Abstract
This study compares the long-term shareholder returns of diversified oil and gas majors, Canadian oil sands producers, US shale oil and gas producers and oilfield services companies during a decade of volatile oil and gas prices (2004-2014). Total shareholder returns (TSR) are analyzed for individual companies, for each peer group, and for the petroleum sector as a whole. We attempt to identify the factors that contributed to TSR growth and decline over the performance period 2004-2014. We specifically compare the performance of each peer group during two relatively stable periods, namely 2004-2007 (Period 1), and 2009-2013 (Period 2). In Period 1, the average TSR for all peer groups was higher than in Period 2. The increase or loss of TSR is in our study broken down into capital gains and dividends. The observed decline of TSR during Period 2 was mainly influenced by stock prices that reflected a slower growth in retained earnings that supports the capital gains. All peer groups had slower increases in retained earnings in 2009-2013 as compared to 2004-2007. Remarkably, during the two oil price crises of 2008 and 2014 all companies maintained an increase in retained earnings. For the 20 companies evaluated, further in-depth analyses of speculative investor valuations are included in our study, as well as implications for future corporate strategies and investor decisions.
Highlights
The petroleum industry, comprising both privately-owned and stock-listed enterprises, competes for financing sources, mainly equity and debt
The study first focuses on Total shareholder returns (TSR) and its two components: capital gains and dividends
We argue that the amount of capital gains is influenced by an increase in retained earnings and speculative valuation
Summary
The petroleum industry, comprising both privately-owned and stock-listed enterprises, competes for financing sources, mainly equity and debt. Companies are continually evaluated by financial analysts to seek out which firms are likely to generate solid returns on investment. Banks analyze companies to reassess creditworthiness and periodically adjust credit lines based on the collateral remaining in the balance sheets of their debtor companies. A vast number of analyst reports passes through the board rooms of the investment community, few such reports are documented in the peer-reviewed literature. Our independent analysis fills a gap by investigating whether the upstream oil and gas business has managed to deliver competitive total shareholder returns (TSR) over the past decade (2004-2014) compared to the returns offered by the average S&P stock (see Section 2.4). Four distinct types of peer group companies were selected for this study. A base line of company performance is given by a peer group of diversified oil and gas majors (Peer group A). The global competition for access to hydrocarbon resources has intensified in the 21st Century (IEA 2010), which arguably has led to the development of unconventional
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