The Efficiency of the Reserve Finding Activities Of Oil and Gas Producers

Abstract

In light of the recent decline in oil and gas prices, many oil and gas producers found it extremely difficult to survive and had to restructure their petroleum activities. In such an environment, efficiency became a concept of paramount importance. In the united state, oil and gas producers are not required to disclose measures about the efficiency of their oil and gas operations. Rather, under SFAS No. 96, these companies are only required to disclose aggregated costs date and to proved information about the efficiency of reserve quantum and reserve value and annual changes therein. Thus it is left up to the investment community to utilize the above publicly available disclosures to extract aggregated efficiency measures. Although these measures suffer from mismatch between cost incurred and reserve added in a common time period, they are used by investors to compare the performance of oil and gas producer over extended periods. This paper examines the value relevance of alternative publicly- available efficiency measures of 109 U.S. Producers by investigating the contemporaneous association between "raw" security returns and the alternative measures over the 1985-1994 sample period. That is, adapting the theoretical framework of Easton, Harries and Ohlson (1992), security return would be used as a benchmark against which to measure the value relevance of the alternative measures. The empirical results show that, after controlling for earning, these measures provide a good summary of the information which affected security price over the sample period. That is to say, these measures provide a good summary of the information which affected security price over the sample period. That is to say, these measures provide a good indication about the efficiency of the reserve finding activities of oil and gas producers in spots of the problem associated whit their calculation.