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    Common Debt-To-Equity Ratios For Oil and Gas Companies

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    The document discusses common debt-to-equity ratios for oil and gas companies. It notes that before 2008, ratios typically ranged from 0.2 to 0.6 but have since increased to a range of 0.5 to 0.9 due to lower oil prices forcing companies to take on more debt. Oil and gas operations are very capital intensive but companies historically carried relatively small debt loads. A company's position along the supply chain influences its specific debt-to-equity ratio.

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    Common Debt-To-Equity Ratios For Oil and Gas Companies

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    selozok1
    151 views5 pages
    The document discusses common debt-to-equity ratios for oil and gas companies. It notes that before 2008, ratios typically ranged from 0.2 to 0.6 but have since increased to a range of 0.5 to 0.9 due to lower oil prices forcing companies to take on more debt. Oil and gas operations are very capital intensive but companies historically carried relatively small debt loads. A company's position along the supply chain influences its specific debt-to-equity ratio.

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    The document discusses common debt-to-equity ratios for oil and gas companies. It notes that before 2008, ratios typically ranged from 0.2 to 0.6 but have since increased to a range of 0.5 to 0.9 due to lower oil prices forcing companies to take on more debt. Oil and gas operations are very capital intensive but companies historically carried relatively small debt loads. A company's position along the supply chain influences its specific debt-to-equity ratio.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    151 views5 pages

    Common Debt-To-Equity Ratios For Oil and Gas Companies

    Uploaded by

    selozok1
    The document discusses common debt-to-equity ratios for oil and gas companies. It notes that before 2008, ratios typically ranged from 0.2 to 0.6 but have since increased to a range of 0.5 to 0.9 due to lower oil prices forcing companies to take on more debt. Oil and gas operations are very capital intensive but companies historically carried relatively small debt loads. A company's position along the supply chain influences its specific debt-to-equity ratio.

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    14/12/2019 Common Debt-To-Equity Ratios for Oil and Gas Companies

    FUNDAMENTAL ANALYSIS SECTORS & INDUSTRIES ANALYSIS

    Common Debt-To-Equity Ratios for Oil and


    Gas Companies

    BY BILLY CHEUNG | Updated Jun 25, 2019

    Oil and gas operations are very capital-intensive, yet most oil and gas companies carry
    relatively small amounts of debt, at least as a percentage of total financing. This can be seen
    in debt-to-equity (D/E) ratios. Keep in mind that not all oil companies are involved in the
    same operations. A company's position along the supply chain influences its D/E ratio.

    https://www.investopedia.com/ask/answers/060315/what-debt-equity-ratio-common-oil-and-gas.asp 1/5
    14/12/2019 Common Debt-To-Equity Ratios for Oil and Gas Companies

    The Debt-to-Equity Ratio


    A company's D/E ratio is calculated by dividing total owner's equity by total liabilities.
    Publicly-traded companies have this information available in their financial statements.

    The D/E ratio reflects the degree to which a company is leveraged. In other words, it shows
    how much of the company's financing results from debt as opposed to equity. Generally
    speaking, higher ratios are worse than lower ratios, though these higher ratios may be more
    tolerable for large firms or certain industries.

    Trends in the Oil and Gas Industry


    Many oil companies shrank their D/E ratios during the mid-2000s on the back of ever-rising
    oil prices. Higher profit margins allowed companies to pay off debt and rely less heavily on
    debt for future financing.

    Starting around 2008-2009, oil prices dropped dramatically. There were three main reasons:

    1. Fracking allowed companies to reach new oil reserves in an economical way


    2. Oil and gas shale production exploded, particularly in North America
    3. A global recession put downward pressure on commodity prices

    https://www.investopedia.com/ask/answers/060315/what-debt-equity-ratio-common-oil-and-gas.asp 2/5
    14/12/2019 Common Debt-To-Equity Ratios for Oil and Gas Companies

    Profit margins and cash flow fell for many oil and gas producers. Many turned to debt
    financing as a stop-gap; the idea was to keep production flowing through low-interest debt
    until prices rebounded.

    As a result, this pushed up D/E ratios across the industry. Before the financial crisis of 2008,
    common D/E ratios among oil and gas companies fell in the 0.2 to 0.6 range. As of 2018, the
    range clusters within 0.5 and 0.9 with crude oil prices trading in a range between $50-70 per
    barrel. 

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    https://www.investopedia.com/ask/answers/060315/what-debt-equity-ratio-common-oil-and-gas.asp 3/5
    14/12/2019 Common Debt-To-Equity Ratios for Oil and Gas Companies

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    A leverage ratio is any one of several financial measurements that look at how much capital comes in
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    https://www.investopedia.com/ask/answers/060315/what-debt-equity-ratio-common-oil-and-gas.asp 4/5
    14/12/2019 Common Debt-To-Equity Ratios for Oil and Gas Companies

    Understanding the Sustainable Growth Rate – SGR


    The sustainable growth rate (SGR) is the maximum rate of growth that a company can sustain without
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    Debt Ratio
    The debt ratio is a financial ratio that measures the extent of a company’s leverage. more

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