Investigating the sources of Black’s leverage effect in oil and gas stocks

Figures & data

Table 1. Descriptive statistics for the oil and gas stocks’ daily returns between 2 January 2004 and 30 June 2015

Oil and gas producers (exploration and production/integrated oil and gas)
	Country of main business*	Obs.	Mean	Maximum	Minimum	SD
Exploration and production
Cairn energy Plc	Edinburgh, UK	2,904	0.0004	0.4005	−0.2001	0.0259
JKX oil and gas	London, UK	2,904	−0.0002	0.2770	−0.2915	0.0328
Premier oil	Edinburgh, UK	2,904	0.0002	0.1589	−0.1605	0.0245
Soco international	London, UK	2,904	0.0004	0.1730	−0.4226	0.0251
Tullow oil	London, UK	2,904	0.0005	0.2163	−0.1408	0.0252
Hardy oil and gas	Douglas, Isle of Man	2,601	−0.0006	0.2579	−0.5343	0.0336
Cadogan petroleum	London, UK	1,834	−0.0016	0.3216	−0.3822	0.0487
Nostrum oil & gas Plc	London, UK	1,833	0.0001	1.0107	−0.8436	0.0694
Exillon energy Plc	Douglas, Isle of Man	1,395	−0.0003	0.2578	−0.2377	0.0341
Enquest Plc	London, UK	1,322	−0.0006	0.2097	−0.1614	0.0270
Ophir energy	London, UK	1,002	−0.0006	0.1723	−0.1610	0.0277
Integrated oil and gas
BP	London, UK	2,904	−0.0001	0.1058	−0.1404	0.0162
Royal Dutch shell “B”	London, UK	2,904	0.0001	0.1321	−0.0982	0.0155
Royal Dutch shell “A”	London, UK	2,544	0.0000	0.1286	−0.0979	0.0153
Oil equipment and services
Amec foster Wh. Plc	Cheshire, UK	2,904	0.0004	0.1355	−0.1507	0.0201
Hunting	London, UK	2,904	0.0006	0.1440	−0.1081	0.0232
Wood group (John)	Aberdeen, UK	2,904	0.0005	0.1602	−0.1455	0.0239
Petrofac	St. Helier, Jersey	2,512	0.0006	0.1280	−0.3072	0.0260
Lamprell Plc	Douglas, Isle of Man	2,274	−0.0001	0.1862	−0.8421	0.0426
Cape Plc	St. Helier, Jersey	1,020	−0.0007	0.1775	−0.4562	0.0343
Gulf marine serv. Plc	London, UK	323	−0.0006	0.0955	−0.1325	0.0227

* Country of main business is defined by the registered office (country of incorporation) of the companies. Oil and gas companies operate in various countries of the world, especially where oil and gas are found. Stock return series are from the oil and gas companies’ securities listed on the UK main market of the London Stock Exchange, excluding those of foreign companies listed on the international main market of the Exchange.

