The impact from oil price changes on share values of different oil companies : an empirical analysis
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- Master's theses (HH) 
This study provides a thorough analysis of oil price effect on share values of different oil and gas operators. The purpose of this study is to reveal patterns through conceptual examination of ten different oil and gas companies related to their financial structures by using simple statistical and financial analyses, and not through elaborate econometric analysis of oil price changes. Methods applied include empirical, technical and financial analyses. Findings have discovered that some operators are highly intercorrelated, exhibit similar financial characteristics and have share values that reacted almost identically to oil price changes. Furthermore, dollar change in oil price is a far better predictor for explaining share price, than relative oil price change has been for explaining share returns. Oil price changes explain share return for operators but the degree of impact varies. Considering oil price change as the only explanatory factor for share return, operators displayed similar levels of impact, with the exception of a ConocoPhillips, Exxon and Hess. Constructing a multifactor model by adding a one-month lagged oil price variable in addition to contemporary price changes, revealed that smaller operators (by market capital) are to a larger degree impacted by lagged oil price changes; i.e. it takes time for returns to absorb prices. Lagged effects did not alter level of oil price impact from contemporary prices, but revealed that for smaller operators, oil price changes going back one month are significant factors for determining current share returns. This is contrary to the idea that contemporary price change of oil affects smaller more than larger corporations. Larger operators, such as Exxon, BP and Shell stand out as being unaffected by lagged price of oil. Liquidity and access to capital are not significant factors when it comes to sensitivity to oil price changes of an individual share. Debt structure and operating leverage however, correlates with level of impact and higher levels of equity to debt confirms that debt makes operators less agile; reduce capacity to alter production profile and diminish fixed cost. Operators are able to influence their production profile and do so actively. The study found large operators to create higher returns on their assets, and smaller operators more cost-efficient. The largest operators appear to be generating higher replacement rates on average, but the most volatile and in-line with oil price movement operator had the highest replacement rates of the sample. Replacement rate is undoubtedly connected to return, but not to volatility.