The API has commissioned a report from Sonecon entitled, ‘Who Owns America’s Oil and Natural Gas Companies: A 2014 Update’. Below are highlights from the report and its findings.
Who owns what?
According to the report, in 2014 individual investors who are not company directors or executive own 65.5% of the shares of US based oil and gas companies that are publically traded. This was measured by Sonecon by the value of all shares. Most of the shares held by individuals are held in pension plans and/or are part of retirement accounts. Public and private pension plans, 401(k)s and IRAs are found to hold 46/8% of the value o all oil and gas company shares. Individual investors manage and own only 18.7% of shares that are outside of any pension and retirement plans.
Asset management companies hold the next biggest portion of America’s oil and gas companies at 24.7%. These are held traditionally on behalf of institutional investors as well as individual investors. Institutional investors, who hold their own assets without asset management company help have 6.9% of shares. These companies include banks, insurance companies, endowments and foundations. Oil and gas industry executives, those immediately involved within America’s oil and gas companies hold only 2.9% of shares.
The report states that this data shows ‘that middle class households dominate the ownership of US publicly held oil and natural gas companies,’ and that ‘by owning oil and natural gas company stock, these middle class households benefit from the industry’s strong returns.’
The benefits of broad ownership
Since 2009, the report says that the benefits of broad ownership have increased. This was especially true as at this point oil prices began to rise due to higher revenues from selling oil and natural gas which in turn raised the returns of oil and natural gas companies. As the financial crisis set in in the US however, oil prices dropped from a record high to as low as US$ 33 /bbl. Since January 2009 however, oil prices have recovered and the situation is getting better.
The US’ oil and natural gas companies clearly do have a broad base of ownership, and this itself is a characteristic which is usually associated with the potential for strong growth and returns. The report says that economists generally agree that companies with broad ownership generally have greater access to financing which allows them to expand operations and geographical scope more easily. The report also points out that in other studies have said ‘that broad ownership enhances a company’s ability to attract talented managers and other employees with specialised knowledge and skills.’ Also, Sonecon has said that as the ownership of a company expands, stockholders and investors demand more company operational information which forces managers to improve efficiency and strategy at a company. In purely economic terms, broad public ownership can lower a firm’s capital cost, which in turn can promote investment and company growth all round.
Distribution of ownership
America’s oil and natural gas industry has three main segments, services, integrated companies and non-integrated companies. Of these three, the report has found that integrated oil and natural gas companies have the largest share of total market capitalisation in the industry, followed by non-integrated with services coming at the rear. This year, integrated companies equalled 44.1% of total market value at approximately US$ 1.94 trillion, while non-integrated only accounted for 39.8% and services accounted for a mere 16.1%. The data is significant, according to Sonecon, in assessing the ownership role of industry executives and directors, ‘because such corporate insiders hold much smaller ownership shares of integrated companies than of the non-integrated companies and the services companies.