Market risks and oilfield ownership—Refining oil and gas disclosures

Abstract

Market risk exposures of balance sheet asset values are becoming an increasingly important accounting issue. In oil and gas, oilfield exposures to oil prices are specific and contractual, presenting a contingency problem for investors, financial analysts, standard setting bodies and government agencies. Our paper uses an extensive sample of 292 oilfields to provide evidence that the US Securities and Exchange Commission (SEC) supplementary disclosures do not capture the price sensitivities of oil and gas disclosures implicit in the two main forms of oilfield ownership, concession and production sharing contracts (PSCs). Current asset disclosures neither distinguish between global variations in oilfield ownership terms, nor on market risk implications for the value of oilfield assets.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. Early evidence on the informativeness of the SEC's market risk disclosures: the case of commodity price risk exposure of oil and gas producers. The Accounting Review 74, 251-280] and propose refinements to capture market risk in financial reporting. r

Recovery of hidden state participation effects on oil and gas asset values

“…Two very different forms of reserve ownership dominate the oil and gas sector; production sharing and concessions. These are shown to result in oil reserve entitlement profiles that respond very differently to market oil price variability (Kretzschmar, Misund, and Hatherly 2007). We demonstrate that asset responses to oil market prices depend on country, or in this context, state participation tax terms that are themselves not a continuous function of market oil prices.…”

Exploration vs. acquisition of oil and gas reserves: Effect on stock returns

“…First, reserves are recognized as profitable using average commodity prices over the previous fiscal year. Second, ownership and entitlement to the reserve and production are governed by contractual issues such as production sharing agreements vs. concessions (see Bindemann, 1999;Kretzschmar, Misund, & Hatherly, 2007 for a discussion on this topic). Finally, the estimation of reserves is not straightforward proved reserves is only one of the several reserves classifications.…”

Market Risk Information Disclosure: A Case of Companies Within Psi 20

“…Verificamos que entre estes, uns incidem sobre a generalidade da informação divulgada pelas empresas, seja ela voluntária ou obrigatória (RAJGOPAL, 1999;BERETTA e BOZZOLAN, 2004;LINSLEY e SHRIVES, 2006;KRETZSCHMARA et al, 2007;AMEER, 2009;AMRAN et al, 2009) Rajgopal (1999, apud LINSLEY e SHRIVES, 2006) testou a relação entre a exposição dos preços de mercadorias ao risco e a sensibilidade do mercado em relação ao preço do petróleo e ao preço do gás. Como a relação foi confirmada, concluiu que as divulgações eram "úteis" no sentido de que eram indicadores fiáveis da sensibilidade ao preço.…”

“…Em geral, o domínio das declarações de política geral de gestão de risco e uma falta de coerência nas narrativas de risco implica que existe uma lacuna de informação sobre o risco e, consequentemente, os interessados são incapazes de avaliar adequadamente o perfil de risco de uma empresa. Kretzschmara et al (2007) comprovaram o estudo de Rajgopal (1999) e propuseram melhorias para identificar os riscos de mercado nos relatórios financeiros. Argumentam que as exposições ao risco de mercado nos valores dos ativos são um problema de contabilidade cada vez mais importante.…”