Table 2. Estimates of parameters using the exponential GARCH (EGARCH) model

Oil and gas producers (exploration and production/integrated oil and gas)
	αi0	βim	β1	β2	β3	ω	α	γ	β
Exploration and production
Cairn E.	−0.0004	1.2163	0.2782	0.0614	−0.0900	−0.0990	0.0862	−0.0290	0.9954
	[−1.2524]	[35.0055]	[4.7468]	[0.9356]	[−2.104]	[−15.20]	[18.706]	[−10.92]	[1076.0]
	(0.2104)	(0.0000)	(0.0000)	(0.3495)	(0.0353)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
JKX O&G	−0.0008	1.1113	0.7785	−0.1181	0.0125	−0.6660	0.2819	−0.0180	0.9361
	[−1.9307]	[24.1520]	[10.787]	[−1.696]	[0.2104]	[−22.72]	[29.899]	[−3.224]	[260.37]
	(0.0535)	(0.0000)	(0.0000)	(0.0898)	(0.8333)	(0.0000)	(0.0000)	(0.0013)	(0.0000)
Premier oil	−0.0006	1.1676	0.3748	0.2723	−0.0067	−0.1650	0.1050	−0.0200	0.9890
	[−2.0363]	[32.5280]	[6.6249]	[3.9762]	[−0.164]	[−8.137]	[10.648]	[−4.004]	[523.74]
	(0.0417)	(0.0000)	(0.0000)	(0.0001)	(0.8697)	(0.0000)	(0.0000)	(0.0001)	(0.0000)
Soco Intl.	−0.0001	1.1139	0.4516	−0.0629	−0.0211	−0.2260	0.1266	−0.0210	0.9817
	[−0.4423]	[32.9237]	[7.7125]	[−1.085]	[−0.421]	[−11.21]	[18.012]	[−4.054]	[442.30]
	(0.6583)	(0.0000)	(0.0000)	(0.2776)	(0.6731)	(0.0000)	(0.0000)	(0.0001)	(0.0000)
Tullow oil	−0.0002	1.3401	0.0944	−0.0742	−0.0728	−0.2380	0.1465	−0.0063	0.9832
	[−0.7236]	[36.9244]	[1.5857]	[−1.068]	[−1.542]	[−12.48]	[20.631]	[−1.240]	[437.01]
	(0.4693)	(0.0000)	(0.1128)	(0.2851)	(0.1229)	(0.0000)	(0.0000)	(0.2148)	(0.0000)
Hardy O&G	−0.0004	−0.0694	−0.0501	−0.2097	−0.0638	−0.1260	0.1016	0.0063	0.9913
	[−0.6420]	[−1.1437]	[−0.603]	[−1.874]	[−0.918]	[−11.55]	[16.776]	[2.2030]	[789.88]
	(0.5209)	(0.2527)	(0.5463)	(0.0609)	(0.3582)	(0.0000)	(0.0000)	(0.0276)	(0.0000)
Cadogan	−0.0022	0.5595	0.3949	0.0602	0.1138	−0.8190	0.3284	−0.0780	0.9050
	[−2.9058]	[7.4500]	[4.2353]	[0.4079]	[1.3976]	[−14.06]	[18.068]	[−5.750]	[117.93]
	(0.0037)	(0.0000)	(0.0000)	(0.6833)	(0.1622)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Nostrum O.	−0.0003	0.7712	1.2530	−0.5610	1.4424	−2.4150	1.1915	0.0301	0.7356
	[−0.7541]	[13.6263]	[17.799]	[−8.052]	[32.956]	[−30.22]	[38.329]	[1.1602]	[64.846]
	(0.4508)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.2460)	(0.0000)
Exillon E.	−0.0016	0.7633	0.8672	0.3934	−0.1276	−1.0320	0.2856	−0.0370	0.8801
	[−1.9242]	[9.2637]	[5.9761]	[2.6143]	[−1.118]	[−10.40]	[10.849]	[−2.611]	[70.319]
	(0.0543)	(0.0000)	(0.0000)	(0.0089)	(0.2633)	(0.0000)	(0.0000)	(0.0090)	(0.0000)
Enquest Plc	−0.0009	1.2380	0.4402	0.3734	−0.0938	−0.2980	0.1545	−0.0190	0.9761
	[−1.9290]	[21.1502]	[4.2466]	[3.3210]	[−1.216]	[−8.234]	[8.3496]	[−2.253]	[300.88]
	(0.0537)	(0.0000)	(0.0000)	(0.0009)	(0.2240)	(0.0000)	(0.0000)	(0.0242)	(0.0000)
Ophir E.	−0.0008	−0.0903	0.0274	−0.1313	−0.0059	−3.3450	0.2773	−0.1510	0.5632
