CFO pay convexity, risk taking and corporate hedging

What explains the choice of corporate political strategy in environmental politics? Drawing on recent models of actor strategy formation in political economy, this article argues that basic material interests of firms are translated into strategies in the context of institutional environments. I advance a typological model that posits how distributional effects—positive versus negative—and perceived regulatory pressure—low versus high—interact in leading firms to adopt one of four ideal-type strategies: opposition, hedging, support, and non-participation. This article examines the model through the case of corporate strategies in the making of the European Union’s Emission Trading Scheme. The article contributes to theory-building on business strategy in environmental politics by offering a probabilistic explanatory model, and it flags hedging strategies as an increasingly prevalent form of business behavior.

Economic impact of political barriers to cross-border acquisitions: An empirical study of CNOOC's unsuccessful takeover of Unocal

This paper presents survey results validating the theory of diffusion of innovation (DoI) (Rogers, 1962, 2003). We find that complexity, trialability, and observability exhibited correlation with innovation diffusion while the others do not. Innovation and technology have been long considered important drivers of organisational success. They are examined in the US Oil and Gas (O&G) industry. Rogers' (1962, 2003) theory of DoI is used in identifying and operationalising key variables that affect DoI. It broadens understanding of how the industry has responded to the presence of multiple, important new technologies and how the diffusion of these technologies can be explained by the application of the DoI model. Using primary data, the current study empirically tests DoI in the context of today's US O&G industry. The contribution of the current study to both researchers and practitioners, limitations, as well as suggestions for future studies are also provided.

Managerial compensation under privately-observed hedging and earnings management

This paper develops a set of necessary conditions to justify corporate hedging using a general cash flow model of firm value when the cost of debt is convex in both level of debt and the value of the firm's assets. It is shown that hedging is value-creating under a wider range of conditions than suggested in the existing hedging literature. By hedging, the firm is able to rely less on externally generated funds and, therefore, will invest at a higher level than when using borrowed funds. Furthermore, if external financing is necessary, the firm will be able to borrow at a lower cost per dollar of face value of debt if it hedges its cash flows. Then, a simulation is developed using a Black-Scholes-Merton contingent claim pricing model to show the gains in share value by using a simple static delta hedging strategy.

As airborne methane surveys of oil and gas systems continue to discover large emissions that are missing from official estimates1-4, the true scope of methane emissions from energy production has yet to be quantified. We integrate approximately one million aerial site measurements into regional emissions inventories for six regions in the USA, comprising 52% of onshore oil and 29% of gas production over 15 aerial campaigns. We construct complete emissions distributions for each, employing empirically grounded simulations to estimate small emissions. Total estimated emissions range from 0.75% (95% confidence interval (CI) 0.65%, 0.84%) of covered natural gas production in a high-productivity, gas-rich region to 9.63% (95% CI 9.04%, 10.39%) in a rapidly expanding, oil-focused region. The six-region weighted average is 2.95% (95% CI 2.79%, 3.14%), or roughly three times the national government inventory estimate5. Only 0.05-1.66% of well sites contribute the majority (50-79%) of well site emissions in 11 outof 15 surveys. Ancillary midstream facilities, including pipelines, contribute 18-57% of estimated regional emissions, similarly concentrated in a small number of point sources. Together, the emissions quantified here represent an annual loss of roughly US$1 billion in commercial gas value and a US$9.3 billion annual social cost6. Repeated, comprehensive, regional remote-sensing surveys offer a path to detect these low-frequency, high-consequence emissions for rapid mitigation, incorporation into official emissions inventories and a clear-eyed assessment of the most effective emission-finding technologies for a given region.

This article examines how oil and gas industry participants in Colorado reflect on the potential energy mix of the future. At a time when innovation is a dominant trope that casts entrepreneurs as agents who create dreams and craft worlds, providing the materials, technologies, and processes needed to decarbonize energy systems, my interlocutors also position themselves as experienced innovators. For them, petromodernity is a techno-scientific achievement that crystallizes the successful conjoining of wildcatter risk-taking, geoscientific knowledge, and engineering endeavour. While renewable energy sources now have widespread appeal among politicians, publics, and investors, these industry participants dismiss emerging energy transitions and renewable energy imaginaries. They mock and ridicule renewable energy sources, scorning them for being ‘factually impossible’ due to their lower energy densities relative to oil and gas. Turning to and mobilizing epistemologies of facts, they regard oil and gas as destined to enjoy great longevity. While they see their own industry as a harbinger of innovation, they deem renewable energy industries void of such potential. Exploring these mocking dismissals, this article shows how the oil and gas industry’s history and epistemes inform energy imaginaries and flourish in the championing of what I call ‘nostalgic innovation’. As such, I suggest that innovation is not only a key component in entrepreneurial capitalism, but also a powerful moral commentary on who is seen to deserve to play a key role in future configurations of life.

Plenary session: Global dynamics in the international LNG market Panel session facilitated by Professor Jonathan Stern, Chairman and Senior Research Fellow Natural Gas Programme, The Oxford Institute for Energy Studies. Panelists include: Mr Peter Coleman, Managing Director and Chief Executive Officer, Woodside Energy Limited Mr John England, Vice Chairman and US Oil & Gas Leader, Deloitte Mr Andrew Smith, Country Chair Australia, Vice-President Australia & NZ, Shell

According to an American Petroleum Institute production waste survey reported on by P.G. Wakim in 1987 and 1988, the exploration and production segment of the US oil and gas industry generated more than 360 million barrels (bbl) of drilling wastes, more than 20 billion bbl of produced water, and nearly 12 million bbl of associated wastes in 1985. Current exploration and production activities are believed to be generating comparable quantities of these oil field wastes. Wakim estimates that 28% of drilling wastes, less than 2% of produced water, and 52% of associated wastes are disposed of in off-site commercial facilities. In recent years, interest in disposing of oil field wastes in solution-mined salt caverns has been growing. This report provides information on the availability of commercial disposal companies in oil-and gas-producing states, the treatment and disposal methods they employ, and the amounts they charge. It also compares cavern disposal costs with the costs of other forms of waste disposal.

