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Appropriate Financing for Petroleum Development in Developing Countries

Tamir Agmon, Donald R. Lessard, and James L. Paddock

Year: 1984
Volume: Volume 5
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-3
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Abstract:
The availability of appropriate financing is likely to be a dominant factor determining the scope and pace of energy investment by developing countries in the 1980s. Reliance on self-finance will severely limit development for most countries, but traditional external finance-credit from private banks or multilateral agencies such as the World Bank-will probably play a smaller role than it did in the 1970s. External financing is less likely to be readily available now; at the same time, borrowers have become more aware of its limitations. Because of the time lags and uncertainties involved in most energy-related investments, the nature and volume of financing are likely to have a significant impact on the character and rate of investment.1 In fact, for enterprises or governments that are constrained1. While the relevance of finance to energy policy is clear, the research conducted to date has only scratched the surface. In one of the earliest studies of links between energy and finance, Agmon et al. (1979) examined the financial behavior of key OPEC members and considered the likely effect of changes in financial markets on their capacity and production decisions. Ben-Shahar (1976) and Moron (1978) evaluated the "revenue needs" of OPEC countries and related them to oil production scenarios. Dailami (1978, 1979a, 1979b) constructed econometric macrofinancial models of several oil-exporting countries; he then analyzed the impact of oil revenues on the countries' economy and the attendant influence of policy variables.



Nuclear Construction Lead Times: Analysis of Past Trends and Outlook for the Future

Marcy A. Radlauer, David S. Bauman, and. Stephen W. Chapel

Year: 1985
Volume: Volume 6
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No1-6
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Abstract:
Cost, duration, and other uncertainties of nuclear construction have recently been in the forefront of the news. Tales of mismanagement, inconsistent quality assurance, and utility financial woes have prompted many to ask why it takes so long and costs so much to build a nuclear power plant, and what the outlook is for plants currently under construction.



The Impact of Nuclear Power on the Systematic Risk and Market Value of Electric Utility Common Stock

Russell l. Fuller, George W. Hinman and Thomas C. Lowinger

Year: 1990
Volume: Volume 11
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No2-7
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Abstract:
The objective of this study is to determine whether investors perceive utilities with nuclear plants to be more risky than utilities with no nuclear facilities. Two basic analytical frameworks are used. One approach is to analyze investors' differential perception of the market-related systematic risk of nuclear utility stocks versus non-nuclear utility stocks. This is done by comparing the betas of nuclear versus non-nuclear utility stocks. The second approach is an econometric treatment of price to book value ratios, using cross-sectional data in the time period 1973 to 1987. For both approaches, the differences in the financial markets' perception of risk, related to the special events of TMI, Chernobyl and the WPPSS bond default; are analyzed. Based on the cross-sectional analysis of P/BV ratios in recent years, we estimate the financial markets valued nuclear power utilities at approximately 20% less than comparable non-nuclear utilities. We estimate that a 3% increase in the allowed rate of return for nuclear utilities (from 13.7% to 16.7% in 1988) would have been necessary to fully offset the discount associated with nuclear power.



Petroleum Property Valuation: A Binomial Lattice Implementation of Option Pricing Theory

Eric Pickles and James L. Smith

Year: 1993
Volume: Volume 14
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No2-1
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Abstract:
We take a simple tutorial approach to explain how option valuation can be applied in practice to the petroleum industry. We discuss a simple spreadsheet formulation, demonstrate how required input data can be extracted from market information, and give several exploration and development examples. Under the market and fiscal conditions described we derive the value of discovered, undeveloped reserves projected to result from offshore licensing in the United Kingdom, and we show how to determine the maximum amount that should be committed to an exploration work program to find those reserves. Lease-bidding and farm-out applications are briefly described. We recommend option valuation as an alternative to discounted cash flow analysis in situations where cash flows are uncertain and management has operating flexibility to adjust investment during the life of the project, and point to further work needed to fully value nested or embedded options.



Investment Propensities under Carbon Policy Uncertainty

Janne Kettunen, Derek W. Bunn and William Blyth

Year: 2011
Volume: Volume 32
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No1-4
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Abstract:
Whether companies invest in new power facilities at a particular point in time, or delay, depends upon the perceived evolution of uncertainties and the investors' attitudes to risk and return. With additional risks emerging through climate change mitigation mechanisms, the propensity to invest may increasingly depend upon how each technology and company is exposed to carbon price uncertainty. We approach this by estimating the cumulative probabilities of investment over time in various technologies as a function of behavioral, policy, financial and market assumptions. Using a multistage stochastic optimization model with exogenous uncertainty in carbon price, we demonstrate that detailed financial analysis with real options and risk constraints can make substantial difference to the investment propensities compared to conventional economic analysis. Further, we show that the effects of different carbon policies and market instruments on these decision propensities depend on the characteristics of the companies and may induce market structure evolution.



