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Abstract:
This paper examines the equity valuation process for the world's largest privately owned oil and gas companies. Our analyses provide evidence for a structural shift in the valuation of the largest oil and gas companies. Furthermore, we examine the key value-drivers that have been instrumental in the structural shift. Using financial and operational information from 15 international oil and gas companies over the period 1990-2003 and proxies for merger activity and market sentiment, we test for structural shift in the valuation of integrated international oil and gas companies. We show that financial information such as net income, cash flows and accruals, and operational measures such as the size of oil and gas reserves, are instrumental in explaining the structural shift in valuation of oil and gas companies.

company valuation, structural shift, oil company

Abstract:
High oil prices are normally expected to stimulate exploration and the development of new oil and gas fields. But over the last few years, financial analysts have focused strongly on short-term accounting return (RoACE) for benchmarking and valuation, and this has led to high capital discipline among oil and gas companies. We analyse how high oil prices can be explained in terms of an implicit capacity game between the oil companies, and explore the stability of the current equilibrium. Our approach is an investigation of a key assumption among financial analysts, namely the presumed positive relation between RoACE and stock market valuation. Based on panel data for 11 international oil and gas companies, we seek to establish econometric relations between market valuation on one hand, and simple financial and operational indicators on the other. Our findings do not support the perceived positive relation between reported RoACE and market-based multiples. Recent evidence also suggests that the stock market is increasingly concerned about reserve replacement and sustained profitable growth. The current high-price equilibrium is therefore hardly stable.

Abstract:
Producers or consumers faced with an increase in taxes are usually able to shift parts of it to other levels in the value chain. We examine who is actually bearing the burden of increased energy taxes in the EU-area - consumers or exporters. Traditional tax incidence theory presumes spot markets. Natural gas in the EU-area, however, is to a large extent regulated by incomplete long-term contracts. Still, spot market forces could be indicative for tax shifting, by determining the ex post bargaining power in contract renegotiations. By examining tax shifting in actual gas sales contracts we test whether this is the case. To calculate tax incidence we derive demand elasticities, income elasticities and cross price elasticities for natural gas, oil and electricity, for different market segments (households, industry, power generators) in EU countries. Particular focus is on tax incidence in gas markets regulated by incomplete long-term contracts. Based on our findings we discuss normative energy tax issues related to revenue, environmental obligations and security of supply.

Energy Markets, Incomplete Contracts, Tax Incidence

Abstract:
Gas exports to the Continent are regulated by long term take-or-pay contracts. The contracts are described and analyzed. We thereafter examine whether the most central European gas market, the German market, is integrated. Are there substantial price differences between gas from different export countries, and do prices move together? Time series of Norwegian, Dutch and Russian gas export prices to Germany in 1990-1998 are examined. Cointegration tests show that the different border prices for gas to Germany move proportionally over time, indicating an integrated gas market (the Law of One Price holds). We find differences in mean prices, with Russian gas being sold at prices systematically lower than Dutch and Norwegian gas. Among the explanatory factors for price discrepancies are differences in volume flexibility (swing) and perceived political risk.

Market integration, gas markets, cointegration test

Abstract:
After opening up of the Interconnector, the liberalized UK natural gas market and the regulated Continental gas markets became physically integrated. The oil-linked Continental gas price became dominant, due to both the large volume of the Continental market and to the fact that the significant call options embedded in the complex take-or-pay contracts make these contracts the marginal source of supply. However, in an interim period - after deregulation of the UK gas market (1995) and the opening up of the Interconnector (1998) - the UK gas market had neither government price regulation nor a physical Continental gas linkage. We use this period - which for natural gas markets displays an unusual combination of deregulation and autarky - as a natural experiment to explore if decoupling of natural gas prices from prices of other energy commodities, such as oil and electricity, took place. Using monthly price data, we find a highly integrated market where wholesale demand seems to be for energy rather than a specific energy source.

energy markets, price interlinkages, cointegration analysis

Abstract:
In this paper we apply the Bresnahan-Lau (1982) model to test for market power in the European distribution of salmon. In this particular setting, the model also incorporates a test of whether dumping takes place over time. Utilising data at the import level, derived demand equations are specified rather then consumer demand. From 1997 a so-called salmon agreement that implied minimum prices, a growth ceiling and a feeding restriction program for Norwegian farmers was imposed. Here we test whether the agreement resulted in an increase in the Norwegian market power. The results suggest that Norway did not have market power prior to the salmon agreement, and we find no indication that dumping was taking place. However, the agreement led to Norwegian market power after 1997. It is interesting to note that the agreement was initiated to prevent anti dumping duty of 13% that Norwegian farmers would have to pay otherwise. The increase in mark-up from imposing the agreement is found to be in the order of 14-15%, suggesting that the Norwegian farmers saved a fee of 13% and gained a markup that was even higher.

Anti-dumping, market power, salmon markets