Value Drivers of Energy Companies

Since the second half of the 20th century till nowadays volatility of petroleum markets and its correlation with various factors remain in the focus of a lot of researchers, mostly due to a huge effect that oil and gas have on the world economy. In spite of growing diversification of world energy consumption, more than 80% of it is still provided by fossil, of which about 62% is oil and gas. The rise of interest for so-called renewables and bio-fuels cannot influence domination of traditional sources of energy, which, even according to conservative estimates will continue for at least 25 years. Such a strong influence on capital markets combined with a number of unique features of that industry, create a necessity to study value creation of oil and gas companies. This paper analyses theoretical basis of functioning of oil and gas industry and its value creation, as well as proposes a number of hypothesis and test them empirically. All of those hypotheses are aimed at finding the most relevant determinants of value creation for oil and gas companies. The results demonstrate significant positive influence of CAPEX intensity and CAPEX effectiveness on value creation, when they are examined jointly. Also, it has been showed that it makes sense to analyze production growth and reserve replacement ratio jointly, because in that case they demonstrate higher significance and stronger effect on value creation. Unexpected low significance of sales growth has been revealed in situations when sales are analyzed together with CAPEX effectiveness and CAPEX intensity.