Leverage and the Oil Industry

Transcription

1 Leverage and the Oil Industry Analysis on the Firm and Production Level Johannes Lips September 5, 2017 Department of Economics Justus-Liebig University Gießen

2 Outline Research Questions and Motivation Creating the Dataset Exploratory Data Analysis Results Dynamic Panel Modelling Concluding Remarks and Outlook Leverage and the Oil Industry Johannes Lips 1 / 21

3 Research Questions and Motivation

4 Price Development on Energy Markets WTI Spot Price ($/Barrel) HHUB Natural Gas ($/mmbtu) Figure 1: Development of WTI crude oil and Henry Hub natural gas spot prices Leverage and the Oil Industry Johannes Lips 2 / 21

5 Development of aggregate oil production in the US Quarterly Oil Production in mmbbls Q Q Q Q Q Q Q Q Q1 Total U.S. Oil Production U.S. Unconventional Oil Production Figure 2: Development of conventional and unconventional US oil production. Source: EIA (2017a,c) Leverage and the Oil Industry Johannes Lips 3 / 21

6 Development of aggregate natural gas production in the US Quarterly Natural Gas Production in Mcf Q Q Q Q Q Q Q Q Q1 Figure 3: Development of US natural gas production. Source: EIA (2017b) Leverage and the Oil Industry Johannes Lips 4 / 21

7 Related Literature Domanski et al. (2015) raise the hypothesis that high debt may prevent producers from reducing production Lehn and Zhu (2016) empirically analyze the relationship focus on period between 2011 and 2014 Gilje et al. (2017) focus on project completion and investment decisions of firms Leverage and the Oil Industry Johannes Lips 5 / 21

8 Development of Debt in the US E&P Industry (Sample) Q Q Q Q Q Q Q Q Q1 Aggregate.Debt Aggregate.Assets Debt to Asset Ratio Q Q Q Q Q Q Q Q Q1 Figure 4: Development of Debt and Assets Leverage and the Oil Industry Johannes Lips 6 / 21

9 Creating the Dataset

10 Company Data Companies active in E&P of Crude Oil and Natural Gas (SIC 1311) Quarterly financial data from CapitalIQ Initially 1018 companies in the financial data set Leverage and the Oil Industry Johannes Lips 7 / 21

11 Production Data Drillinginfo Data obtained based on the companies in the financial data set Monthly production data on oil and gas wells 18.5 million rows in the database Information on the technology and additional data Matching of both data sets on available company information Leverage and the Oil Industry Johannes Lips 8 / 21

12 Unbalanced quarterly data set Q to Q Panel data set ranging from Q to Q Initially 153 companies 172 drop out and 190 enter into the sample 53 are present throughout the whole sample period 146 on average in each quarter 343 different companies in total Leverage and the Oil Industry Johannes Lips 9 / 21

13 Key Figures of the Quarterly Oil Production Dataset Quarterly Oil Production in mmbbls Q Q Q Q Q Q Q Q Q1 Directional Horizontal Unknown Vertical Figure 5: Development of aggregated oil production for different drilling technologies Source: Own calculations based on data provided by DrillingInfo Leverage and the Oil Industry Johannes Lips 10 / 21

14 Comparison of Production in the US and the Sample Quarterly Oil Production in mmbbls Q Q Q Q Q Q Q Q Q1 U.S. Total Sample Total Figure 6: Total US oil production and oil production in sample Source: Own calculations based on data provided by DrillingInfo Leverage and the Oil Industry Johannes Lips 11 / 21

15 Comparison of Production in the US and the Sample Share of Oil Production in the sample Q Q Q Q Q Q Q Q Q1 U.S. Total Sample Total Figure 6: Total US oil production and oil production in sample Source: Own calculations based on data provided by DrillingInfo Leverage and the Oil Industry Johannes Lips 11 / 21

16 Exploratory Data Analysis

17 Distribution of Leverage prior to price decline in 2008 and 2014 Leverage Percentile 2008 Q Q3 No. Assets Debt No. Assets Debt 1 st Quartile nd Quartile rd Quartile th Quartile Non-calculable Leverage Table 1: Comparison of the number of companies for each leverage group prior to price declines in 2008 Q2 and 2014 Q3 and their average value of total assets and debt in million US-Dollar. Leverage and the Oil Industry Johannes Lips 12 / 21

18 Leverage and Unconventional Production 1.00 Oil production per leverage group and production type st Quartile 2 nd Quartile 3 rd Quartile 4 th Quartile Non calculable Leverage Conventional Oil Production Unconventional Oil Production Q Q Q Q1 Figure 7: Total oil production differentiated by production type and leverage quartile of the companies in Yellow line separates the production types with conventional share above and unconventional share below. Leverage and the Oil Industry Johannes Lips 13 / 21

19 Leverage and Unconventional Production 1.00 Gas production per leverage group and production type Conventional Gas Production Unconventional Gas Production 1 st Quartile 2 nd Quartile 3 rd Quartile 4 th Quartile Non calculable Leverage Q Q Q Q1 Figure 8: Total gas production differentiated by production type and leverage quartile of the companies in Yellow line separates the production types with conventional share above and unconventional share below. Leverage and the Oil Industry Johannes Lips 14 / 21

20 Results Dynamic Panel Modelling

21 Pooled Estimation Oil Production Coefficient Standard error t-stat p-value log(total Oil Production) t log(total Assets) log(ebitda) Leverage log(wti Spot Price) constant R Observations 6327 F statistic Note: p<0.1; p<0.05; p<0.01 Leverage and the Oil Industry Johannes Lips 15 / 21

22 LSDV Estimation Oil Production Coefficient Standard error t-stat p-value log(total Oil Production) t log(total Assets) log(ebitda) Leverage log(wti Spot Price) constant Observations 6327 σ u No. Companies 289 σ e F statistic ρ R 2 -within R 2 -between R 2 -overall Note: p<0.1; p<0.05; p<0.01 Leverage and the Oil Industry Johannes Lips 16 / 21

23 Pooled Estimation Gas Production Coefficient Standard error t-stat p-value log(total Gas Production) t log(total Assets) log(ebitda) Leverage log(wti Spot Price) constant R Observations 6290 F statistic Note: p<0.1; p<0.05; p<0.01 Leverage and the Oil Industry Johannes Lips 17 / 21

24 LSDV Estimation Gas Production Coefficient Standard error t-stat p-value log(total Gas Production) t log(total Assets) log(ebitda) Leverage log(wti Spot Price) constant Observations 6290 σ u No. Companies 286 σ e F statistic ρ R 2 -within R 2 -between R 2 -overall Note: p<0.1; p<0.05; p<0.01 Leverage and the Oil Industry Johannes Lips 18 / 21

25 Concluding Remarks and Outlook

26 Conclusion Leverage appears to have some impact on the production decision Relationship needs to be analyzed in more detail, with more appropriate methodology Endogeneity is one of the main issues in this context and needs to be addressed Leverage and the Oil Industry Johannes Lips 19 / 21

27 Econometric Extensions GMM estimation Blundell and Bond (2000) to address the persistence and endogeneity Difference-in-Difference Estimation: Using the treatments of high and low leverage and contango or backwardation periods PanelVAR allows to explicitly model the endogeneity. Leverage and the Oil Industry Johannes Lips 20 / 21

28 The End Thank you for your attention! For more details and current status, please see: id= Leverage and the Oil Industry Johannes Lips 21 / 21