Thomas Covert

New: Relinquishing Riches: Auctions vs Informal Negotiations in Texas Oil and Gas Leasing
Date Posted:Mon, 01 Apr 2019 14:47:18 -0500
This paper compares outcomes from informally negotiated oil and gas leases to those awarded via centralized auction. We use data on all contractual characteristics and production outcomes for a class of state-owned mineral rights overlying newly dis- covered shale formations in Texas, between 2005 and 2016. On roughly three quarters of this land, the Texas Relinquishment Act of 1919 authorizes private individuals who own surface-only rights to negotiate mineral leases on behalf of the public in exchange for half of the proceeds. The remainder are allocated via centralized auctions. Using variation from this natural experiment, we find that almost a century after leasing mechanisms were assigned, auctioned leases generate 67% larger up-front payments than negotiated leases do. The two mechanisms also allocate mineral rights to different oil and gas companies, and leases allocated by auction are 44% more productive. These results are consistent with theoretical intuitions that ...

New: Crude by Rail, Option Value, and Pipeline Investment
Date Posted:Mon, 18 Mar 2019 07:40:16 -0500
The U.S. shale boom has profoundly increased crude oil movements by both pipelines–the traditional mode of transportation–and railroads. This paper develops a model of how pipeline investment and railroad use are determined in equilibrium, emphasizing how railroads' flexibility allows them to compete with pipelines. We show that policies that address crude-by-rail's environmental externalities by increasing its costs should lead to large increases in pipeline investment and substitution of oil flows from rail to pipe. Similarly, we find that policies enjoining pipeline construction would cause 80-90% of the displaced oil to flow by rail instead.

REVISION: Experiential and Social Learning in Firms: The Case of Hydraulic Fracturing in the Bakken Shale
Date Posted:Thu, 04 Feb 2016 11:33:06 -0600
Little is known about how firms learn to use new technologies. Using novel data on inputs, profits, and information sets, I study how oil companies learned to use hydraulic fracturing technology in North Dakota between 2005-2012. Firms only partially learned to make profitable input choices, capturing just 60% of possible profits in 2012. To understand why, I estimate a model of input use under technology uncertainty. Firms chose fracking inputs with higher expectations but lower uncertainty about profits, consistent with passive learning but not active experimentation. Most firms over-weighed their own information. These results provide evidence of impediments to learning.

New: Will We Ever Stop Using Fossil Fuels?
Date Posted:Fri, 22 Jan 2016 09:53:42 -0600
Scientists believe significant climate change is unavoidable without a drastic reduction in the emissions of greenhouse gases from the combustion of fossil fuels. However, few countries have implemented comprehensive policies that price this externality or devote serious resources to developing low carbon energy sources. In many respects, the world is betting that we will greatly reduce the use of fossil fuels because we will run out of inexpensive fossil fuels (i.e., decreases in supply) and/or technological advances will lead to the discovery of less expensive low carbon technologies (i.e., decreases in demand). The historical record indicates that the supply of fossil fuels has consistently increased over time and that their relative price advantage over low carbon energy sources has not declined substantially over time. Without robust efforts to correct the market failures around greenhouse gases, relying on supply and/or demand forces to limit greenhouse gas emissions is relying ...

REVISION: Experiential and Social Learning in Firms: The Case of Hydraulic Fracturing in the Bakken Shale
Date Posted:Sun, 17 Aug 2014 08:23:13 -0500
Learning how to utilize new technologies is a key step in innovation, yet little is known about how firms actually learn. This paper examines firms’ learning behavior using data on their operational choices, profits, and information sets. I study companies using hydraulic fracturing in North Dakota’s Bakken Shale formation, where firms must learn the relationship between fracking input use and oil production. Using a new dataset that covers every well since the introduction of fracking to this forma- tion, I find that firms made more profitable input choices over time, but did so slowly and incompletely, only capturing 67% of possible profits from fracking at the end of 2011. To understand what factors may have limited learning, I estimate a model of fracking input use in the presence of technology uncertainty. Firms are more likely to make fracking input choices with higher expected profits and lower standard deviation of profits, consistent with passive learning but not active ...

New: The Effects of Mandatory Transparency in Financial Market Design: Evidence from the Corporate Bond M
Date Posted:Thu, 05 Sep 2013 02:27:22 -0500
Many financial markets have recently become subject to new regulations requiring transparency. This paper studies how mandatory transparency affects trading in the corporate bond market. In July 2002, TRACE began requiring the public dissemination of post-trade price and volume information for corporate bonds. Dissemination took place in Phases, with actively traded, investment grade bonds becoming transparent before thinly traded, high-yield bonds. Using new data and a ...

REVISION: The Market for Borrowing Corporate Bonds
Date Posted:Tue, 25 Oct 2011 13:56:07 -0500
This paper describes the market for borrowing corporate bonds using a comprehensive dataset from a major lender. The cost of borrowing corporate bonds is comparable to the cost of borrowing stock, between 10 and 20 basis points, and both have fallen over time. Factors that influence borrowing costs are loan size, percentage of inventory lent, rating, and borrower identity. There is no evidence that bond short sellers have private information. Bonds with CDS contracts are more actively lent ...

REVISION: The Market for Borrowing Corporate Bonds
Date Posted:Mon, 09 Aug 2010 17:18:58 -0500
This paper describes the market for borrowing corporate bonds using a comprehensive dataset from a major lender. The cost of borrowing corporate bonds is comparable to the cost of borrowing stock, between 10 and 20 basis points per year. Factors that increase borrowing costs are loan size, percentage of inventory lent, rating, and borrower identity. Trading strategies based on cost or amount of borrowing do not yield excess returns. Bonds with corresponding CDS contracts are more actively ...

REVISION: The Market for Borrowing Corporate Bonds
Date Posted:Wed, 30 Jun 2010 18:16:13 -0500
This paper describes the market for borrowing corporate bonds using a comprehensive data set from a major lender. The cost of borrowing corporate bonds is comparable to the cost of borrowing equity, between 10 and 20 basis points per year. Factors that increase borrowing costs are percentage of inventory lent, loan size, and rating. Trading strategies based on cost or amount of borrowing do not yield excess returns. Bonds with corresponding CDS contracts are more actively lent than those ...

REVISION: The Market for Borrowing Corporate Bonds
Date Posted:Mon, 28 Jun 2010 12:53:16 -0500
This paper describes the market for borrowing corporate bonds using a comprehensive data set from a major lender. The cost of borrowing corporate bonds is comparable to the cost of borrowing equity, between 10 and 20 basis points per year. Factors that increase borrowing costs are percentage of inventory lent, loan size, and rating. Trading strategies based on cost or amount of borrowing do not yield excess returns. Bonds with corresponding CDS contracts are more actively lent than those ...