TY - JOUR
T1 - Real options and the value of oil and gas firms
T2 - An empirical analysis
AU - Sabet, Amir H.
AU - Heaney, Richard
PY - 2017/6/1
Y1 - 2017/6/1
N2 - This paper examines the link between oil (gas) firm share price and crude oil (natural gas) return, volatility and drilling activity. Particular emphasis is placed on testing for real option effects through analysis of the sensitivity of oil (gas) firm share price to oil (gas) price volatility. Using the level of active exploration drilling as a proxy for exercised real options, we find some evidence of a real option effect linked to drilling in gas firms, though there is little evidence of this for oil firms. There is evidence of a strong positive oil (gas) return effect on oil (gas) firm value. Finally, there is also some evidence of wealth destruction associated with exploration drilling compared with development drilling.
AB - This paper examines the link between oil (gas) firm share price and crude oil (natural gas) return, volatility and drilling activity. Particular emphasis is placed on testing for real option effects through analysis of the sensitivity of oil (gas) firm share price to oil (gas) price volatility. Using the level of active exploration drilling as a proxy for exercised real options, we find some evidence of a real option effect linked to drilling in gas firms, though there is little evidence of this for oil firms. There is evidence of a strong positive oil (gas) return effect on oil (gas) firm value. Finally, there is also some evidence of wealth destruction associated with exploration drilling compared with development drilling.
KW - Exploration and development drilling
KW - Oil and gas firms
KW - Real options
KW - Volatility
UR - http://www.scopus.com/inward/record.url?scp=85020770677&partnerID=8YFLogxK
U2 - 10.1016/j.jcomm.2017.05.001
DO - 10.1016/j.jcomm.2017.05.001
M3 - Article
AN - SCOPUS:85020770677
SN - 2405-8513
VL - 6
SP - 50
EP - 65
JO - Journal of Commodity Markets
JF - Journal of Commodity Markets
ER -