Oil and gas industry: impact of revenue elasticity on the sustainability risk index

Objective: to determine the impact of changes in sales volumes on the technology-related risk (ADR-risk), taking into account changes in production capacity utilization in the oil and gas industry.

Methods: the work used a combination of probit models with fractional regressions and distribution of weights of sustainability ratings for ADR-risk targeting. The models sensitivity was assessed using graphical multidimensional analysis, calculation of marginal effects, and the delta method.

Results: the comprehensive testing of the relationship between changes in sales volumes, fixed assets, capital investments and technology-related risk indicators in terms of critical depreciation of fixed assets (ADR), taking into account the distribution of weights of sample elements based on public ESG ratings, demonstrate a high sensitivity of the risk of production assets critical depreciation to production load and revenue reduction. The income elasticity of large companies reduces the ADR risk by 2.8% with a 1% drop in revenue, but inversion of the revenue change from negative to positive increases the risk by 3.7%. An increase in fixed asset investments by 1% reduces the risk by 1.3-2.0%, with the most pronounced effect observed in companies with small production assets. It was found that OECD companies with high ESG ratings often have critical equipment depreciation, while companies in the CIS, India, and the Middle East show better ADR with lower ratings. Large companies use the size of fixed assets as a buffer to mitigate the impact of revenue fluctuations on risk.

Scientific novelty: for the first time, the limits of revenue elasticity under production reduction were quantified. It was proved that a decrease in sales paradoxically improves ADR risk, while a sharp increase worsens it. An asymmetric effect was identified: the transition from a decrease to an increase in revenue increases the risk by 1.3 times compared to just an increase. It was shown that public ESG ratings are weakly correlated with the actual production assets depreciation.

Practical significance: the simulation can help companies in the oil and gas sector plan fiscal policy in case of revenue fluctuations, prioritize investments in fixed assets modernization, and regard reduced capacity utilization as a tool for managing technology-related risks, not just as a financial loss.

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