Despite the collapse in oil and gas prices, many upstream companies could and perhaps should be acquired or their assets sold.
These companies have a negative enterprise value and their assets should be under the stewardship of another management team. A company’s assets will find the right home with those who can maximize their value.
The key measure of upstream performance in return on capital. We examined the North American Upstream segment of the Oil and Gas Sector to understand how the approximately 90 companies performed. We compared return on capital to each companies weighted average cost of capital for the 10 year period ended December 331, 2014. This precedes the collapse in oil prices and includes the rise of the Shale Revolution and historically high oil and gas prices. With both rising volumes and high prices, most companies should have performed well. This, however, is not the case. Fewer than a third of these companies returned their cost of capital. In this white paper, we present our findings along with some observations about the future of the sector.