Limits to international diversification in oil & gas – Domestic vs foreign asset control

Abstract

Evidence is provided of the effects of international diversification on global asset ownership and control. We show that international geographic diversification in the oil and gas sector comes at an important cost, lower control over foreign oilfield assets relative to domestic assets (and therefore reduced control over oilfield cash-flows). This work examines this contradiction. Detailed worldwide oilfield ownership data for 293 companies owning 6,633 field stakes enables us to isolate variables underpinning asset ownership, demonstrating that international diversification increases with firm size, but is negatively related to asset control. We argue that companies seeking reserve replacement are forced to diversify and therefore need to be prepared to obtain lower control over oilfield cashflow. We find an important caveat; companies retain minimum blockholding in foreign investments.

Strategic Priorities for Green Diversification of Oil and Gas Companies

“…The studies are generally of a selective nature and do not include analyses of the motivation behind and efficiency of diversification. Kretzschmar and Sharifzyanova analyzed the effects of international diversification on global asset ownership and control [50]; Antonakakis et al proved the relationship between oil prices and the stock value of oil and gas companies [51]; Pickl [10], Oberling et al [11], Hartmann et al [12], and Hunt J et al [52] studied the efficiency of investing in the clean power sector; and Kirichenko [53] offered a methodology for qualitatively assessing the diversification level. Thus, there is a need to expand the scope of theoretical research on the diversification process and its outcomes in the oil and gas sector.…”

“…Thus, the decreased interest in investing in the industry during periods of dropping oil prices requires the concentration of ownership capital in order to expand the scope of activities. In addition, international diversification is associated with high risk related to institutional features in the host country [50]. Moreover, developing hard-towork resources such as arctic and deep-water fields and shale formations requires constant innovation and technology upgrades and developing corresponding competencies [55][56][57].…”