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

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.