Investment in New Proved Oil Reserves: An Austrian Perspective
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Bradley T. Ewing
Abstract
Exploration and production (E&P) companies must replace oil produced with new proved reserves in order to sustain their existence, generate future revenues and value. Extensions constitute the largest type of additions to new proved reserves. Adding reserves through extensions is capital intensive and both the real price of oil (represented by real refiner acquisition cost) and real interest (represented by real yield on 10 year Treasury bond) will influence the investment in new discoveries of proved reserves. However, recent periods of unusually high commodity prices and ultra-low interest rates, often linked to monetary policy, may have led to an over-investment in reserves through extensions. Accordingly, using U.S. data (1977–2014) we test for the existence of “explosive behavior” in the volume of extensions over time with financial time series econometric methods referred to as right-tail ADF tests which have traditionally been used for identifying speculative bubbles in asset markets. Empirical evidence identifies a period of explosive (“bubble-like”) behavior in the time series of extensions having occurred beginning 2010 through 2014. This research provides an Austrian explanation for the empirical results consistent with the notion of malinvestment.
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Articles in the same Issue
- Private Governance and the Pricing of Political Enterprises
- Investment in New Proved Oil Reserves: An Austrian Perspective
- Economic Calculation and the Productivity of Investment
- Incorporating Social Capital into the Austrian Business Cycle Theory
- Austrian Economics, Market Process, and the EVA® Framework
- Capital Valuation, What is it and Why does it Matter? Insights from Austrian Capital Theory
- Adversarial versus Inquisitorial Systems: Error and Valuation
Articles in the same Issue
- Private Governance and the Pricing of Political Enterprises
- Investment in New Proved Oil Reserves: An Austrian Perspective
- Economic Calculation and the Productivity of Investment
- Incorporating Social Capital into the Austrian Business Cycle Theory
- Austrian Economics, Market Process, and the EVA® Framework
- Capital Valuation, What is it and Why does it Matter? Insights from Austrian Capital Theory
- Adversarial versus Inquisitorial Systems: Error and Valuation