	[−0.9594]	[−0.9825]	[0.1452]	[−0.656]	[−0.046]	[−6.448]	[5.7629]	[−5.332]	[8.1762]
	(0.3374)	(0.3259)	(0.8846)	(0.5118)	(0.9628)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Integrated oil and gas
BP	−0.0003	0.8191	−0.4490	0.2442	−0.0480	−0.2900	0.1078	−0.0300	0.9769
	[−1.6191]	[41.1873]	[−15.20]	[6.6032]	[−2.148]	[−9.012]	[14.441]	[−5.444]	[319.95]
	(0.1054)	(0.0000)	(0.0000)	(0.0000)	(0.0317)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
RDS “B”	−0.0001	0.8613	−0.4510	0.1199	−0.0344	−0.1670	0.0767	0.0423	0.9882
	[−0.5319]	[48.0544]	[−15.93]	[3.8249]	[−1.787]	[−5.943]	[8.9886]	[6.6794]	[388.06]
	(0.5948)	(0.0000)	(0.0000)	(0.0001)	(0.0739)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
RDS “A”	−0.0002	0.0120	0.0654	−0.0076	0.0316	−0.2660	0.1397	−0.0450	0.9817
	[−0.6920]	[0.4708]	[1.5496]	[−0.150]	[0.9492]	[−7.359]	[9.6507]	[−5.517]	[286.24]
	(0.4889)	(0.6378)	(0.1212)	(0.8802)	(0.3425)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Oil equipment and services
Amec F.	0.0001	1.0745	0.1826	0.2719	−0.0980	−0.1540	0.0795	−0.0069	0.9887
	[0.5166]	[39.0818]	[3.9954]	[5.1557]	[−3.078]	[−7.022]	[9.5726]	[−1.229]	[460.13]
	(0.6054)	(0.0000)	(0.0001)	(0.0000)	(0.0021)	(0.0000)	(0.0000)	(0.2190)	(0.0000)
Hunting	0.0000	1.1553	0.6858	0.2042	−0.1570	−0.2290	0.0919	−0.0310	0.9794
	[−0.0075]	[33.7203]	[12.142]	[3.1006]	[−4.429]	[−7.974]	[10.936]	[−5.266]	[313.55]
	(0.9940)	(0.0000)	(0.0000)	0.0019)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Wood Grp.	0.0000	1.3124	0.4034	0.2937	−0.1620	−0.1520	0.0840	−0.0083	0.9887
	[0.0398]	[37.3778]	[7.3005]	[4.4058]	[−4.225]	[−8.400]	[10.938]	[−1.559]	[530.70]
	(0.9683)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	0.1190	(0.0000)
Petrofac	0.0003	0.0879	−0.0124	−0.2280	−0.0576	−0.6920	0.1633	−0.0440	0.9224
	[0.6207]	[1.6886]	[−0.163]	[−2.251]	[−1.010]	[−9.347]	[8.0497]	[−6.289]	[110.13]
	(0.5348)	(0.0913)	(0.8705)	(0.0243)	(0.3124)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Lamprell	−0.0008	1.0743	0.9048	1.4979	−0.7400	−5.1390	0.5378	0.1874	0.2574
	[−0.8285]	[13.4502]	[8.5377]	[16.173]	[−10.41]	[−21.87]	[14.130]	[7.8780]	[7.3889]
	(0.4074)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)	(0.0000)
Cape Plc	−0.0015	1.3219	1.2885	0.3847	−0.3591	−4.9200	−0.0530	−0.0970	0.2826
	[−1.0162]	[9.7847]	[4.6003]	[1.3372]	[−1.641]	[−3.800]	[−1.703]	[−3.565]	[1.5087]
	(0.3095)	(0.0000)	(0.0000)	(0.1812)	(0.1006)	(0.0001)	(0.0885)	(0.0004)	(0.1314)
Gulf marine	−0.0008	0.4510	0.0832	0.5413	−0.3706	−7.7290	0.4015	−0.0074	0.0287
	[−0.6622]	[2.3536]	[0.2878]	[1.9581]	[−1.550]	[−6.700]	[3.5482]	[−0.083]	[0.1931]
	(0.5078)	(0.0186)	(0.7735)	(0.0502)	(0.1209)	(0.0000)	(0.0004)	(0.9338)	(0.8468)

