Petroleum Economics - Summary of Contribution 133: Sources. Disposition and Characteristics of the Capital Employed by Thirty Oil Companies during the Nine-year Period 1934-1942

Prior to 1934, published information covering expenditures by oil companies for properties, plant, and equipment and the residual investments in the various segments of the petroleum industry was not readily available. This paper presents an analysis of the funds invested by a selected group of oil companies during the years 1934 through 1942, based on an extensive study of the individual records of 30 oil companies. The sources, disposition, and characteristics of the capital employed by this group of companies are traced through a series of combined statements and appropriate charts, covering financial and operating data. The analysis of these statements not only constitutes a record useful for comparative purposes but also serves as a basis for a number of broad conclusions, as follows: 1. The petroleum industry generates the capital needed for its expansion almost entirely from its own operations and is therefore a singularly self-contained economic unit. 2. The long-term debt contained in the financial structure of the industry is small relative to the total capital employed, is less than the net working capital, and has increased but slightly during the period under review. 3. The capital expenditures of the group of 30 oil companies for 9 years amounted to 6.1 billion dollars, 58.3 per cent of which went into crude-oil producing facilities. The trend of this segment of expenditures has been downward since 1937. In 1942, expenditures for refining facilities increased sharply and for marketing facilities declined drastically. 4. The net working capital of the group increased 380 million dollars over the period, and the industry is in a favorable position of liquidity. The ratio of combined current assets to current liabilities was 3.21 at the close of the period. 5. The net income of the group displayed an upward trend for the period but with rather sharp cyclical fluctuations. 6. In 1942, Government funds entered the industry for the first time in substantial amounts and were utilized for the provision of war facilities needed for emergency use. 7. The group has paid out a relatively low percentage of net income in the form of dividends. For the period the average was 55 per cent of net income. 8. The rate of return on invested capital for the group averaged 6.4 per cent for the