Market Risks and Oilfield Ownership - Refining SEC Oil and Gas Disclosures
Kretzschmar, Gavin Lee
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Our paper uses an extensive sample of 292 oilfields to provide evidence that Securities and Exchange Commission (SEC) supplementary disclosures do not capture the price sensitivities of O&G disclosures implicit in the two main forms of oilfield ownership, concession and production sharing contracts (PSCs). SEC present value disclosures for both forms of ownership are shown to be significantly more responsive to oil prices than stock return sensitivities noted by Rajgopal (1999). Importantly, we show that unlike concessions, reserve and production disclosures vary in response to oil price movements for PSC regimes. Our results highlight the need to differentiate PSC disclosures from concession fields, and to fully reflect price risks implicit in oilfield ownership contracts. We extend findings by Rajgopal (1999) and propose refinements necessary to capture contractual price risk effects on SEC disclosures for assets in the O&G sector.