Quantifying the value in geoscientific information using panel data econometrics

Abstract

A dataset of 25 metrics collected from the 10-Ks of 20 oil and gas operators was segregated into two panels: One with operators with a diversified business strategy (conventional group), and a second with operators focused on shale plays (unconventional group). Under the assumption that through exploration expenses (EXPEX) the cost of geoscientific information can be measured, fixed effects panel regressions with robust standard errors were constructed using proven reserves (P90), and the price per flowing barrel (PFB) as dependent variables, EXPEX as the variable of interest, and a series of controls accounting for other line items expensed in this account. Using the regression coefficients of these regressions the ceteris paribus effect of investments in geoscientific information on P90 and PFB is quantified. According to results, a million dollars invested in the geosciences increases P90 by 304 mboe after four years for operators in the conventional group. For operators in the unconventionals group, results indicate an increment of 935 mboe also after four years. Under an efficient market hypothesis the stock price of an operator should reflect all current available information. Therefore, these increments in proven reserves attributed to investments in geoscience should have a positive impact on the market capitalization of an operator. However, results from PFB models indicate that investments in exploration, even though having an impact on the amount of proven reserves, have a minimal impact on how the market values a barrel of crude from each operator regardless its business strategy.