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Addressing oil price changes through business profitability in oil and gas industry in the United Kingdom

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  • Sorana Vătavu
  • Oana-Ramona Lobonț
  • Iulia Para
  • Andrei Pelin

Abstract

In this paper, we investigate how crude oil price and volume traded affected the profitability of oil and gas companies in the United Kingdom (UK) since the financial crisis started in 2008. The study benefit from insights of the financial statements, to develop a model that focuses on how changes in oil price impact corporate performance. In order to observe the financial indicators that influence the performance, as well as the effects that changes in oil prices and demand of crude oil have on the profitability of oil and gas companies, we apply comparative regression analysis, including the generalised method of moments estimation technique for panel data set. The sample is consisting of 31 oil and gas companies in the UK, and the period analysed is 2006–2014. Results show that profitable oil and gas companies managed to face the drop in oil price and recover, characterized by significant cash flows and stock turnover, efficient use of assets, and high solvency rates. Although the oil price and volume traded do not significantly affect profitability and other financial ratios, if the oil price continues to decrease, it would permanently alter both the UK economy and oil and gas companies. In order to survive, companies make drastic cuts and defer essential investments, often at the long-term expense of asset performance. This study is important in a world where the energy consumption steadily grew over time. However, the renewable energy is cheaper and more environmentally friendly, and thus, countries where oil and gas industry is one of the most popular sectors face an economic decline. These results could be useful for investors, managers or decision makers, reclaiming strategic decisions in the current uncertain and volatile environment.

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  • Sorana Vătavu & Oana-Ramona Lobonț & Iulia Para & Andrei Pelin, 2018. "Addressing oil price changes through business profitability in oil and gas industry in the United Kingdom," PLOS ONE, Public Library of Science, vol. 13(6), pages 1-22, June.
    • Handle: RePEc:plo:pone00:0199100
    DOI: 10.1371/journal.pone.0199100
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    References listed on IDEAS

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    3. Adrian Neacsa & Jianu Daniel Muresan & Marian Catalin Voica & Otilia Manta & Mihail Vincentiu Ivan, 2023. "Oil Price—A Sensor for the Performance of Romanian Oil Manufacturing Companies," Energies, MDPI, vol. 16(5), pages 1-18, February.
    4. Catalin Popescu & Sorin Alexandru Gheorghiu, 2021. "Economic Analysis and Generic Algorithm for Optimizing the Investments Decision-Making Process in Oil Field Development," Energies, MDPI, vol. 14(19), pages 1-24, September.
    5. Felix M. Onyije & Bayan Hosseini & Kayo Togawa & Joachim Schüz & Ann Olsson, 2021. "Cancer Incidence and Mortality among Petroleum Industry Workers and Residents Living in Oil Producing Communities: A Systematic Review and Meta-Analysis," IJERPH, MDPI, vol. 18(8), pages 1-22, April.
    6. Bugshan, Abdullah, 2022. "Oil price volatility and corporate cash holding," Journal of Commodity Markets, Elsevier, vol. 28(C).
    7. Mohammad Enamul Hoque & Soo-Wah Low & Mohd Azlan Shah Zaidi, 2020. "The Effects of Oil and Gas Risk Factors on Malaysian Oil and Gas Stock Returns: Do They Vary?," Energies, MDPI, vol. 13(15), pages 1-22, July.

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