Relative information content of proven reserves: The BOEs-revenue versus BOEs-energy

There are two methods to combine oil and gas reserve quantities and values, an energy-based conversion method and a revenue-based conversion method. Prior academic research on the valuation of reserve quantities has used the energy-based conversion method, but he validity of the energy-based conversion has been questioned in the accounting literature (Lys, 1986; Koester, 1993). The purpose of this study was to examine whether total proven reserves calculated using a revenue-based conversion method was more value-relevant than total proven reserves calculated using an energy-based conversion method. The research hypothesis was tested with two methods, each using a pooled, cross-sectional (panel data) sample of 399 film-years from the Arthur Andersen Oil and Gas Reserve Disclosure Database 1989–1993. The empirical results provided no support for the hypothesis that a revenue-based conversion method was superior to an evergy-based conversion method for valuation purposes.