determinants of exploration investments

What is it about?

The uncertainty that surrounds oil and gas exploration environments call for an examination at different angles. In terms of robustness, the purpose of this paper is to focus on three performance measurements: the amount of exploration investments, the growth rate of exploration investments, and the value at risk (VaR) of exploration investments. The study utilizes the properties of discriminant analysis for deriving Z-score models that can be used for monitoring firms’ performance. A cointegration analysis is utilized as well in order to examine the level of cointegration between predictors of each performance measure. The sample includes annual data for 41 firms (local and multinational) working in the oil and gas industry in Egypt for the period 2009-2014. The results show that amount and growth of exploration investment are quite robust performance measures in the oil and gas industry; VaR of exploration investment is sporadic as it firm-specific; and GDP, capital expenditure and operating expenditure are quite relevant for managing and monitoring growth of exploration investments. The study offers robust evidence that amount and growth of exploration investment are quiet relevant for measuring firm performance in the oil and gas industry

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Why is it important?

The study contributes to the related literature in terms of (1) developing models that can be used for monitoring the relevant aspect of firm performance in the oil and gas industry; and (2) measuring the firm performance in terms of growth and risk elements which matter to the nature of the industry’s operations

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