This article sets out to identify an appropriate hurdle rate range for commercial space resource development projects, should such an industry eventuate. There has been little consistency in the use of hurdle rates and discount rates in the evaluation of space resource projects proposed to date. The article uses two approaches to determine an appropriate hurdle rate for the economic evaluation of such projects. Firstly, the article reviews hurdle rate usage in three industries with parallels to a potential space resource industry – the mining industry, the oil & gas industry, and the aerospace industry. The venture capital sector is also considered. The article finds that there is limited direct reference to the hurdle rates used in these industries and therefore uses expected project IRR and corporate Cashflow Return on Investment (CFROI) as proxies to quantify hurdle rates in each industry. Secondly, the article develops a Risk Build Up Method (RBUM) to determine appropriate hurdle rates for hypothetical commercial space resource development projects by quantifying the potential commercial risk to which such projects could be exposed. The RBUM process correlates a commercial risk score quantified on a project by project basis with a hurdle rate risk premium scale to determine an appropriate hurdle rate for such projects. Finally, the article discusses discount rate treatment in the analogue industries, with a view to proposing a consistent approach to the use of discount rates in a potential space resources industry. The article finds that hurdle rates in the range of 25% could be appropriate for potential commercial space resource development projects, depending on the perceived risk of the project, and assuming a suitable legal/regulatory regime is in place. This hurdle rate range and the RBUM process could evolve over time should such an industry eventuate and ultimately mature. The article also proposes that a ‘standard’ industry discount rate of 10% be utilised in order to facilitate the comparison of project to project valuations, based on the discount rate convention for reporting requirements in the US oil & gas industry.

Shale oil and gas production areas are especially active in Texas. The Eagle Ford Shale in south central Texas contributes substantially to US oil and gas production; it has repeatedly been the focus of air quality studies due to its associated emissions. Among these emissions are hazardous air pollutants such as benzene, a known carcinogen. To monitor exposure to such compounds, we teamed up with local citizens in 2019 to begin a passive sampling study for hydrocarbons. The study tracked selected non-methane hydrocarbons at six locations throughout a busy central production area of the shale. A state air quality monitoring station allowed for a comparison exercise, and we report both the results of that exercise and the observations from various properties affected by the surrounding oil and gas exploration activities. The passive samplers accurately reflected mean to median ambient hydrocarbon levels despite high variability and skewness in the hourly measurements. Field sites either right next to oil and gas production pads, surrounded by more surface pads than other sites, or affected by an additional emission source showed higher exposure to selected hydrocarbons. Passive sampling shows promise to bridge the gap between centralized air monitoring and campaign-style mobile monitoring to evaluate hydrocarbon emissions and abundances. It is a cost-effective way to provide both spatial and temporal information on exposure levels.

Abstract. Oil and gas are two crucial resources in modern life and the development of technology. Investors are not only concerned about their own price, but their stock price is also an important part of formulating investment plans. This article will focus on the adjusted closing price since it consists of adjustments for splits, dividends, and capital gain distributions, which can demonstrate the situation of oil and gas in the stock market better. After the occurrence of COVID-19, the economic market of the whole world including the US. encountered great changes in many aspects. Thus, this article considered applying the model with the best performance from ARIMA, exponential smoothing, and Holt-Winters method to forecast the future adjusted closing prices of two large and representative companies in oil and gas from the US. According to the predicted results, the US oil and gas market is likely to experience a small but steady increase.

This paper leverages real-options signaling theory to examine how investor temporal preferences affect firms' intertemporal strategies toward renewable energy innovation. Furthermore, I explore how information asymmetry and firm heterogeneity moderate such investor-induced firm strategies. I test my predictions using the emergence of renewable energy innovation in the U.S. Oil and Gas industry during 1980-2018. I find causal evidence that firms adjust their types of investments in renewable energy to align with the changing investor temporal preferences. Notably, the intensity of this observed effect is contingent upon the information asymmetry between firms and investors and a myriad of firm heterogeneities. Finally, I find evidence that firms’ alignment to investor temporal preferences and the impacts of information asymmetry enhance firms' performance outcomes of their renewable energy innovations.

How Do Firms Hedge Risks? Empirical Evidence from U.S. Oil and Gas Producers

This study investigates use of a prevalent but rarely studied form of intellectual property protection: trade secrets. Building on existing survey evidence of firm-level, cross-sectional use of secrecy, we document the effect of stronger legal trade secret protection on the use of trade secrets, and the rate and nature of secret innovation. Our setting is the US oil and gas hydraulic fracturing (fracking) industry, from 2013 to 2018, in states where firms are required to disclose fracking ingredients to regulators barring substantiated claims of trade secrets. We examine how the enactment of the federal 2016 Defend Trade Secrets Act (DTSA) affects well-level trade secret use across states with varying levels of pre-DTSA trade secret protection. We find substantial increases in the use of secrets, the generation of new secrets, the use of both external and internal secrets, and breadth of secret invention, as well as project complexity. Our results provide rare systematic empirical evidence on actual trade secret use and document how stronger formal appropriability shapes secret innovation.