Simon Fraser University
BC V5A 1S6, Canada
Institutional Affiliation: Simon Fraser University
NBER Working Papers and Publications
|November 2019||Stranded Fossil Fuel Reserves and Firm Value|
with Eduardo S. Schwartz: w26497
Do capital markets reflect the possibility that fossil fuel reserves may become “stranded assets” in the transition to a low carbon economy? We examine the relation between oil firms’ value and their proved reserves. Using a sample of 679 North American oil firms for the period 1999 to 2018, we document that while reserves are an important component of oil firm value, the growth of these reserves has a negative effect on firm value. This negative effect on value is stronger for oil producers with higher extraction costs. When we decompose total reserves into developed and undeveloped reserves, we show that the negative effect of reserves growth on value is due to firms growing their undeveloped oil reserves. Unlike developed, undeveloped reserves require major capital expenditures and long...