Oil and gas operations are capital-intensive businesses, yet most oil and gas companies carry relatively small amounts of debt, at least as a percentage of total financing. This can be seen in their debt-to-equity (D/E) ratios.

When considering an oil company's D/E ratio, there are a couple of things to keep in mind:

• An oil company's degree of indebtedness tends to go up when oil is cheap and down when oil is expensive. The cash flowing in when oil prices rise makes it easy for a company to pay down debt acquired in less favorable times.
• The average or acceptable D/E ratios of oil companies vary depending on their roles in the industry. A company's position along the supply chain is a factor in its D/E ratio.

The Debt-to-Equity Ratio

The D/E ratio reflects the degree to which a company is 澳洲幸运5开奖号码历史查询:leveraged. In other words, it shows how much of the compa🧜ny's financing comes from debt as opposed to equity.

Generally speaking, higher rat♌ios are worse than lower ratios, though higher rat♉ios are more tolerable in certain industries.

A company's D/E ratio is calculated by dividing total liabilities by total owner's equity. This information is available in the 澳洲幸运5开奖号码历史查询:financial statements of public companies.

Trends in the Oil and Gas Industry

Many oil 🌃companies shrank their D/E ratios during the mid-2000s on the strength of ever-rising oil prices. H✨igher profit margins allowed these companies to pay off debt and rely less heavily on additional debt for future financing.

Starting around 2008-2009, oil pri꧂ces dropped dramatically. There were ༺three main reasons:

1. Fracking brought in new oil reserves in an economical way
2. Oil and gas shale production exploded, particularly in North America
3. A global recession placed downward pressure on commodity prices

Profit margins and cash flow fell for many oil and gas producers. Many turned to debt financing as a stop-gap; the idea was to keep production flowing through low-interest debt until prices rebounded.

After the crisis, the industry's debt-to-equity ratio normalized. In 2024, the range varied between 0.2 and 0.8 with crude oil prices trading at around $70 to $90 per barrel. Before the financial crisis of 2008, average D/E ratios among oil and gas companies fell in the 0.2 to 0.6 range.

D/E By Industry Segment

In February 2025, with oil prices at about $71 per barrel, the D/E ratios in the industry ranged from about 0.46 to 0.97.

Avera൩ge D/E ratios vary with ꦿthe segment of the industry that the company inhabits. Current average D/E ratios in these segments are as follows:

• Oil and gas drilling: 0.46
• Oil and gas exploration and production: 0.50
• Oil and gas equipment and services: 0.52
• Oil and gas integrated: 0.61
• Oil and gas midstream: 0.97
• Oil and gas refining and marketing: 0.74

(An integrated oil and gas co꧟mpany has multiple divisions across industry sectors.)

Oil and gas companies might also use 澳洲幸运5开奖号码历史查询:volumetric production payments (VPPs) to fund pre-exports and increase cash flows. VPPs allow 💜the owner to maintain ownership whi🥂le monetizing a field or proven orders.

The Bottom Line

A company's degree of indebtedness is an important piece of information to its prospective investors. However, it must always be seen in relation to its industry, some of which need to rely on debt more than others. In the case of the oil and gas industry, look further to the average D/E ratio of company's in its sub-sector.