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What Determines Investment in the Oil Sector?: A New Era for National and International Oil Companies

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  • Hvozdyk, Lyudmyla
  • Mercer-Blackman, Valerie

Abstract

This paper discusses recent trends in investment in the oil sector, amid new challenges for national and international oil companies in an increasingly supply-constrained environment. After more than a decade of stagnant investment rates, nominal investment has picked up sharply over the three years ending in 2007, but soaring costs (including from higher tax rates and royalties) meant that investment growth was minimal in real terms. The paper performs econometric tests using the Arellano-Bond GMM technique. It finds that `below ground¿ risks are statistically very important in deterring real investment. Companies are taking on increasingly complex geological challenges, which are putting upward pressure on production costs and are leading to greater project delays compared to the past. As many of these factors are expected to persist, supply constraints are likely to remain a dominant factor behind oil price fluctuations during the next several years.

Suggested Citation

  • Hvozdyk, Lyudmyla & Mercer-Blackman, Valerie, 2011. "What Determines Investment in the Oil Sector?: A New Era for National and International Oil Companies," IDB Publications (Working Papers) 2659, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:2659
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    File URL: https://publications.iadb.org/publications/english/document/What-Determines-Investment-in-the-Oil-Sector-A-New-Era-for-National-and-International-Oil-Companies.pdf
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    References listed on IDEAS

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    12. Favero, Carlo A & Pesaran, M Hashem & Sharma, Sunil, 1994. "A Duration Model of Irreversible Oil Investment: Theory and Empirical Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages 95-112, Suppl. De.
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    Cited by:

    1. Wint Thiri Swe & Nnaemeka Vincent Emodi, 2018. "Assessment of Upstream Petroleum Fiscal Regimes in Myanmar," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 11(4), pages 1-23, December.

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