Investment Dynamics and Market Power in the Oil and Gas Industry (Job Market Paper)

I explore how financial market pressures influence the investment decisions of U.S. public oil and gas exploration and production firms. Facing investor pressure to restrain aggressive investments, public firms are less responsive to rising oil prices than private firms, which are generally free from such constraints. Using a uniquely compiled dataset of over 356,000 well-level investments from 2010 to 2023, I find that public firms exhibit significantly lower price elasticity of drilling during high-price periods relative to private firms, particularly following the 2014–2015 oil price collapse. Additionally, I document that financial analysts have increasingly discouraged aggressive capital spending, contributing to more cautious investment behavior among public firms.  These findings suggest that investor pressure may lead public firms to adopt strategies similar to those firms might use when exercising market power in the input market.