Shareholder Valuations of Petroleum Companies and Oilfield Services During the 2008 and 2014 Oil Price Shocks
Journal of Finance and Accounting
Volume 4, Issue 6, November 2016, Pages: 367-377
Received: Oct. 10, 2016; Accepted: Oct. 25, 2016; Published: Dec. 2, 2016
Views 3289      Downloads 97
Authors
Ruud Weijermars, Harold Vance Department of Petroleum Engineering, Texas A & M University, College Station, USA
Anita Bressan Bocardo, Harold Vance Department of Petroleum Engineering, Texas A & M University, College Station, USA; State University of Santa Catarina (UDESC), Balneário Camboriú, Santa Catarina, Brazil
Article Tools
Follow on us
Abstract
This study analyzes the impact of the 2008 and 2014 oil price falls on the shareholder returns of diversified oil and gas majors, Canadian oil sands producers, US shale oil and gas producers and oilfield service companies. The 2008 an 2014 oil price shocks lead to capital book losses for investor TSR at year end. In both years, the TSR losses were disproportionately large as compared to the actual slow down (which was very modest) in retained earnings growth. Our recommendation is that investors should not only use P/E ratios to identify value growth stock investment opportunities. An alternative methodology quantifies the degree of speculative valuation involved in the TSR component of capital gains (losses). When negative speculative valuations are large, future TSR growth is most likely. Companies that want to mitigate unwarranted erosion of their market capitalization due to stock price declines should ramp up advertorial efforts and point out value growth opportunities to attract investors, especially in times of depressed stock prices.
Keywords
Total Shareholder Return, Capital Gains, Dividends, Retained Earnings, Speculative Valuation
To cite this article
Ruud Weijermars, Anita Bressan Bocardo, Shareholder Valuations of Petroleum Companies and Oilfield Services During the 2008 and 2014 Oil Price Shocks, Journal of Finance and Accounting. Vol. 4, No. 6, 2016, pp. 367-377. doi: 10.11648/j.jfa.20160406.17
Copyright
Copyright © 2016 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
References
[1]
Bocardo, A. B., and Weijermars, R., 2015. 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, in press.
[2]
Rodrigues, R. 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 (1), 79- 85.
[3]
Institute of Management accountants. IMA, 1997. Measuring and Managing Shareholder Value Creation. Statements on Management Accounting., 39 pages. http://www.imanet.org/ docs/default-ource/thought_leadership/ management_control_ systems/measuring_and_managing_shareholder_value_ creation.pdf?sfvrsn=2 (accessed 22 July 2015).
[4]
Weijermars, R., and Watson, S., 2011. Unconventional Natural Gas Business: TSR Benchmark and Recommendations for Prudent Management of Shareholder Value. SPE Economics & Management, 3 (4) p. 247-261, SPE-54056-PA. http://dx.doi.org/10.2118/154056-PA.
[5]
Chartered Institute of Management Accountants (CIMA), 2004. Maximizing Shareholder Value Achieving clarity in decision-making. Technical Report. The Chartered Institute of Management Accountants, 28 pages. http://www.cimaglobal. com/Documents/Thought_leadership_docs/MigratedDocsMarch2010/Resouces%20(pdfs)/Technical%20reports/Maximising_shareholder_value_achieving_clarity_in_decision-making.pdf (accessed 22 July 2015).
[6]
Pirog, R. 2012. Financial performance of the Major Oil Companies, 2007-2011. U.S. Congressional Research Service. February 17, 2012. https://www.fas.org/sgp/crs/misc/R42364. pdf (accessed 22 July 2015)
[7]
Wallace, J. S., 2003, Value Maximization and Stakeholder Theory: Compatible or not? Journal of Applied Corporate Finance, 15 (3), Spring. http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6622.2003.tb00466.x/pdf
[8]
Burgman, R., and Van Clieaf, M., 2012. Total shareholder return and management performance: A performance metric appropriately used, or mostly abused? Rotman International Journal of Pension Management, 5 (2): 1-8 (Fall). DOI: 10.3138/rijpm.5.2.26
[9]
Beaver, W. and Morse, D., 1978. What determines Price-Earnings ratios? Financial Analyst Journal, 34 (4), p. 65-76. http://www.jstor.org/stable/4478160 (accessed 22 July 2015).
[10]
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(02), 54-67. SPE-144489. doi:10.2118/144489-PA.
ADDRESS
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
U.S.A.
Tel: (001)347-983-5186