Exploration vs. acquisition of oil and gas reserves: Effect on stock returns

Figures & data

Figure 1. Society of petroleum engineers’ oil and gas reserves classification framework.

Source: Society of Petroleum Engineers (2011).

Table 1. Descriptive statistics

Variable	Mean	St. dev.	25%	Median	75%	N
R	0.1648	0.5372	−0.1849	0.0942	0.4295	4,218
CF	0.2103	0.2849	0.1087	0.1761	0.2617	4,218
ΔCF	0.0268	0.2374	−0.0144	0.0215	0.0675	4,218
MRP	0.0821	0.1945	0.0083	0.1069	0.2021	23
SMB	0.0323	0.1192	−0.0373	0.0039	0.0747	23
HML	0.0232	0.1588	−0.0795	0.0371	0.1321	23
MOM	0.0587	0.2343	0.0324	0.0863	0.1775	23
ΔOP	0.1458	0.4018	−0.0709	0.0815	0.3361	23
ΔGP	0.1753	0.7483	−0.2094	0.0527	0.2623	23
ΔBOE	0.1472	0.5404	−0.0485	0.0424	0.1951	4,218
ΔBOE^REV	0.0108	0.2315	−0.0446	0.0045	0.0504	4,218
ΔBOE^EXT	0.1532	0.3013	0.0159	0.0765	0.183	4,218
ΔBOE^IMP	0.0069	0.0598	<0.0001	<0.0001	<0.0001	4,218
ΔBOE^PUR	0.1133	0.3830	<0.0001	0.0042	0.0787	4,218
ΔBOE^SAL	−0.0302	0.0937	−0.0168	−0.0004	<0.0001	4,218
ΔBOE^OTH	0.0039	0.1067	<0.0001	<0.0001	<0.0001	4,218
ΔBOE^PRO	−0.1111	0.0701	−0.1348	−0.0979	−0.0706	4,218
ΔOIL	0.0820	0.4140	−0.0187	0.0099	0.0782	4,218
ΔOIL^REV	0.0182	0.1724	−0.0100	0.0034	0.0283	4,218
ΔOIL^EXT	0.0618	0.2287	0.0008	0.0193	0.0534	4,218
ΔOIL^IMP	0.0051	0.0546	<0.0001	<0.0001	<0.0001	4,218
ΔOIL^PUR	0.0559	0.2831	<0.0001	0.0004	0.0214	4,218
ΔOIL^SAL	−0.0129	0.0521	−0.0048	<0.0001	<0.0001	4,218
ΔOIL^OTH	0.0027	0.0780	<0.0001	<0.0001	<0.0001	4,218
ΔOIL^PRO	−0.0489	0.0493	−0.0624	−0.0418	−0.0195	4,218
ΔGAS	0.0650	0.2597	−0.0257	0.0064	0.0984	4,218
ΔGAS^REV	−0.0072	0.1187	−0.0295	<0.0001	0.0157	4,218
ΔGAS^EXT	0.0916	0.1673	0.0021	0.0327	0.1141	4,218
ΔGAS^IMP	0.0018	0.0203	<0.0001	<0.0001	<0.0001	4,218
ΔGAS^PUR	0.0574	0.1794	<0.0001	0.0008	0.0307	4,218
ΔGAS^SAL	−0.0173	0.0651	−0.0071	<0.0001	<0.0001	4,218
ΔGAS^OTH	0.0012	0.0525	<0.0001	<0.0001	<0.0001	4,218
ΔGAS^PRO	−0.0624	0.0578	−0.0859	−0.0503	−0.0251	4,218

Notes: ΔBOE, ΔOIL, ΔGAS are changes in total oil and gas reserves, oil reserves and gas reserves, respectively. The superscript describes the type of disaggregated reserves; REV = revisions, EXT = extensions, IMP = improvements, PUR = purchases, SAL = sales, OTH = other, and PRO = production.

