The years 2007-2009 the global economy has been affected by the subprime mortgages crisis, which has its origins in the extremely risky positions that some banks and financial institutions held. When defaults in payments started, and banks started facing problems in their payments, lending between banks became more difficult, and through the contagion of the global financial system, the crisis spread around the world.
This crisis affected many industries. The current paper attempts to examine the impact of the 2007-2009 subprime mortgage crisis in the integrated oil and gas industry. Energy, and subsequently oil and gas, are vital for many other industries, as well as for individuals and households.
The impact of the crisis is examined through a multimethod approach: Questionnaires, which were sent to executives of oil and gas companies, are analysed in the beginning, followed by analysis of basic figures of the financial statements of the 200 biggest oil and gas companies. Findings are supplemented by the examination of the analysts’ recommendations, for a number of years. Finally, the mergers and acquisitions between oil and gas companies are examined.
This paper, has the characteristic that it investigates an event which is still unfolding. As a result, there is not established information about some topics, such as the specific causes of the crisis. Therefore, the emerging literature on some topics is analysed, and specialists’ reports are included, to compare and contrast findings.
Results show that, even though energy, and subsequently oil and gas, are necessary for almost every industry, the decrease in global demand, as well as the lower oil prices, will lead to a decrease in long term investing. Furthermore, sales of companies are expected to be lower, and this will oblige companies to find ways to reduce the costs, in all the levels of their value chain.
Table of Contents
Chapter one: Introduction
Chapter two: Literature Review
2.1.Introduction to the second chapter
2.2.The current financial crisis
2.2.1.The emerging literature on the causes of the current financial crisis
2.2.1.1.Politics and Policies
2.2.1.2.Credit Rating Agencies (CRA’s)
2.2.1.3.‘Originate and distribute’ banking model and recent developments
2.2.1.4.Financial innovation and technology
2.2.1.5.Information
2.2.1.6.Fair Value Accounting
2.2.1.7.Incentive Distortions (between brokers, agents and bankers)
2.3.Financial crises in the oil and gas context
2.3.1.Oil and Gas Industry background
2.3.2.Impact of economic and financial crises in the Oil and Gas industry in the past
2.4.Business strategies
2.4.1. Oil and Gas industry business strategies-scenario planning
2.4.2.Link between finance and strategy
2.5.Research questions
2.6.Chapter conclusion
Chapter three: Methodology
3.1.Introduction to the second chapter
3.2.Research approach – Epistemological view
3.3.A multi-method approach
3.4.Descriptive statistics and general information about the participants
3.5.Chapter conclusion
Chapter four: Findings and Analysis
4.1.Introduction to the third chapter
4.2.Analysis of survey data
4.2.1. Financing of the companies
4.2.2. The link between finance and strategy
4.2.3. Impact of the crisis in different departments of a company
4.2.4. Effectiveness of Risk Management methods applied in the companies
4.2.5. Impact of the crisis in the cost of capital of the companies
4.2.6. Impact of the crisis in different departments of a company
4.2.7. Scenario Planning
4.2.8. Analysts Recommendations
4.2.9. Impact of the current crisis in different aspects of business entities
4.2.10. Findings of the questionnaires, and other factors, which can affect the speed of economic recovery
4.3.Analysis of reports
4.3.1.Analysis of the publicly available financial statements
4.3.1.1. Sales and Net profits
4.3.1.2. Liquidity ratios
4.3.1.3. Long-term debt
4.3.1.4. Net cash from operating, financing and investing activities
4.4.Analysis of the analysts’ reports
4.4.1.Analysis of the M&A activity for 2007-2009
4.4.1.1. Financial data concerning the M&A activity for the year 2007-2009
4.5.Chapter conclusion
Chapter five: Discussion
5.1.Introduction to the fourth chapter
5.2.Discussion of main findings
5.3.Chapter conclusion
Chapter six: Conclusions
6.1.Conclusion
6.2.Limitations-Future research
Bibliography
7.1. Articles/Journals
7.2. Books
7.3. Press
7.4. Websites
7.5. Other
Research Objectives & Key Themes
This dissertation investigates the impact of the 2007-2009 subprime mortgage crisis on the integrated oil and gas industry, specifically focusing on how the crisis has influenced corporate financing, business strategies, and investment behavior within this sector.
- The effects of the financial crisis on integrated oil and gas company financing and operating results.
- The degree of corporate preparedness regarding strategic planning and risk management practices.
