Equity valuation in the coal seam gas industry

Keith Duncan, Simone Kelly, Raymond McNamara

Research output: Contribution to conferencePaperResearchpeer-review


The coal seam gas industry is an important and rapidly developing sector of the Australian mining industry and the economy as a whole. This sector provides an excellent site to test the relevance of the Hotelling Valuation Principle (HVP) in explaining the market capitalisation of this industry sector. In addition, the test enabled the test of which reserve classification best explains the market capitalisation of firms in the industry.

Currently, the majority of listed firms in this sector do not have positive cash flows from the sale of gas. The HVP posits that market values are a function of company reserves. We test five measures of firm reserves as explanations of market capitalisation. After controlling for scale differences, we find that 2P Reserves have the highest explanatory power. No other measure of reserves or resources plays any significant role in explaining market capitalisation. We conclude that the effort and cost undertaken by the industry in arriving at classification below the reserves category, the contingent and possible resource classification, has no meaning to capital markets.
Original languageEnglish
Number of pages25
Publication statusPublished - 2009
EventAustralasian Finance and Banking Conference - Sydney, Australia
Duration: 16 Dec 200918 Dec 2009
Conference number: 22nd


ConferenceAustralasian Finance and Banking Conference
Abbreviated titleAFBC
Internet address


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