Valuing Petroleum Reserves Using Current Net Price

Davis, Graham A.; Cairns, Robert D.

doi:10.1111/j.1465-7295.1999.tb01431.x

Cited by 25 publications

(9 citation statements)

References 23 publications

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“…Example 1 demonstrates that, with the constrained capacity, the Hotelling valuation principle is not valid, even once the mines are in operation (cf., Cairns andDavis 1998, 2001;Davis and Cairns 1999). For example, for mine H in period 2, remaining reserves are 4.…”

Section: Implications Of the Stopping Rule For Nonrenewable Resourcesmentioning

confidence: 98%

Strike When the Force Is with You: Optimal Stopping with Application to Resource Equilibria

Cairns

Davis

2007

American J Agri Economics

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Optimal investment in a nonrenewable resource project occurs when the rate of increase of the project's forward value falls to the force of interest. This stopping rule yields a financial interpretation of resource quality as being a property of the project rather than of individual units of reserves. It also leads to re-interpretations of (a) rent as the present value of the project rather than of units of reserves and (b) Hotelling's insight as, not a rule for the path of rents, but an equilibrium algorithm for price. The analysis is extended to sequential development of pesticides, antibiotics, and forests. Copyright 2007, Oxford University Press.

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Section: Implications Of the Stopping Rule For Nonrenewable Resourcesmentioning

confidence: 98%

Strike When the Force Is with You: Optimal Stopping with Application to Resource Equilibria

Cairns

Davis

2007

American J Agri Economics

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“…Table 7 shows the value of proved reserves of oil, natural gas, and coal at the end of 2018. We estimate these values from state-level proved reserves published by EIA, applying a version of the net price rule suggested by Davis and Cairns (1999). 26 The value of the deposits in the ground is $4.95 trillion.…”

Section: Iiic Incidence By Statementioning

confidence: 99%

“…Labor-income tax rate Capital-income tax rate Davis and Cairns (1999), Table 5 Value of Proved Reserves (2018, $ billions)…”

Section: Biden Regulatory Changesmentioning

confidence: 99%

An Analysis of Vice President Biden's Economic Agenda: The Long Run Impacts of its Regulation, Taxes, and Spending

Fitzgerald

Hassett²,

Kallen

et al. 2020

SSRN Journal

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We estimate possible effects of Joe Biden's tax and regulatory agenda. We find that transportation and electricity will require more inputs to produce the same outputs due to ambitious plans to further cut the nation's carbon emissions, resulting in one or two percent less total factor productivity nationally. Second, we find that proposed changes to regulation as well as to the ACA increase labor wedges. Third, Biden's agenda increases average marginal tax rates on capital income. Assuming that the supply of capital is elastic in the long run to its aftertax return and that the substitution effect of wages on labor supply is nontrivial, we conclude that, in the long run, Biden's full agenda reduces full-time equivalent employment per person by about 3 percent, the capital stock per person by about 15 percent, real GDP per capita by more than 8 percent, and real consumption per household by about 7 percent. *We appreciate discussions with John Cochrane as well as Jeremy Weber and other economists at the Council of Economic Advisers.

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“…Thus, the net present value of a resource is equal to the extractable volume multiplied by its current price, net of marginal extraction costs. Since sub-soil assets are seldom traded on an open market, the empirical testing of this simple principle has been limited mainly to observed market prices for oil-and gas-producing properties, generally finding values around 0.5 (range 0.2-0.8) for the theoretical value, which Davis & Cairns (1999) [5] explain by incorporating uncertainty and capacity constraints in the model. Once having determined the correct rental value, the economic perspective generally regards the Hotelling exhaustion rate as being optimal from both a private and social perspective.…”

Section: Introductionmentioning

confidence: 99%

The Social Cost of Sub-Soil Resource Use

Huppertz¹,

Weidema

Standaert³

et al. 2019

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This paper presents a market-price-based method to value sub-soil resources in environmental Cost-Benefit Analysis and Life Cycle Assessment. The market price incorporates the privileged information of the market agents, explicitly or implicitly anticipating future applications of the resource, future backstop technologies, recycling potentials, the evolution of reserves and extraction costs. The market price is therefore considered as the best available integrated information reflecting the actual values of these parameters. Our method is based on the Hotelling rule and the fact that private agents discount future costs and benefits at a higher rate than society as a whole. In practice, the price of the last resource unit sold is calculated with the Hotelling rule using a market discount rate. Then, the price at depletion is retropolated with a social discount rate smaller than the market discount rate. The resulting corrected “socially optimal” price is higher than the market price. The method allows to calculate the social cost of resource exhaustion, which is applicable in Cost-Benefit Analysis and Life Cycle Assessment. The method is applied to mineral and fossil resources and the results are compared with other recent methods that seek to place a monetary value on resource depletion.

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Valuing Petroleum Reserves Using Current Net Price

Cited by 25 publications

References 23 publications

Strike When the Force Is with You: Optimal Stopping with Application to Resource Equilibria

Strike When the Force Is with You: Optimal Stopping with Application to Resource Equilibria

An Analysis of Vice President Biden's Economic Agenda: The Long Run Impacts of its Regulation, Taxes, and Spending

The Social Cost of Sub-Soil Resource Use

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