Oil and Gas Reserves and Shareholder Returns: The Impact of Shale Gas," UiS Working Papers in Economics and Finance 2015/17, University of Stavanger.
    2. Misund, Bård, 2015. "Reserves Replacement and Oil and Gas Company Shareholder returns," UiS Working Papers in Economics and Finance 2015/11, University of Stavanger.
    3. Misund, Bård, 2015. "Accounting for Oil and Gas Exploration Activities: A Triumph of Economics over Politics," UiS Working Papers in Economics and Finance 2015/15, University of Stavanger.
    4. Bård Misund, 2017. "Accounting method choice and market valuation in the extractive industries," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1408944-140, January.
    5. Misund, Bård, 2015. "Vertical Integration and Value Relevance: Empirical Evidence from Oil and Gas Producers," UiS Working Papers in Economics and Finance 2015/14, University of Stavanger.
    6. Bård Misund, 2016. "Vertical integration and value-relevance: Empirical evidence from oil and gas producers," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1264107-126, December.
    7. Sabet, Amir H. & Heaney, Richard, 2016. "An event study analysis of oil and gas firm acreage and reserve acquisitions," Energy Economics, Elsevier, vol. 57(C), pages 215-227.
    8. Tega Anighoro, 2020. "Value relevance of the components of oil and gas reserve quantity change disclosures of upstream oil and gas companies in the london stock exchange," Papers 2005.14659, arXiv.org.
    9. Frank Asche & Bård Misund, 2016. "Who’s a major? A novel approach to peer group selection: Empirical evidence from oil and gas companies," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1264538-126, December.
    10. Misund, Bard & Mohn, Klaus, 2014. "Exploration Risk in Oil & Gas Shareholder Returns," UiS Working Papers in Economics and Finance 2014/4, University of Stavanger.
    11. Misund, Bård & Osmundsen, Petter, 2015. "The Value Relevance of Accounting Figures in the Oil & Gas Industry: Cash Flow or Accruals?," UiS Working Papers in Economics and Finance 2015/19, University of Stavanger.
    12. Serkan Yilmaz Kandir & Ahmet Erismis & Ilhan Ozturk, 2015. "Investigating Exchange Rate Exposure of Energy Firms: Evidence from Turkey," Prague Economic Papers, Prague University of Economics and Business, vol. 2015(6), pages 729-743.
    13. Vicknair, David & Tansey, Michael & O'Brien, Thomas E., 2022. "Measuring fossil fuel reserves: A simulation and review of the U.S. Securities and Exchange Commission approach," Resources Policy, Elsevier, vol. 79(C).
    14. Oberndorfer, Ulrich, 2009. "Energy prices, volatility, and the stock market: Evidence from the Eurozone," Energy Policy, Elsevier, vol. 37(12), pages 5787-5795, December.
    15. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2017. "Research in finance: A review of influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 188-199.
    16. Lu Zhang, 2017. "The Investment CAPM," European Financial Management, European Financial Management Association, vol. 23(4), pages 545-603, September.
    17. Ulrich OBERNDORFER, 2008. "Returns and Volatility of Eurozone Energy Stocks," EcoMod2008 23800097, EcoMod.
    18. Serkan Yilmaz Kandir & Ahmet Erismis, 2010. "Investigating Exchange Rate Exposure of Bank Shares: Empirical Evidence From ISE," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 12(46), pages 49-83.
    19. Daniel Wurstbauer & Stephan Lang & Christoph Rothballer & Wolfgang Schaefers, 2016. "Can common risk factors explain infrastructure equity returns? Evidence from European capital markets," Journal of Property Research, Taylor & Francis Journals, vol. 33(2), pages 97-120, April.
    20. Aboulamer, Anas & Kryzanowski, Lawrence, 2016. "Are idiosyncratic volatility and MAX priced in the Canadian market?," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 20-36.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:oaefxx:v:5:y:2017:i:1:p:1385443. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/OAEF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.