This document compares the risk and return of two major oil and gas companies in Pakistan, OGDCL and Shell Petroleum, over the last five years from 2010 to 2014. It uses several indicators to evaluate risk and return, including the CAPM approach, expected rate of return, and total risk. The purpose is to analyze and compare the risk-return relationship of companies in the oil and gas industry in Pakistan.

1. A comparison of Risk on Return in the Oil and Gas industry of
Pakistan :
Abstract :
The study examines to check and compare the risk on return of oil and gas sector of Pakistan
by cover the last five years 2010 to 2014. There are many companies that are listed in the stock
exchange but this study choose two better companies of oil and gas industry i-e Oil and gas
development (OGDCL) and Shell petroleum limited . There are many studies conducted risk on
return. But this study the indicator used to compare risk on return are CAMP approach ,
expected rate of return and total risk.
Key words : Risk on return, CAMP approach, Expected return, Total risk .
1. Introduction :
1.1 Purpose of the study
The purpose of this study is to compare the risk on returns factors in the different oil and gas
firms of Pakistan. This report is to establish to evaluate the risk on return by using different
tools and techniques in the oil and gas firms of Pakistan.
1.2 Problem statement

2. The main problem is to analyze and compare the risk on return in the oil and gas industry of
Pakistan . The firms that choose oil and gas sector to compare risk on return are :
 OGDCL
 Shell petroleum limited
1.3 Significant of the study
The significant fills the gap that there is no currently research of the risk on return in oil and gas
sector last 5 years. This research is to represents that how the risk and return factors effect and
different outcomes/rates from one firms to another firms. The tools and techniques that used
to compare the risk on return through CAMP approach, expected rate of return and total risk.
1.4 Definition of terms
 Risk : Risk is defined as uncertainty, possibility, chances and probability. Its expose to
danger, harm or Loss.
 Return : Return defines profit of an investment and back to the person I-e income,
gain, dividend in the form of percentage.
 CAMP Approach : The CAMP approach base on the risk free rate. It means that
there is no risk on investment. The camp approach calculated through formula i -e
ke = R.F.R + M.R.P (B)

3.  Expected rate of return : The Rate of return expect to be realized form of
investment .
E (R) = Return * probability
 Total Risk : The total risk based on the Systematic risk and unsystematic risk. It can
be calculated through standard deviation.
1.5 Hypothesis
Q1- There is no relationship between risk and return?
Q2- There is no relationship between risk and return in oil and gas sector?

4. 2 Literature Review :
Markowitz’s (1952) portfolio theory, predicts that how individual investor allocates their assets
by balancing the risk and return tradeoffs. Based on this theory, Sharpe’s (1963) Lintner
(1965) and Black (1965) developed the so called capital Asset Pricing Model (CAPM). The
framework study used the predictability of stock on returns by ferson and Harwey 1993. The
concept of risk, defined as the variance of expected security returns, has been examined
since the development of the CAPM by Sharpe (1964) and Mossin (1966). The relationship
examined between the stock returns and stock volatility in December 1986 by French
,schwert,stambaught. .There are three standards or strategies used to avoid or mitigate the risk
and Transfer risk to other participant and Acceptance of the risk describe by Oldfield and
Santomero (1997).
The result of financial leverage is the difference between rate of return company earn on
ivevestment and the rate of return of company must pay to creditors (Garrison et al.,2004). The
wealth of share holder increase that financial institution provided the services that are full of
risk (Hakim & Neaime, 2005).James Davis (2006) said that CAMP is best model of the pricing
because it has only one risk factor and it is well known to understood. Especially after the
global meltdown risk management increased over the time; liquidity crises emerged after
subprime mortgage and the introduction of the BASEL II (Al-Tamimi, 2008).Due to the shaky
environment of Pakistan faced large number of risk such as the credit risk, liquidity risk, foreign
exchange risk, market risk, interest rate risk (Shafiq & Nasr, 2010).

5. Shell petroleum discovered the oil in Nigeria on 1956. The oil deposits In Nigeria record show
that Shell Darcy drilled the first well in 1938 (Aigbedion, 2004, Anyawu et al., 1997).The
industry grows rapidly in 1960 and (Obadan, 1998) was replaced agriculture in the
economy.The national GDP rate of Nigeria is 80% (Lukeman, 2003).The oil prices changes
directly fluctuates the revenue ,profits, investment and cash flows (Boyer and Filion, 2007, p.
433).
The oil prices change has positive effect on the oil and gas industry (Boyer and Filion, 2007; Faff
and Brailsford, 1999; Nandha and Faff, 2008; Oberndorfer, 2009; Sadorsky, 2001).
Asymmetric effects of oil price changes in the oil and gas industry worldwide. Mork(1989) and
Mork et al. (1994) .Number of studies examines the oil prices changes and stock market (Basher
and Sadorsky, 2006; Chen et al., 1986; Cong et al., 2008; Driesprong et al., 2008; Ferson and
Harvey, 1994a,b; Hammoudeh and Li, 2004; Huang et al., 1996; Jones and Kaul, 1996;
Papapetrou, 2001; Park and Ratti, 2008; Sadorsky, 2008). A document is the positive significant
impact of oil prices on Australian oil and gas industry equity returns (Faff and Brailsford
(1999).More research and work examines whether the Asymmetric effects to stock market
returns (Basher and Sadorsky, 2006; Cong et al., 2008; Park and Ratti, 2008; Sadorsky, 2008).
The sensitivity of the markets based on changes the oil prices and country stock returns are
limited to the country economy and dependent on natural resources (see Sadorsky, 2001;

6. Boyer and Filion, 2007; Faff and Brailsford, 1999; Hammoudeh and Li, 2004). in 2008 According
to LIPPER Hindsight, 379 mutual funds and 26 exchange traded funds that had the FTSE Oil&Gas
Industry Index as benchmark.
Many factors changes the American markets I-e economic and political factor the International
fossils fuel prices increases play importance role, including oil and gas (BRAGA and CAMPOS,
2012).Brazillian congress pass three laws in 2012, (i) Law 12,276/2010 (Onerous Assignment);
(ii) Law 12,304/2010 (PPSA –Pré-sal Petróleo S.A. [Pre-Salt Petroleum Co.]); and (iii) Law
12,351/2010 (Production Sharing system). The African natural gas is equivalent of 40% for the
single largest source of green house gas (Wikipedia 2007, Moffat and Linden, 1995). Orubu,
(2002b).The survey of world bank that shows 2.3 million cubic meters of crude oil split about
300 region in each year (Grevy, 1995).