Effect of Exposure to Renewable Energy on Valuation of Oil and Gas Companies

Abstract

With increasing focus on global warming and sustainable development in the energy sector, a number of oil and gas companies have an expressed interest in increasing investments and exposure towards renewable energy [12, 13, 43, 44]. The purpose of this study is to see if, and how, exposure towards renewable energy will affect the valuation of oil and gas companies. The main challenges have been to find a suitable metric for exposure to renewable energy, and also the oil and gas companies poor reporting practices related to exposure and investments towards renewable energy. To add to the complexity of the process, a number of other factors influence the valuation of oil and gas companies. Nevertheless, by using Tobin’s q, the ratio between a company’s market value and its replacement cost, as a proxy for company value, we have tested the effect of renewable energy exposure on the company value of a number of oil and gas companies. The analysis has been performed by use of regression analysis and we have tried to isolate the effect of renewable exposure by adding control variables known to affect the valuation of oil and gas companies.