Equity, Commodity, and Distillate Risks During Industrial Transformation: Innovation in the Oil & Gas Industry Using GARCH Difference-in-Decompositions

The oil and gas industry's early 2000's fracking and horizontal drilling revolution realigned the industry and larger economies. This study uses New Growth Theory to evaluate innovation across an industry with various integrated but distinct upstream, midstream, and downstream units. Two issues are considered. First, how did Independent returns vary within the industry by equity, commodity, and distillate risks relative to Integrated majors before and after the fracking revolution? The fracking revolution changed within-group technology that favored Independent firms who outperformed larger Integrated producers. Second, how did upstream, midstream, and downstream risks vary across the industry by equity, commodity, and distillates relative to Integrated firms before and after the fracking revolution? Exploration & production across-group Independent equity return gaps with the fracking revolution increased the most for any Independent sector, either within or across decompositions, indicating that the greatest fracking industry realignment was in equity markets as participants increased upstream exploration & production returns closer to oil and gas extraction.