Recovery of hidden state participation effects on oil and gas asset values |
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Authors: | Gavin L Kretzschmar Axel Kirchner |
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Institution: | 1. University of Edinburgh Business School, University of Edinburgh , Edinburgh, UK gavin.kretzschmar@ed.ac.uk;3. Barrie &4. Hibbert Limited , Edinburgh, UK |
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Abstract: | Commodity price shocks are shown to cause shifts in both the quantity and timing of risk in natural resource assets. We provide evidence that static risk measures understate the periodicity of price risk implicit in depleting assets. Risk measurement is demonstrated to be asset specific and to vary heterogeneously in response to the combined effects of state participation and market factors. We use a global sample of oilfield assets to demonstrate that oilfield participation terms cause corporate asset cash flows, volatility horizons and minimum variance hedge ratios to vary in response to oil price. We provide additional insights into movements in the timing of physical oil and gas asset risk, a hidden effect not recoverable from market oil prices. Temporal variance for physical assets is shown to be a hidden dimensional outcome of the effects of market factors and state participation. |
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Keywords: | oil and gas volatility ledging |
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