Abstract
Investors increasingly need to account for concerns about non-financial performance and to consider the environmental impact of fossil fuel investment. We analyze how financial investors appreciate induced seismicity in oil and gas fields in the US and the Netherlands. We employ an event study to investigate the stock market reaction of investors in two fossil fuel majors, ExxonMobil and Royal Dutch Shell. We establish that stock market participants’ response is positively but weakly related to induced seismicity with ExxonMobil. This suggests that markets might interpret this seismicity as a signal of future productivity. With Royal Dutch Shell, there is no significant association, suggesting that their investors do not specifically appreciate its externalities. We conclude that the externality of induced seismicity goes unpriced.
Highlights
This paper analyzes how financial investors respond to induced seismicity
It is documented that drilling and fracking business operations have caused induced seismic activity ([5,6,7] for Oklahoma and [8,9] for Groningen). We investigate whether this induced seismicity can be associated with abnormal stock market returns of ExxonMobil and Royal Dutch Shell, two high-profile energy companies operating in both countries
This study is exploratory research regarding the relationship between induced seismicity and the response from financial investors to firms connected with such seismicity
Summary
This paper analyzes how financial investors respond to induced seismicity. This is exploratory research, as this specific relationship has not been studied before. The aim is to examine whether induced seismicity influences the valuation of major oil and gas companies To this extent, we analyze the stock market effects of induced seismicity in the Anadarko Basin, located in the state of Oklahoma in the US, and in the Slochteren field, located in the province of Groningen in the Netherlands. Given they are both high profile companies operating in Groningen and Oklahoma, we assume financial analysts will keep track and are in the position to assess how induced seismicity could affect their value It is the perception of the investor that is at the basis of the analysis of the relationship between induced seismicity and financial valuation. A social movement asks investors to divest from fossil fuel companies [11], which may have ramifications for their portfolio performance [12]
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