Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock

Ruud Weijermars; Alison Johnson; John Denman; Kim Salinas; Gregg Williams

doi:doi:10.11648/j.jfa.20180606.14

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Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock

Ruud Weijermars, Alison Johnson, John Denman, Kim Salinas, Gregg Williams

Published in Journal of Finance and Accounting (Volume 6, Issue 6)

Received: 2 November 2018 Accepted: 5 December 2018 Published: 16 January 2019

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Abstract

Our study provides a unique and comprehensive analysis of oil and gas companies' performance over the latest oil price crisis of 2014-2016. The oil price declined under the pressure of global oil oversupply instigated by OPEC under the strategic leadership of Saudi Arabia, in an effort to retain market share by diminishing the production growth of shale oil and oil from oil sands in North America. The financial performance of 45 North American oil companies was assessed over the 2014-2016 period of decreased oil prices, distinguishing six peer groups based on market capitalization, of which 11 representative companies were selected for further in-depth analysis. For each selected company, a forensic financial analysis was performed on the three principal accounts of corporate financial performance: profit-loss account, cash flow account and balance sheet. Financial accounts were consolidated in annualized graphs for 2010-2015. Next, the historic production output and operational income from the existing assets (2010-2015) were projected forward to stress test future liquidity positions (2016-2020). These projections incorporated known maturation dates of corporate debt and any announced divestments and/or acquisitions. The majority of the companies are classified in Minsky's speculative financing category, which is riskier than hedge financing and less risky than Ponzi financing. The oil price collapse pushed numerous companies into Ponzi financing and led to a record number of bankruptcies. Lessons learned and recommendations are formulated for company management, shareholders and lenders, based on the corporate financial performance of the analyzed companies during the decade (2010-20120) spanning the 2014-2016 oil price shock.

Published in	Journal of Finance and Accounting (Volume 6, Issue 6)
DOI	10.11648/j.jfa.20180606.14
Page(s)	162-180
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Oil Industry, Oil Prices, Forensic Cash Flow Analysis, Minsky Financing Categories

References

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[2]	Weijermars, R., 2010. Tracking the impact of recession on oil industry supermajors and timing of sustained recovery. First Break, Vol. 28, no. 1 (January issue), p. 33-39.
[3]	Weijermars, R. 2011. Credit ratings and cash-flow analysis of oil and gas companies: competitive disadvantage in financing costs for smaller companies in tight capital markets. SPE Economics & Management, 3, (2011), 54-67. SPE-144489. doi :10.2118/144489-PA.
[4]	Myers, St. 2003. Chapter 4 – Financing of Corporations. Volume 1, Part A, 2003, Pages 215–253. Handbook of the Economics of Finance.
[5]	Cirilo Agostinho, M. S. and Weijermars, R., 2017. Petroleum Business Strategies for Maintaining Positive Cash Flow and Corporate Liquidity under Volatile Oil and Gas Prices as the Sustainable Energy Transition Unfolds. Journal of Finance and Accounting, Vol. 5(1), p. 34-55.
[6]	Bocardo, A. B., and Weijermars, R., 2016. Total Shareholder Returns from Petroleum Companies and Oilfield Services (2004-2014): Capital Gains and Speculation Dissected to Aid Corporate Strategy and Investor Decisions. Journal of Finance and Accounting, Vol. 4(6), p. 351-366. doi: 10.11648/j.jfa.20160406.16.
[7]	Weijermars, R., and Bocardo, A. B., 2016. Shareholder Valuations of Petroleum Companies and Oilfield Services During the 2008 and 2014 Oil Price Shocks. Journal of Finance and Accounting, vol 4(6), p. 367-377. doi: 10.11648/j.jfa.20160406.17.
[8]	Minsky, Hyman P. Ph. D., 1977. A Theory of Systemic Fragility. Minsky Archive. Paper 231. http://digitalcommons.bard.edu/hm_archive/231.
[9]	Minsky, Hymann, 1992. The Financial Instability Hypothesis. Levy Economics Institute Working Paper No. 74: 1-8.
[10]	Donaldson, G. 1961. Corporate Debt Capacity: A Study of Corporate Debt Policy and the Determination of Corporate Debt Capacity. Boston, M. A.: Division of Research, Harvard School of Business Administration.
[11]	Myers, S. and Majluf, N., 1984. Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have. Journal of Financial Economics 13, 187 – 221.
[12]	Weijermars, R., 2012. Jumps in proved unconventional gas reserves present challenges to reserves auditing. SPE Economics & Management, Vol. 4, No. 3 (July), p. 131-146 (SPE 160927-PA) & Online First 10 May 2012.
[13]	Haynes and Boone, 2017. Oil patch bankruptcy monitor, 31 October 2017, http://www.haynesboone.com/~/media/files/energy_bankruptcy_reports/2017/2017_oil_patch_monitor_20171031.ashx.
[14]	Weijermars, R., 2010. Bigger is better when it comes to Capital Markets and Oil Liquidity. First Break, Vol. 28, No. 6 (June issue), p. 37-41.
[15]	Rodriques, W. and Weijermars, R., 2016. Assessing the impact of two recessions on the oil and gas industry: severity of declines and future outlook. First Break, vol. 34, January Issue, p. 79-85.
[16]	Watson, S. and Weijermars, R. 2011. Unconventional Natural Gas Business: TSR Benchmark and Recommendations for Prudent Management of Shareholder Value. SPE Economics & Management, vol. 3, no. 4, p. 247-261, SPE-154056.
[17]	Weijermars, R. 2011. Moving the Energy Business from Smart to Genius by Building Corporate IQ. SPE Economics & Management, Vol. 3. Issue 3 (July), p.186-194 (SPE paper 144490-PA).
[18]	Weijermars, R. 2012. Corporate IQ Optimization as a Mitigation Strategy against Enterprise Disconnect. International Journal of Energy Engineering, vol. 2, issue 4, p. 102-108.
[19]	Weijermars, R. 2011. Building Corporate IQ: Moving the Energy Business from Smart to Genius: Executive Guide to preventing Costly Crises. Springer, London, 2011.

