Limits to International Diversification in Oil and Gas - Domestic vs. Foreign Asset Control

Evidence is provided of the effects of international diversification on global asset ownership and control. We show that international geographic diversification in the oil and gas sector comes at an important cost, lower control over foreign oilfield assets relative to domestic assets (and therefore reduced control over oilfield cash-flows). This work examines this contradiction. Detailed worldwide oilfield ownership data for 293 companies owning 6,633 field stakes enables us to isolate variables underpinning asset ownership, demonstrating that international diversification increases with firm size, but is negatively related to asset control. We argue that companies seeking reserve replacement are forced to diversify and therefore need to be prepared to obtain lower control over oilfield cashflow. We find an important caveat; companies retain minimum blockholding in foreign investments