Oil and gas—winners and losers of the credit crunch

Abstract

Since mid 2007, we have seen one of the biggest crises ever to hit the financial markets—the so-called credit crisis. Initially banks bore the brunt of the credit crisis, but the ramifications were far deeper, affecting consumer households as well as debt and equity reliant organisations. This presentation will discuss the specific impacts of the crisis for the oil and gas industry, including: the fact that it is not just a credit crunch, but also an equity crunch; the fact that the issues in raising debt capital—the cost is now well beyond the global earnings yield; the fact that investors are now seeking alternate, less risky and less complicated investment options; and the fact that investment funds are shifting from private equity funds to oil-financed sovereign wealth funds.

The crisis has had varying impacts on the oil and gas industry. Organisations reliant on debt and equity funding and those operating in new or start-up ventures are under increased pressure and scrutiny. On the other hand, well positioned oil and gas organisations can take advantage of current and emerging opportunities, particularly in relation to alternate energy sources.

In the future, financial prosperity will be with organisations that operate in countries with guaranteed supplies of oil and gas (e.g. Australia, Brazil, Russia, India and China).

A future focus for the oil and gas industry will be for organisations to maintain very disciplined and robust financial-risk management systems in order to manage their liquidity and financial risks in this changed environment.