The market reaction to the reserve-based value replacement measures of oil and gas producers

Abstract

This study investigates the incremental information in alternative reserve-based value replacement measures over historical cost income of oil and gas (O&G) producing companies. The empirical results suggest that market participants react favourably to O&G companies that are successful in replacing their O&G reserves via discoveries. Whereas this market reaction is positive and significant for full cost (FG) companies that deal primarily in O&G exploration and production, it is insignificant for successful efforts (SE) companies. Furthermore, it appears that once production and discovery quantities are known, the reserve-based value disclosures convey little incremental information. © Blackw..