Comment on the revenue, profit, and loss of key industry players
Since the loss of revenue is the 2008-2009 Global Economic Recession, the energy industry has regained some of its large intake of revenue. While the levels of revenue have decreased since post-Recession peaks, they have increased as the global economy has slowly rebounded. Revenue in the energy is driven by the demand for natural resources across global markets. In the emerging markets of China and Brazil, companies like PetroChina and Petrobras Brasileiro have steadily increased their revenues in their oil and natural gas operations. Unlike firms based in the United States, these companies didn’t suffer as much loss during the Recession because their markets were still developing. The impact of demand for energy resources in Brazil and China was much less significant than the impact in the United States and the developed nations in Europe. As the nations who got hit by the Recession are recovering, the emerging markets in Brazil and China are expanding. Companies in those countries could have the most potential for growth in the near-future.
Energy companies will often expose themselves to loss in the exploration for new sources of oil and natural gas. The first step in eventually marketing these resources is finding where they are most abundant and where to start drilling. Companies can waste capital by exploring for natural gas and oil and having unsuccessful results. On the other side, there is great potential for exploration because it can lead to tremendous profit once the natural resources are extracted, produced, and marketed. According to Standard & Poor’s Industry Surveys, the global reserves for natural gas and oil have increased over the last five years throughout various regions of the world. Their statistics draw a correlation between the increase in natural gas and oil reserves and the increase in revenue for companies in the energy industry. This indicates that exploration has been profitable for the industry as a whole.
One interesting aspect of the energy industry’s sales is their profit ratios over the last five years. Some of the largest oil and gas producers, such as Exxon, BP, PetroChina, Royal Dutch Shell, and Petrobras Brasileiro, have had smaller ratios of profit to revenue than they did in 2006. Chevron is the main exception of a major energy company whose return of revenue increased since 2006. However, all of these companies had smaller return on assets and equity after 2010 than they did in 2006. These statistics may indicate that natural gas and oil operations are much more expensive than they were in the past. On the other hand, firms who provide storage and transportation, such as El Paso Corporation, have displayed increases on profit ratios. While Kinder Morgan Inc. recently acquired El Paso, this may be a more profitable sector of the energy industry to invest in. Kinder Morgan has gone under the radar as a profitable energy company, but maybe this is what makes them a strong investment.
*All statistics are provided from Standard & Poor’s Net Advantage database:
Yes. While the technology of using renewable energy still needs to develop, the oil and gas industry is definitely gain a lot profit.
ReplyDeleteThomson, what are your views on the need to fund innovative technologies? Is it worth it to spend valuable capital on ideas that will yield uncertain and marginal short term advances? Oil and petroleum are the biggest resources in our economy, should we stick with this tried and true resource, and where do we draw the line or choose to experiment with investments in this time of economic decline?
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