The Prize: The Epic Quest for Oil, Money, and Power

by Daniel Yergin

At its heart, however, the restructuring of the oil industry was based on what was called the “value gap,” the term used when the value of a company’s shares did not fully reflect what its oil and gas reserves would fetch in the marketplace. Those companies with the greatest gap between stock price and asset value were the most vulnerable. In such cases, the obvious implication was that a new management might be able to increase the price of the stock and so enhance that noble cause, “shareholders’ value,” in a way that the old management had failed to do. There was a further twist: It could cost two or three times more to add a barrel of oil by exploration than by buying the assets of an existing operation. To the management of companies, the obvious implication was that it was cheaper to “explore for oil on the floor of the New York Stock Exchange”—that is, buy undervalued companies—than to explore under the topsoil of West Texas or in the seabed of the Gulf of Mexico.