Value Relevance of The Finding and Development Reserve Replacement in Oil and Gas Extraction Companies Listed on the London Stock Exchange

Abstract

This research aims to test the value relevance of The Finding and Development Reserve Replacement, by measuring its impact on the share prices of oil and gas companies listed on the London Stock Exchange. The research sample consisted of 30 companies during the period from 2017 to 2023, and data were collected from the companies' annual reports and the official London Stock Exchange website. The research adopted a quantitative analytical approach, and the Ohlson model (Ohlson, 1995) was used to test value relevance by estimating the baseline model, then introducing the reserve replacement ratio variable and comparing the results before and after the addition. The research found that the reserve replacement ratio is value relevance and negatively correlated with the share price, which may be attributed to investors paying more attention to the cost of discovered reserves and not just their size. Net income was also found to be value relevance, while the book value of equity only showed value relevance after the introduction of the reserve replacement ratio variable, indicating that this variable acts as a complementary variable and reveals a relationship that was obscured by the bias of the omitted variable.