The impact of the 2007-2009 subprime mortgage crisis in the integrated oil and gas industry

Master's Thesis , 2009 , 121 Pages , Grade: 69%

Business economics - Investment and Finance

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

  Objectives and Key Themes

  This dissertation explores the impact of the 2007-2009 subprime mortgage crisis on the integrated oil and gas industry. The main objective of the study is to investigate how the crisis affected the financing, strategies, and risk management practices of companies within this sector.

  • The impact of the subprime mortgage crisis on the integrated oil and gas industry.
  • The financial strategies and risk management approaches adopted by companies in the sector during the crisis.
  • The relationship between financial strategies and business strategies in the context of the crisis.
  • The impact of the crisis on the cost of capital for companies in the oil and gas industry.
  • The role of mergers and acquisitions (M&A) in the oil and gas industry during the crisis.

  Chapter Summaries

  Chapter Two: Literature Review provides an overview of the relevant literature on the subprime mortgage crisis, its causes, and its impact on the financial system. It also explores the history of financial crises in the oil and gas industry and discusses relevant business strategies.

  Chapter Three: Methodology outlines the research approach and methodology employed in the study. The chapter discusses the use of a multi-method approach, including survey data and analysis of publicly available financial statements.

  Chapter Four: Findings and Analysis presents the findings of the research, analyzing the impact of the subprime mortgage crisis on the integrated oil and gas industry. The chapter examines the financing strategies, risk management practices, and business performance of companies in the sector.

  Chapter Five: Discussion offers a discussion of the main findings of the study, exploring their implications for the integrated oil and gas industry.

  Keywords

  The key themes and concepts explored in this dissertation include the subprime mortgage crisis, the integrated oil and gas industry, financial strategies, risk management, cost of capital, mergers and acquisitions, and scenario planning. The research also draws on concepts from finance, strategy, and economics.

• College: University of Edinburgh
• Grade: 69%
• Author: Konstantinos Tsanis (Author)
• Publication Year: 2009
• Pages: 121
• Catalog Number: V142505
• ISBN (eBook): 9783640528974
• ISBN (Book): 9783640529179
• Language: English
• Product Safety: GRIN Publishing GmbH