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APA Style

Ruud Weijermars, Alison Johnson, John Denman, Kim Salinas, Gregg Williams. (2019). Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock. Journal of Finance and Accounting, 6(6), 162-180. https://doi.org/10.11648/j.jfa.20180606.14

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ACS Style

Ruud Weijermars; Alison Johnson; John Denman; Kim Salinas; Gregg Williams. Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock. J. Finance Account. 2019, 6(6), 162-180. doi: 10.11648/j.jfa.20180606.14

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AMA Style

Ruud Weijermars, Alison Johnson, John Denman, Kim Salinas, Gregg Williams. Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock. J Finance Account. 2019;6(6):162-180. doi: 10.11648/j.jfa.20180606.14

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@article{10.11648/j.jfa.20180606.14,
  author = {Ruud Weijermars and Alison Johnson and John Denman and Kim Salinas and Gregg Williams},
  title = {Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock},
  journal = {Journal of Finance and Accounting},
  volume = {6},
  number = {6},
  pages = {162-180},
  doi = {10.11648/j.jfa.20180606.14},
  url = {https://doi.org/10.11648/j.jfa.20180606.14},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20180606.14},
  abstract = {Our study provides a unique and comprehensive analysis of oil and gas companies' performance over the latest oil price crisis of 2014-2016. The oil price declined under the pressure of global oil oversupply instigated by OPEC under the strategic leadership of Saudi Arabia, in an effort to retain market share by diminishing the production growth of shale oil and oil from oil sands in North America. The financial performance of 45 North American oil companies was assessed over the 2014-2016 period of decreased oil prices, distinguishing six peer groups based on market capitalization, of which 11 representative companies were selected for further in-depth analysis. For each selected company, a forensic financial analysis was performed on the three principal accounts of corporate financial performance: profit-loss account, cash flow account and balance sheet. Financial accounts were consolidated in annualized graphs for 2010-2015. Next, the historic production output and operational income from the existing assets (2010-2015) were projected forward to stress test future liquidity positions (2016-2020). These projections incorporated known maturation dates of corporate debt and any announced divestments and/or acquisitions. The majority of the companies are classified in Minsky's speculative financing category, which is riskier than hedge financing and less risky than Ponzi financing. The oil price collapse pushed numerous companies into Ponzi financing and led to a record number of bankruptcies. Lessons learned and recommendations are formulated for company management, shareholders and lenders, based on the corporate financial performance of the analyzed companies during the decade (2010-20120) spanning the 2014-2016 oil price shock.},
 year = {2019}
}

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TY  - JOUR
T1  - Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock
AU  - Ruud Weijermars
AU  - Alison Johnson
AU  - John Denman
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AU  - Gregg Williams
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DO  - 10.11648/j.jfa.20180606.14
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
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EP  - 180
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20180606.14
AB  - Our study provides a unique and comprehensive analysis of oil and gas companies' performance over the latest oil price crisis of 2014-2016. The oil price declined under the pressure of global oil oversupply instigated by OPEC under the strategic leadership of Saudi Arabia, in an effort to retain market share by diminishing the production growth of shale oil and oil from oil sands in North America. The financial performance of 45 North American oil companies was assessed over the 2014-2016 period of decreased oil prices, distinguishing six peer groups based on market capitalization, of which 11 representative companies were selected for further in-depth analysis. For each selected company, a forensic financial analysis was performed on the three principal accounts of corporate financial performance: profit-loss account, cash flow account and balance sheet. Financial accounts were consolidated in annualized graphs for 2010-2015. Next, the historic production output and operational income from the existing assets (2010-2015) were projected forward to stress test future liquidity positions (2016-2020). These projections incorporated known maturation dates of corporate debt and any announced divestments and/or acquisitions. The majority of the companies are classified in Minsky's speculative financing category, which is riskier than hedge financing and less risky than Ponzi financing. The oil price collapse pushed numerous companies into Ponzi financing and led to a record number of bankruptcies. Lessons learned and recommendations are formulated for company management, shareholders and lenders, based on the corporate financial performance of the analyzed companies during the decade (2010-20120) spanning the 2014-2016 oil price shock.
VL  - 6
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Author Information

