Oil price and reserve location-Effects on oil and gas sector returns

We provide market evidence of the effects of reserve location on oil and gas (O&G) company returns. Prior studies have shown that commodity sector stock returns are affected by commodity prices. In a new contribution to natural resource valuation literature, returns for 51 O&G companies are shown to be directly and negatively affected by exposures to (location specific) progressive fiscal terms. We add a reserve location proxy-'R'-to the Fama-French framework; differentiating between companies' performances based on the proportion of oilfield assets subject to progressive tax terms. Companies with oilfield assets owned under progressive production sharing fiscal terms are unable to capture the benefits of oil price increases-and as result significantly under-perform companies with concession asset holdings.