Table 2. Test for unit root using the Augmented Dickey–Fuller test (ADF)

Variable	BOE		OIL		GAS
	ADF-value	p-value	ADF-value	p-value	ADF-value	p-value
R	−37.483	<0.001
CF	−37.483	<0.001
ΔCF	−31.190	<0.001
MRP	−39.818	<0.001
SMB	−40.948	<0.001
HML	−42.172	<0.001
MOM	−34.591	<0.001
ΔOP	−51.559	<0.001
ΔGP	−37.820	<0.001
TOT	−34.130	<0.001	−35.541	<0.001	−31.424	<0.001
REV	−33.704	<0.001	−36.612	<0.001	−31.006	<0.001
EXT	−31.070	<0.001	−32.707	<0.001	−26.360	<0.001
IMP	−31.749	<0.001	−33.583	<0.001	−29.035	<0.001
PUR	−33.052	<0.001	−35.160	<0.001	−30.901	<0.001
SAL	−35.786	<0.001	−35.674	<0.001	−36.129	<0.001
OTH	−38.005	<0.001	−37.151	<0.001	−38.730	<0.001
PRO	−22.144	<0.001	−21.238	<0.001	−20.668	<0.001

Notes: For simplicity the ADF results are split into three, for changes in total reserves (columns 2 and 3), changes in oil reserves (columns 4 and 5), and changes in gas reserves (columns 6 and 7). The variable for changes in total, oil and gas reserves attributed to purchases is denoted by PUR in this table (across three columns), but ΔBOE^PUR, ΔOIL^PUR, and ΔGAS^PUR, respectively in Table 1. TOT = total reserves, REV = revisions, EXT = extensions, IMP = improvements, PUR = purchases, SAL = sales, OTH = other, and PRO = production. Results with a statistical significance better than 5% is marked in bold.

Table 3. Panel data tests and tests for heteroskedasticity and serial correlation

	Model 1	Model 2	Model 3	Model 4
Pooled vs. fixed	1.370 (<0.001)	1.357 (<0.001)	1.370 (<0.001)	1.364 (<0.001)
Pooled vs. random	82,175.8 (<0.001)	81,491.9 (<0.001)	81,503.4 (<0.001)	80,123.9 (<0.001)
Random vs. fixed	6.900 (0.648)	18.879 (0.042)	96.521 (<0.001)	94.434 (<0.001)
Heteroskedasticity	999.646 (<0.001)	909.629 (<0.001)	1103.993 (<0.001)	973.135 (<0.001)
Serial correlation	<0.001 (0.982)	50.538 (<0.001)	47.283 (<0.001)	51.357 (<0.001)

Notes: Pooled vs. fixed has H₀: Pooled model is a better fit than a fixed effects model (F-test). Pooled vs. random has H₀: Pooled model is a better fit than a random effects model (Breusch–Pagan test: Breusch and Pagan (1979)). Random vs. fixed has H₀: Random effects model is a better fit than a fixed effects model (Hausman test: Hausman, 1978). Presence of heteroskedasticity is tested using a Breusch–Pagan test (Breusch & Pagan, 1979) with H₀: no heteroskedasticity present in the data, and presence of serial correlation is tested using a Breusch–Godfrey/Wooldridge test (Breusch, 1978; Godfrey, 1978; Wooldridge, 2002) with H₀: no serial correlation present in the data. Results with a statistical significance better than 5% is marked in bold.

Table 4. Regression results

Variable	Model 1	Model 2	Model 3	Model 4
Intercept	−0.056 (0.003)
CF	0.177 (0.059)	0.277 (0.015)	0.271 (0.016)	0.285 (0.014)
ΔCF	0.172 (0.017)	0.081 (0.164)	0.102 (0.083)	0.085 (0.146)
MRP	0.524 (<0.001)	0.587 (<0.001)	0.588 (<0.001)	0.584 (<0.001)
SMB	0.322 (<0.001)	0.289 (0.001)	0.273 (0.002)	0.292 (0.001)
HML	0.889 (<0.001)	0.886 (<0.001)	0.890 (<0.001)	0.889 (<0.001)
MOM	0.071 (0.114)	0.133 (0.003)	0.133 (0.004)	0.129 (0.005)
ΔOP	0.394 (<0.001)	0.381 (<0.001)	0.383 (<0.001)	0.383 (<0.001)
ΔGP	0.105 (<0.001)	0.106 (<0.001)	0.105 (<0.001)	0.105 (<0.001)
ΔBOE	0.161 (<0.001)
ΔBOE^REV			0.114 (0.037)
ΔBOE^EXT			0.165 (0.003)
ΔBOE^IMP			−0.113 (0.171)
ΔBOE^PUR			0.167 (<0.001)
ΔBOE^SAL			0.041 (0.688)
ΔBOE^OTH			−0.012 (0.873)
ΔBOE^PRO			0.217 (0.224)
ΔOIL		0.083 (0.002)
ΔOIL^REV				0.061 (0.320)
ΔOIL^EXT				0.127 (0.084)
ΔOIL^IMP				−0.107 (0.179)
ΔOIL^PUR				0.065 (0.003)
ΔOIL^SAL				0.144 (0.333)
ΔOIL^OTH				0.103 (0.372)
ΔOIL^PRO				0.691 (0.058)
ΔGAS		0.274 (<0.001)
ΔGAS^REV				0.244 (0.025)
ΔGAS^EXT				0.252 (0.001)
ΔGAS^IMP				−0.205 (0.477)
ΔGAS^PUR				0.381 (<0.001)
ΔGAS^SAL				−0.001 (0.998)
ΔGAS^OTH				−0.150 (0.314)
ΔGAS^PRO				0.197 (0.292)
Adjusted R^2	0.272	0.252	0.250	0.256
F-statistic	175.160 (<0.001)	149.223 (<0.001)	98.354 (<0.001)	69.206 (<0.001)
RE/FE/pooled	RE	FE	FE	FE

