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. Re...
Highlights
This paper investigates the relationship between oil and gas reserves and market valuation of oil and gas companies, a topic that is of interest to investors and analysts
The impact in shareholder returns of changes in proved developed, proved undeveloped, and probable reserves we present the results from the empirical model in Equation (1) and hypotheses 1–3
Investors in the companies in our selection do not price the market risk premium. This might be due to the sample consisting primarily of non-US securities, while the MRP risk factor is calculated from listed US firms
Summary
This paper investigates the relationship between oil and gas reserves and market valuation of oil and gas companies. The aim of our study is to fill this knowledge gap and examine the impact of changes in different types of reserves classifications on oil company valuation. This topic has not been addressed rigorously in the academic literature, circumstantial evidence suggests that investors evaluate probable and proved reserves differently. The total recoverable volumes are not certain, but rather estimate of future production under certain conditions (Mitchell, 2004) These conditions include economic conditions such as commodity prices, knowledge of the projects’ ability in development completion and extracting the resources, as well as geological information. An example of this is Shell’s 28% re-classification of their proved to probable reserves in 2004
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