- The recognition of the link between corporate financing and business strategy among industry executives.
- Analysis of market trends, M&A activity, and analysts’ recommendations in response to economic downturns.
- Strategies for cost reduction and resource allocation in a turbulent global economic environment.
Excerpt from the Book
2.2.The current financial crisis
Literature for the causes of the current financial crisis is still emerging. This crisis followed a typical ‘boom-bust scenario, in which unsustainable growth leads to the collapse of the market’38. In recent years, high risk loans from banks had substantial growth. Subprime mortgages, described simply, are high-risk loans to individuals. ‘NINJA’ loans (No job, no assets, no income) were among the most popular subprime mortgages, where the borrower didn’t have a job, assets, and constant income3940. The debt from the mortgages, was then packaged and sold to other parties, who were not aware of the characteristics of the original mortgage borrowers41. The process of collecting the debt and then selling it to third parties is called ‘securitization’. Graphs one and two depict the increase of US household debt as percentage of GDP, and as a percentage of disposable income, correspondingly. As it can be seen, there was a very big increase in each household’s debt the recent years, being higher that the US GDP for 2006, equal to almost 140 percent of the disposable income of each household. Graph three presents the distribution of households with and without mortgages, for different households’ valuations. As it can be observed, the bigger the value of house, the more the probabilities that this house will be purchased through a mortgage. 42
Chapter Summaries
Chapter one: Introduction: This chapter introduces the global economic downturn of 2007-2009 and outlines the study's objective to analyze the impact of this crisis on the integrated oil and gas industry.
Chapter two: Literature Review: This section covers past financial crises, emerging theories on the causes of the 2007-2009 crisis, and provides foundational information on oil and gas industry business strategies and their connection to finance.
Chapter three: Methodology: This chapter details the multi-method research approach used, including surveys with industry executives and the analysis of secondary financial data and analysts' reports.
Chapter four: Findings and Analysis: This chapter presents the raw data from the questionnaires and the financial analysis of the 200 biggest oil and gas companies, covering topics like financing, risk management, and M&A activity.
Chapter five: Discussion: The discussion evaluates the empirical findings against the initial research questions and the established literature to provide context for the impacts observed in the industry.
Chapter six: Conclusions: The final chapter synthesizes the main findings, identifies the study's contributions to management theory and practice, and outlines limitations along with suggestions for future research.
Keywords
Oil and Gas industry, 2007-2009 Financial Crisis, Scenario Planning, Risk Management, Corporate Strategy, Business Finance, Subprime Mortgages, Mergers and Acquisitions, Analyst Recommendations, Global Economy, Capital Structure, Liquidity, Debt, Investment, Economic Downturn.
Frequently Asked Questions
What is the primary focus of this dissertation?
The dissertation examines the impact of the 2007-2009 subprime mortgage crisis on companies within the integrated oil and gas industry, analyzing how financial constraints influenced their strategies and investment decisions.
What are the central themes explored in the work?
The key themes include the alignment between corporate finance and business strategy, the effectiveness of risk management practices, and how companies utilized scenario planning to navigate the economic recession.
What is the primary research question?
The work aims to answer how the financial crisis affected oil and gas companies across various business aspects such as financing, operating results, and M&A activity, and how well these companies were strategically prepared.
Which scientific methods are utilized?
The author employs a multi-method approach involving questionnaires sent to industry executives, descriptive statistical analysis of financial statements, and an analysis of long-term analysts' recommendations.
What content is covered in the main body?
The main body covers the literature review on financial crises and strategic management, the detailed methodology, the empirical findings from surveys and financial reports, and a comprehensive discussion of these findings.
Which keywords best describe this work?
The core keywords are Oil and Gas industry, 2007-2009 Financial Crisis, Scenario Planning, Risk Management, and Corporate Strategy.
Why did the study focus specifically on the Oil and Gas industry?
The study focuses on this industry because of its vital role in the global economy and its high capital expenditure requirements, which make it uniquely sensitive to financing shifts during economic crises.
How does the author characterize the impact of the crisis on R&D?
The findings suggest that when companies face financing difficulties, they often treat R&D as a discretionary expense, leading to a decrease in long-term investments in favor of preserving short-term liquidity.
- Arbeit zitieren
- Konstantinos Tsanis (Autor:in), 2009, The impact of the 2007-2009 subprime mortgage crisis in the integrated oil and gas industry, München, GRIN Verlag, https://www.grin.com/document/142505
