The impact of oil and gas firm investments on their share prices

This thesis examines the relation between investments of oil and gas firms listed in the United States (U.S.) market and their share prices. In particular, it examines four different aspects of oil and gas firm investments. Given the advances in technology, the first study investigates the market reaction to announcement of acquisition and divestiture of frontier technology and proven technology resources. The second study examines the information asymmetry around acquisition of acreage and reserves. The third study deals with market reaction to announcements of acquisition of acreage and reserves. Finally, the last study deals with the relation between underlying asset price volatility and firm value, with particular emphasis on the impact of real options. The first study investigates the market response to announcements of transactions in proven technology resources (conventional energy) and frontier technology resources (unconventional energy). Due to complexity, it has been agreed that information about frontier technology resources is hard to analyse as the economic fundamentals of the firm and its industry have a strong impact on the processing of technology related information. Thus, oil and gas firms on average tend to overbid for these assets relative to proven technology resources. An alternative argument is that in an efficient and competitive market, the acquirer purchases frontier technology resources at a discount relative to proven technology resources due to high risk. In this study, I find that the market reacts positively to these announcements. Further, there is evidence of positive total wealth effects for acquirer and the seller of the proven technology resources. The next two studies focus on upstream (exploration and production) investment decisions in order to further explore the impact of information asymmetry on the investment decision of oil and gas firms. In the second study, the bid-ask spread is used