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Valuation of International Oil Companies

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Listed:
  • Petter Osmundsen
  • Frank Asche
  • BÃ¥rd Misund
  • Klaus Mohn

Abstract

According to economic theory, exploration and development of new oil and gas fields should respond positively to increasing petroleum prices. But since the late 1990s, stock market analysts have focused strongly on short-term accounting return measures, like RoACE1, for benchmarking and valuation of international oil and gas companies. Consequently, exaggerated capital discipline among oil and gas companies may have reduced their willingness to invest for future reserves and production growth. Based on panel data for 14 international oil and gas companies for the period 1990-2003, we seek to establish econometric relations between market valuation on one hand, and simple financial and operational indicators on the other. Our findings do not support the general perception of RoACE as an important valuation metric in the oil and gas industry. We find that the variation in company valuations is mainly explained by the oil price, oil and gas production, and to some extent reserve replacement.

Suggested Citation

  • Petter Osmundsen & Frank Asche & BÃ¥rd Misund & Klaus Mohn, 2006. "Valuation of International Oil Companies," The Energy Journal, , vol. 27(3), pages 49-64, July.
    • Handle: RePEc:sae:enejou:v:27:y:2006:i:3:p:49-64
    DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No3-4
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    1. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, April.
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    More about this item

    Keywords

    Oil industry; valuation; panel data; econometric model; RoACE; performance;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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