The Hotelling Valuation Principle: Evidence from the Six Super Majors

Abstract

This paper applies the Hotelling Valuation Principle developed by Miller and Upton to the six super majors, multinational oil companies and extends their model by adding an explanatory variable as in world oil and gas inventory. The results do not support the Hotelling Valuation Principle and in fact the study finds that the in ground reserves of the six super majors are worth about twice as less as these same reserves once extracted. In addition, it is found that world stock effect has a significant impact on the value of oil and gas reserves and provides additional explanatory power to the Hotelling Valuation Principle.

Keywords: hotelling valuation principle, in situ value, world oil and gas stock effect, fixed effects

JEL Classification: G10, G12, G19