Do political risks harm development of oil fields?

Abstract

We examine the impact of political risks and financial development on investments in the petroleum industry utilizing a unique dataset of investments in individual oil and gas fields around the world. We find that the expected time to investment is shorter in countries that are politically stable, have solid property rights protection and more developed financial systems. Political risks have the strongest impact on multinational companies, whereas financial development matters only for domestic national oil companies. At the company level we find that expected time to investment is shorter for companies with higher valuation and lower debt. Moreover, companies are more likely to invest in countries where they invested recently and less likely to invest in countries where their competitors invested recently.

Determining If Oil Prices Significantly Affect Renewable Energy Investment in African Countries with Energy Security Concerns

“…Similarly, Bøe et al studied the effect of political risks and financial growth on investment in the oil industry and found that it takes a shorter expected time for investment in countries with political stability, strong property rights protection and more developed financial methods [64]. At the firm level, they found a shorter expected time for investment for firms with a higher valuation and lower debts.…”

“…Horn et al validated this as they found that decision makers in the energy sector often use advanced systems for appraising investment [65]. As far as Bøe et al are concerned, there are no studies analyzing the effects of financial development on oil investment and there are only two, which are based on micro-level data, which examine the influence of political stability on oil investments [64].…”

“…They also noted the insignificant impact of oil price volatility. Since investment decisions have an important role to play in oil companies and since they are fashioned repetitively, these firms can prospectively provide time and resources into investment decisions [64]. Horn et al validated this as they found that decision makers in the energy sector often use advanced systems for appraising investment [65].…”

Dynamic Risk Assessment of the Overseas Oil and Gas Investment Environment in the Big Data Era

“…For overseas oil and gas investment projects, the most significant elements include a long life cycle, great uncertainty, high capital requirement, and irreversibility of the investments (Chapman and Ward, 2004). Due to the decade-long life cycles of such projects, they are exposed to a multitude of risk factors including the political environment of the resource countries (Bøe et al, 2019), economic conditions (Ma et al, 2020), cultural factors, religious factors (Weldegiorgis et al, 2017), as well as geological conditions (Asrilhant et al, 2007) and oil price risks (Chorn and Shokhor, 2006). Because of the intra relevance and complexity of risk management, the identification of risks is usually decided by managers and experts.…”

Determinants of oil and gas investments on the Norwegian Continental Shelf

“…Oil and gas exploration and field development have been subject to economic research for decades. In the existing literature, the main focus has been on the US and UK oil and gas data sets, because international data sets provide much less detailed information (Bøe et al, 2018). In this paper, we investigate the relation between investment activity and economic and field-specific variables on the Norwegian Continental Shelf from 1967 to 2015.…”