Note: The parentheses of “()” and “[ ]” represent the p-values and z-statistics based on the asymptotic standard errors respectively.

Table 3. Regression analysis to examine the significance of the financial leverage variables in the determination of leverage effect

Oil and gas producers (exploration and production/integrated oil & gas)
	α0	α1 (BVDEBT/TA)	α2 (INT(cf)/TA)	α3 (LTDEBT/MVEQ.)
Exploration and Production
Cairn energy Plc	0.0000	0.0000	−0.0001	0.0000
	[0.7557]	[0.7294]	[−1.5879]	[−0.8051]
	(0.4498)	(0.4657)	(0.1123)	(0.4207)
JKX oil and gas	0.0005	−0.0002	0.0006	0.0000
	[1.2232]	[−1.1658]	[0.6407]	[2.1443]
	(0.2212)	(0.2437)	(0.5217)	(0.0320)
Premier oil	0.0002	−0.0001	−0.0001	0.0000
	[1.6519]	[−0.3405]	[−0.0826]	[0.0286]
	(0.0985)	(0.7335)	(0.9341)	(0.9771)
Soco international	−0.0002	−0.0003	0.0001	0.0000
	[−0.3510]	[−0.5540]	[1.3301]	[−0.5121]
	(0.7255)	(0.5796)	(0.1835)	(0.6085)
Tullow oil	0.0000	−0.0002	0.0000	0.0000
	[0.5796]	[−1.1901]	[0.9370]	[−0.3671]
	(0.5622)	(0.2340)	(0.3487)	(0.7135)
Cadogan petroleum^y	0.0382	−0.0025	0.0018	0.0000
	[1.4591]	[−1.6007]	[1.2201]	[−0.1395]
	(0.1445)	(0.1094)	(0.2224)	(0.8890)
Nostrum oil & gas Plc	−0.0043	−0.0001	−0.0014	0.0004
	[−1.1627]	[−0.0084]	[−2.9881]	[1.2372]
	(0.2449)	(0.9932)	(0.0028)	(0.2160)
Exillon energy Plc	−0.0001	−0.0002	0.0001	0.0000
	[−0.1767]	[−2.1522]	[0.0848]	[2.6453]
	(0.8597)	(0.0314)	(0.9324)	(0.0082)
Enquest Plc	0.0001	−0.0003	−0.0003	0.0000
	[0.8604]	[−0.1409]	[−0.5312]	[1.8305]
	(0.3896)	(0.8879)	(0.5952)	(0.0672)
Ophir energy	−0.1618	−0.0016	0.1692	0.0000
	[−0.8226]	[−0.6012]	[0.7766]	[2.0514]
	(0.4107)	(0.5477)	(0.4374)	(0.0402)
Integrated oil and gas
BP	0.0002	−0.0001	−0.0002	0.0000
	[0.6956]	[−0.7345]	[−0.4674]	[0.5772]
	(0.4866)	(0.4626)	(0.6401)	(0.5638)
Royal Dutch shell “B”	−0.0012	0.0001	0.0017	0.0000
	[−2.3316]	[1.7641]	[2.1802]	[−1.5685]
	(0.0197)	(0.0777)	(0.0292)	(0.1167)
Royal Dutch Shell “A”	0.0004	−0.0001	−0.0004	0.0000
	[0.9323]	[−2.0211]	[−0.4184]	[1.9842]
	(0.3512)	(0.0433)	(0.6756)	(0.0472)
Oil equipment and services
Amec Foster Wh. Plc	0.0000	−0.0001	0.0000	0.0000
	[1.8891]	[−1.7447]	[0.2331]	[1.2788]
	(0.0589)	(0.0810)	(0.8156)	(0.2010)
Hunting	−0.0002	−0.0001	0.0001	0.0000
	[−0.3700]	[−0.5098]	[1.4491]	[0.5559]
	(0.7113)	(0.6102)	(0.1473)	(0.5783)
Wood group (John)	0.0000	−0.0001	0.0001	0.0000
	[1.1364]	[−0.9647]	[1.4159]	[0.4339]
	(0.2558)	(0.3347)	(0.1568)	(0.6643)
Petrofac	0.0002	−0.0001	0.0001	0.0000
	[1.1930]	[−0.2186]	[0.2700]	[−0.1318]
	(0.2329)	(0.8269)	(0.7871)	(0.8951)
Lamprell Plc	0.0007	0.0007	−0.0009	−0.0001
	[0.3751]	[1.2928]	[−0.8112]	[−1.0534]
	(0.7076)	(0.1961)	(0.4172)	(0.2921)
Cape Plc	0.0024	−0.0003	0.0010	0.0000
	[1.0802]	[−2.7710]	[0.5382]	[2.3486]
	(0.2800)	(0.0056)	(0.5904)	(0.0188)
Gulf marine serv. Plc	0.0024	−0.0003	0.0010	0.0000
	[1.0802]	[−2.7710]	[0.5382]	[2.3486]
	(0.2800)	(0.0056)	(0.5904)	(0.0188)
Exploration and production
Hardy oil and gas^Z	All equity financed	All equity financed	All equity financed	All equity financed

Note: The parentheses of “()” and “[ ]” represent the p-values and z-statistics based on the asymptotic standard errors respectively.

^Y Companies without fixed interest long-term debt securities. For these companies, total liabilities including long-term provisions and current liabilities were used to calculate leverage.

^Z A company with no data available for debt and therefore, considered as all-equity financed.