The Oil Price-Macroeconomy Relationship Since the Mid-1980s: A Global Perspective

Claudio Morana

Year: 2013
Volume: Volume 34
Number: Number 3
DOI: 10.5547/01956574.34.3.8
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Abstract:
We investigate the oil price-macroeconomy relationship from a global perspective, by means of a large scale macro-financial-econometric model. In addition to real activity, we consider fiscal and monetary policy responses and labor and financial markets conditions, in order to provide a comprehensive account of the macro-financial effects of oil price shocks. We find that oil market supply side, speculative, preferences, and volatility shocks exercised recessionary effects during the first and second Persian Gulf War and 2008 oil price episodes. As long as oil supply will keep expanding at a slower pace than required by demand conditions, and in so far as the recently passed regulatory provisions aimed at controlling financial speculation in the oil (and other commodities) futures market will prove unsuccessful, a recessionary bias, determined by higher and more uncertain real oil prices, may then be expected to persist also in the near future.



Arctic Oil and Public Finance: Norway’s Lofoten Region and Beyond

Klaus Mohn

Year: 2019
Volume: Volume 40
Number: Number 3
DOI: 10.5547/01956574.40.3.kmoh
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Abstract:
This study explores potential implications of Arctic oil and gas exploration for public finance, with the Norwegian Lofoten region as a valuation case. A model is calibrated to turn oil and gas resource estimates into projections for investment, production, and net cash flows, which are discounted to assess the direct impact for the government budget. With the Norwegian oil fund mechanism and fiscal policy rule, Lofoten oil and gas revenues could add fiscal capacity in the range of 0.1-2.4 per cent of the current government budget, implying a permanent increase in annual government spending (or tax relief) of 24-220 USD per capita. Corresponding implications for other resource-rich countries in the Arctic depend on their resource potential and the relative role of oil and gas in their economy.



The (time-varying) Importance of Oil Prices to U.S. Stock Returns: A Tale of Two Beauty-Contests

David C. Broadstock and George Filis

Year: 2020
Volume: Volume 41
Number: Number 6
DOI: 10.5547/01956574.41.6.dbro
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Abstract:
We evaluate the probability that oil prices affect excess stock returns for U.S. listed firms. The probabilities are obtained from a time-varying multi-factor asset pricing framework estimated using dynamic model averaging techniques, including oil price information among several other possible risk factors. Two widely used oil price measures are considered, one based on raw oil price changes and another based on disentangling the source of oil price changes due to supply-side or demand-side effects. As far as we know our dataset, which comprises 10,118 stock price series with up to 25,372,588 observations between 1995�2018, is the most comprehensive used for this purpose. We develop two �beauty-contests� in which we estimate the multi-factor models separately for individual stocks, for each of the two oil price measures. The results suggests that, when working with daily data (beauty contest 1), oil price changes are a significant (important) determinant for around 1�3% of the sample. When using oil price shocks�as opposed to oil price changes�(beauty contest 2) this percentage increases to 27�45%, suggesting that oil supply and demand shocks (as opposed to oil price changes) can better explain firm-level excess returns, at least for monthly frequency data where such a decomposition is available. We provide evidence that the increase in percentage is only partially attributable to data-frequency, and more likely attributed to the decomposition into supply/demand driven oil price changes. We reconcile differences between our findings and those reported in previous literature on the basis of the fully dynamic nature of our adopted methodology.



Selling Wind

Ali Kakhbod, Asuman Ozdaglar, and Ian Schneider

Year: 2021
Volume: Volume 42
Number: Number 1
DOI: 10.5547/01956574.42.1.akak
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Abstract:
We investigate the strategic behavior of wind producers in the presence of uncertain wind resource availability, where wind availability is correlated across firms. We study how the level of correlation between different firms' wind resources impacts strategy and market outcomes. The main insight of our analysis is that increasing heterogeneity in resource availability improves social welfare, as a function of its effects both on improving diversification and on reducing withholding by firms. We show that this insight is robust for common assumptions regarding electricity demand. The model is also used to analyze the effect of wind resource heterogeneity on firm profits and opportunities for collusion. Finally, we analyze the impacts of improving public information and weather forecasting; enhanced public forecasting increases welfare, but it is not always in the best interests of strategic producers.



Do Energy Efficient Firms Have Better Access to Finance?

Philipp-Bastian Brutscher, Pauline Ravillard, and Gregor Semieniuk

Year: 2021
Volume: Volume 42
Number: Number 6
DOI: 10.5547/01956574.42.6.pbru
View Abstract

Abstract:
Improving energy efficiency quickly is key to mitigating climate change and requires improvements implemented in firms. As these require upfront investments, good access to external finance is important. Theory suggests that information asymmetries may prevent lenders from including energy efficiency into their lending assessment, even though higher energy efficiency increases firm cost-competitiveness and its collateral value. Empirically, little is known about the impact of energy efficiency on access to external finance. For the first time, we examine empirically the effect of a firm's higher energy efficiency on their ability to obtain loans in European Union countries by exploiting a unique firm-level dataset. We find that energy efficiency has no effect on the ability of a firm to obtain external financing compared to other indicators on the financial or operational health of the firm. The results reveal an unexploited potential for energy efficiency policy to signal when firms are energy efficient.




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