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Digest Finance

The main approaches to valuation of the equity capital of oil and gas companies

Vol. 29, Iss. 1, MARCH 2024

Received: 28 February 2022

Received in revised form: 24 March 2022

Accepted: 13 January 2024

Available online: 28 March 2024


JEL Classification: G34, L16, L71, M11, O12

Pages: 4–13


Oleg V. SHIMKO Center for Innovative Economics and Industrial Policy, Institute of Economics of Russian Academy of Sciences (IE RAS), Balashikha, Moscow Oblast, Russian Federation


Subject. This article analyzes the generally accepted approaches to assessing the value of companies on the basis of financial statements data of ExxonMobil, Chevron, ConocoPhillips, Occidental Petroleum, Devon Energy, Anadarko Petroleum, EOG Resources, Apache, Marathon Oil, Imperial Oil, Suncor Energy, Husky Energy, Canadian Natural Resources, Royal Dutch Shell, BP, TOTAL, Eni, Equinor (Statoil), PetroChina, Sinopec, CNOOC, Petrobras, PJSC Gazprom, PJSC NK Rosneft and PJSC LUKOIL for 1999–2018.
Objectives. The article aims to determine the specifics of using the methods of cost, income and comparative approaches in assessing the value of share capital of oil and gas companies.
Methods. For the study, I used the methods of comparative, and financial and economic analyses, and financial reporting data summarizing.
Results. The article finds that the cost approach is quite time-consuming, and it does not take into account the current market situation and future expectations of investors, but is based on financial information. Leading oil and gas corporations have a rather complex vertical and horizontal structure, so the cost approach is acceptable for assessing the minimum cost of small companies in the industry. The income approach takes into account the interests of investors, but its application complicates the reliability of medium-term forecasts for oil prices, which is caused by fluctuations in oil prices inherent in the industry. And the amount of net income and free cash flow in the industry largely depends on oil prices. The comparative approach does not take into account the future interests of investors, but it helps quickly determine the range of possible value of the corporation based on data on transactions and the current market situation. Thus, the analogue company method helps evaluate the cost of equity capital, and the transaction method provides insight into the level of premium for control characteristic of the industry.
Conclusions and Relevance. Each of the standard approaches has its own characteristic advantages and disadvantages when assessing the value of oil and gas companies. The findings can be used to appraise the value of oil and gas assets.

Keywords: net assets, residual value, capitalization of income, cash flow discounting, oil and gas industry


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