Impact of oil prices on profitability and investment activity of oil companies from central and eastern europe

A Ilic,T Ponomarenko,V.S Litvinenko

doi:10.1051/e3sconf/202126606003

Abstract

In this text, we analyze the profitability and investments trends of oil companies from Central and Eastern Europe (CEE1)over the period 2008-2019. Based on descriptive statistics, comparative analysis, and panel data analysis, we show that: (1) CEE oil companies increased profitability in the period 2008-2019; (2) in the second sub-period (2015-2019), when the oil price was lower, ROACE of CEE oil companies exceeded ROACE of global major oil and gas companies; (3) in the second sub-period investment activity continued to be relatively high; and (4) oil price had less influenceon profitability and investment activities of CEE oil companies in comparison to oil majors. It is also showed that the upstream segment is less important for CEE oil companies than for major oil companies and the contribution of upstream segment to profitability of the companies was reduced during the period of lower oil prices.

Highlights

According to different researches, for example, [1] or [2], global oil companies are facing increased challenges due to the fast-changing energy environment
In this article we analyze the profitability and investment trends of oil companies from Central and Eastern Europe (CEE) during the period 2008-2019 and, in particular, answer the following questions: (1) to extent to which the price of crude oil affects the profitability and investments of these companies, (2) is there any difference during periods of high and low prices, (3) what are the trends in the profitability of CEE oil companies compared to major oil and gas companies, and (4) what is the role of the oil and gas upstream segment and what are its prospects for the future
Based on the analysis of the average and median values of ROACE of eight CEE companies (“CEE”) and six major oil and gas companies (“BIG”), we see the large volatility of major companies and the difference in results in the sub-periods

Summary

Introduction

For example, [1] or [2], global oil companies are facing increased challenges due to the fast-changing energy environment. Andenergy transition, questions related to environmental issues and, in particular, new technologies, such as carbon capture and storage (see, for example, [4,5]), questions related to digitalization and industry 4.0 (see, for example, [6]) and questions related to some conceptual approaches for investments in oil & gas industry [7], while less emphasis was put on the dynamics of oil prices. In such an environment, it is interesting to analyze trends in profitability and investments of oil companies and how they adapt to new conditions. In their annual report for 2019, Hungarian oil company MOLemphasizes that the company is in a continuous process of developing its future product portfolio, launching new products and services that mitigate transition risk but capitalize on opportunities created by it, positioning the group to meet future demand for cleaner fuel, energy-efficient and recycled products, clean and sustainable mobility solutions and renewable energy, to remain competitive in a carbon-constrained economy

Methods

Results

Conclusion