Ruud Weijermars

Harold Vance Department of Petroleum Engineering, Texas A&M University, College Station, USA
Alison Johnson

Transocean Offshore, Houston, USA
John Denman

White Rock Oil & Gas, Plano, USA
Kim Salinas

ING, Natural Resources, Houston, USA
Gregg Williams

Trident Pacific Holdings, Newport Beach, USA

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APA Style

Ruud Weijermars, Alison Johnson, John Denman, Kim Salinas, Gregg Williams. (2019). Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock. Journal of Finance and Accounting, 6(6), 162-180. https://doi.org/10.11648/j.jfa.20180606.14

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ACS Style

Ruud Weijermars; Alison Johnson; John Denman; Kim Salinas; Gregg Williams. Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock. J. Finance Account. 2019, 6(6), 162-180. doi: 10.11648/j.jfa.20180606.14

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AMA Style

Ruud Weijermars, Alison Johnson, John Denman, Kim Salinas, Gregg Williams. Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock. J Finance Account. 2019;6(6):162-180. doi: 10.11648/j.jfa.20180606.14

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@article{10.11648/j.jfa.20180606.14,
  author = {Ruud Weijermars and Alison Johnson and John Denman and Kim Salinas and Gregg Williams},
  title = {Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock},
  journal = {Journal of Finance and Accounting},
  volume = {6},
  number = {6},
  pages = {162-180},
  doi = {10.11648/j.jfa.20180606.14},
  url = {https://doi.org/10.11648/j.jfa.20180606.14},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20180606.14},
  abstract = {Our study provides a unique and comprehensive analysis of oil and gas companies' performance over the latest oil price crisis of 2014-2016. The oil price declined under the pressure of global oil oversupply instigated by OPEC under the strategic leadership of Saudi Arabia, in an effort to retain market share by diminishing the production growth of shale oil and oil from oil sands in North America. The financial performance of 45 North American oil companies was assessed over the 2014-2016 period of decreased oil prices, distinguishing six peer groups based on market capitalization, of which 11 representative companies were selected for further in-depth analysis. For each selected company, a forensic financial analysis was performed on the three principal accounts of corporate financial performance: profit-loss account, cash flow account and balance sheet. Financial accounts were consolidated in annualized graphs for 2010-2015. Next, the historic production output and operational income from the existing assets (2010-2015) were projected forward to stress test future liquidity positions (2016-2020). These projections incorporated known maturation dates of corporate debt and any announced divestments and/or acquisitions. The majority of the companies are classified in Minsky's speculative financing category, which is riskier than hedge financing and less risky than Ponzi financing. The oil price collapse pushed numerous companies into Ponzi financing and led to a record number of bankruptcies. Lessons learned and recommendations are formulated for company management, shareholders and lenders, based on the corporate financial performance of the analyzed companies during the decade (2010-20120) spanning the 2014-2016 oil price shock.},
 year = {2019}
}

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TY  - JOUR
T1  - Creditworthiness of North American Oil Companies and Minsky Financing Categories: Assessment of Shifts Due to the 2014-2016 Oil Price Shock
AU  - Ruud Weijermars
AU  - Alison Johnson
AU  - John Denman
AU  - Kim Salinas
AU  - Gregg Williams
Y1  - 2019/01/16
PY  - 2019
N1  - https://doi.org/10.11648/j.jfa.20180606.14
DO  - 10.11648/j.jfa.20180606.14
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 162
EP  - 180
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20180606.14
AB  - Our study provides a unique and comprehensive analysis of oil and gas companies' performance over the latest oil price crisis of 2014-2016. The oil price declined under the pressure of global oil oversupply instigated by OPEC under the strategic leadership of Saudi Arabia, in an effort to retain market share by diminishing the production growth of shale oil and oil from oil sands in North America. The financial performance of 45 North American oil companies was assessed over the 2014-2016 period of decreased oil prices, distinguishing six peer groups based on market capitalization, of which 11 representative companies were selected for further in-depth analysis. For each selected company, a forensic financial analysis was performed on the three principal accounts of corporate financial performance: profit-loss account, cash flow account and balance sheet. Financial accounts were consolidated in annualized graphs for 2010-2015. Next, the historic production output and operational income from the existing assets (2010-2015) were projected forward to stress test future liquidity positions (2016-2020). These projections incorporated known maturation dates of corporate debt and any announced divestments and/or acquisitions. The majority of the companies are classified in Minsky's speculative financing category, which is riskier than hedge financing and less risky than Ponzi financing. The oil price collapse pushed numerous companies into Ponzi financing and led to a record number of bankruptcies. Lessons learned and recommendations are formulated for company management, shareholders and lenders, based on the corporate financial performance of the analyzed companies during the decade (2010-20120) spanning the 2014-2016 oil price shock.
VL  - 6
IS  - 6
ER  -

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