Notes: RE is random effects and FE is fixed effects. ΔBOE, ΔOIL, ΔGAS are changes in total oil and gas reserves, oil reserves, and gas reserves, respectively. The superscript describes the type of disaggregated reserves; REV = revisions, EXT = extensions, IMP = improvements, PUR = purchases, SAL = sales, OTH = other, and PRO = production. Results with a statistical significance better than 5% is marked in bold.

Table 5. F-tests and Chow test

Hypotheses	F-statistic (p-value)	χ^2-statistic (p-value)
Hypothesis 1
Model 2: H0: ${\delta }_{\text{tot}}^{\text{oil}}-{\delta }_{\text{tot}}^{\text{gas}}=0$	10.804 (0.001)
Model 4: H0: ${\delta }_{\text{ext}}^{\text{oil}}-{\delta }_{\text{ext}}^{\text{gas}}=0$	1.250 (0.264)
Model 4: H0: ${\delta }_{\text{pur}}^{\text{oil}}-{\delta }_{\text{pur}}^{\text{gas}}=0$	16.097 (<0.001)
Hypothesis 2
Model 3: H0: ${\delta }_{\text{ext}}^{\text{boe}}-{\delta }_{\text{pur}}^{\text{boe}}=0$	<0.001 (0.976)
Model 4: H0: ${\delta }_{\text{ext}}^{\text{oil}}-{\delta }_{\text{pur}}^{\text{oil}}=0$	0.299 (0.587)
Model 4: H0: ${\delta }_{\text{ext}}^{\text{gas}}-{\delta }_{\text{pur}}^{\text{gas}}=0$	1.774 (0.183)
Hypothesis 3
H0: no structural shift on interaction terms on oil reserves changes		9.720 (0.205)
H0: no structural shift on interaction terms on gas reserves changes		22.812 (0.002)

Note: Results with a statistical significance better than 5% is marked in bold.

Table 6. Shale gas

Variable	Pre-2008	Post-2008
Intercept		−0.174 (<0.001)
ΔOIL^REV	0.044 (0.421)	0.151 (0.190)
ΔOIL^EXT	0.101 (0.245)	0.104 (0.472)
ΔOIL^IMP	−0.502 (0.414)	0.445 (0.468)
ΔOIL^PUR	0.081 (0.020)	−0.044 (0.469)
ΔOIL^SAL	0.155 (0.424)	−0.022 (0.949)
ΔOIL^OTH	0.200 (0.100)	−0.621 (0.123)
ΔOIL^PRO	0.849 (0.036)	−0.566 (0.263)
ΔGAS^REV	0.065 (0.565)	0.566 (0.002)
ΔGAS^EXT	0.268 (0.002)	−0.167 (0.225)
ΔGAS^IMP	−0.289 (0.380)	0.829 (0.043)
ΔGAS^PUR	0.336 (<0.001)	0.412 (0.088)
ΔGAS^SAL	0.100 (0.605)	−0.542 (0.168)
ΔGAS^OTH	−0.110 (0.675)	0.131 (0.725)
ΔGAS^PRO	0.187 (0.348)	−0.024 (0.960)
Adjusted R^2	0.256	0.268
F-statistic	69.206 (<0.001)	44.047 (<0.001)

Notes: For simplicity, only the coefficients on the reserves variables are presented. ΔBOE, ΔOIL, ΔGAS are changes in total oil and gas reserves, oil reserves, and gas reserves, respectively. The superscript describes the type of disaggregated reserves; REV = revisions, EXT = extensions, IMP = improvements, PUR = purchases, SAL = sales, OTH = other, and PRO = production. Results with a statistical significance better than 5% is marked in bold.

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