Equity valuation in the coal seam gas industry

Keith Duncan, Simone Kelly, Raymond McNamara

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

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
Pages1-25
Number of pages25
Publication statusPublished - 2009
EventThe Australasian Finance and Banking Conference - Sydney, Australia
Duration: 16 Dec 200918 Dec 2009
Conference number: 22nd
https://www.business.unsw.edu.au/about/schools/banking-finance/seminars-conferences/australasian-finance-banking-conference

Conference

ConferenceThe Australasian Finance and Banking Conference
Abbreviated titleAFBC
CountryAustralia
CitySydney
Period16/12/0918/12/09
Internet address

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Gas industry
Equity valuation
Seam
Market capitalization
Industry
Hotelling
Resources
Cash flow
Market value
Capital markets
Costs
Mining industry
Gas

Cite this

Duncan, K., Kelly, S., & McNamara, R. (2009). Equity valuation in the coal seam gas industry. 1-25. Paper presented at The Australasian Finance and Banking Conference, Sydney, Australia.
Duncan, Keith ; Kelly, Simone ; McNamara, Raymond. / Equity valuation in the coal seam gas industry. Paper presented at The Australasian Finance and Banking Conference, Sydney, Australia.25 p.
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Duncan, K, Kelly, S & McNamara, R 2009, 'Equity valuation in the coal seam gas industry' Paper presented at The Australasian Finance and Banking Conference, Sydney, Australia, 16/12/09 - 18/12/09, pp. 1-25.

Equity valuation in the coal seam gas industry. / Duncan, Keith; Kelly, Simone; McNamara, Raymond.

2009. 1-25 Paper presented at The Australasian Finance and Banking Conference, Sydney, Australia.

Research output: Contribution to conferencePaperResearchpeer-review

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Duncan K, Kelly S, McNamara R. Equity valuation in the coal seam gas industry. 2009. Paper presented at The Australasian Finance and Banking Conference, Sydney, Australia.