FINANCIAL STRATEGIES IN THE OIL EXPLORATION AND PRODUCTION INDUSTRY
The oil and gas exploration and production industry is a high-risk, high-capital industry. It is an international industry in which some nationalized companies compete with private companies, and where political pressure is often brought to bear. It is capital intensive because of the cost of the equipment required to find and extract oil and gas; although equipment can sometimes be reused, the logistical and transportation costs associated with moving equipment from one site to the next can be formidable. In addition, while technology has decreased the risk of test drilling so that dry sites are more rare than in the past, highly promising sites can still result in bitter disappointment. This is not an industry that is easy to enter for new competitors, nor is it an industry that attracts those with a low threshold for risk. Creditors can be especially wary of these conditions, and so raising the capital necessary to remain competitive in this industry can be challenging. This research examines the peculiarities of the oil and gas exploration and production industry, with an emphasis on the capital financing strategies employed within the industry and an evaluation of how those strategies affect the long-term performance of companies in the industry.
Most of the companies participating in the oil and gas exploration and production industry are divisions or subsidiaries of major oil companies; these companies, in turn, are among the largest in the world. Most of these companies are publicly held, although some are national companies based in the member states of the Organization of Petroleum Exporting Countries (OPEC), a cartel formed in 1960 to control world oil prices. The industry was marked by consolidation during the 1990s, during which time British Petroleum merged with Amoco, Exxon merged with Mobil, and Total merged with PetroFina ("Oil and Gas" 4...