Investment and operating choice: Oil and natural gas futures prices and drilling activity

Fan Chen and Scott Linn

Energy Economics, 2017, vol. 66, issue C, 54-68

Abstract: We present evidence that changes in oil and natural gas field investment measured by drilling rig use respond positively to changes in the futures prices of oil and natural gas, consistent with predictions based upon value-maximizing behavior. These results hold for world regions dominated by private independent oil companies but not national oil companies. In those cases where futures price changes are identified as drivers, the role of spot prices is either absent or weak. The results are robust to several alternative specifications including controls for changes in rig productivity.

Keywords: Futures prices; Spot prices; Drilling activity; Price elasticity (search for similar items in EconPapers)
JEL-codes: C22 G31 Q31 Q41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:66:y:2017:i:c:p:54-68

DOI: 10.1016/j.eneco.2017.05.012

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