The role of reserves and production in the market capitalization of oil and gas companies

Bradley T. Ewing, Mark Andrew Thompson

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

We examine the role proved reserves and production play in the market capitalization of publicly traded oil and gas companies engaged in the exploration and production of hydrocarbons. The paper provides two important contributions to the literature. First, we extend the existing research by utilizing the method of Robust Least Squares to estimate a multivariate market capitalization model that controls for firm type. Second, we document the impacts that oil and gas reserves to production ratios have on market capitalization. This is a key finding in the context of discounted net cash flow models and the findings suggest there is an optimal tradeoff between current and future production, given current volumes of reserves, the latter of which is valued positively by the market. Moreover, this optimal tradeoff or the optimal profit-maximizing intertemporal production choice is unique to the type of hydrocarbon being considered. Additionally, our findings highlight the importance of capital structure in the heavily capital intensive oil and gas industry. The results from this research should benefit both oil and gas companies and investors. Specifically, the results provide new and robust information as to the empirical relationships between key determinants of oil and gas company market valuations.

Original languageEnglish (US)
Pages (from-to)576-581
Number of pages6
JournalEnergy Policy
Volume98
DOIs
StatePublished - Nov 1 2016

Fingerprint

market
oil
Gases
Industry
Reserves to production ratio
Hydrocarbons
hydrocarbon
Gas industry
gas industry
oil industry
valuation
Profitability
gas company
Oils
gas

Keywords

  • Hydrocarbons exploration and production
  • Market capitalization
  • Oil and gas reserves

ASJC Scopus subject areas

  • Energy(all)
  • Management, Monitoring, Policy and Law

Cite this

The role of reserves and production in the market capitalization of oil and gas companies. / Ewing, Bradley T.; Thompson, Mark Andrew.

In: Energy Policy, Vol. 98, 01.11.2016, p. 576-581.

Research output: Contribution to journalArticle

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