| dc.description.abstract | Stakeholders such as company management, shareholders, creditors, advisors, and employees are dependent on the success of the oil and gas exploration and production industry. The industry is a strong provider of jobs for the United States and Global Economy, and important for national defense. Given the industry importance, the ability to predict which companies will face financial distress and file for Chapter 7 or Chapter 11 bankruptcy is valuable. In today's environment, most oil & gas producers are facing distress via the external impact of low commodity prices. Therefore, this thesis formulates an accounting-based model, "L-Score", that accurately classifies a sample of 57 oil and gas producers as bankrupt or non-bankrupt from 2013 through 2019. The resulting L-Score is more effective than Altman's Z-Score by 170 bps for 2013 data, and 180 bps for 2014 data. The low-price environment, largely due to the global COVID-19 pandemic, is eerily consistent to the 2014 and 2015 oil price deterioration caused by a global supply glut. For that reason, a sample of 37 current oil and gas companies is used to predict bankruptcies into the future. The L-Score prediction model uses year-end 2018 financial data (because of the timing similarity with 2013) to predict which sample companies will or will not file for Chapter 11 bankruptcy from 2020-2025. The 2018 L-Score model both classifies and ranks the sample companies from "Most Unlikely" to file for bankruptcy to "Most Likely" to file for bankruptcy. The 2018 L-Score predictions have significant implications for stakeholders and can help all parties realize oncoming default/bankruptcy risk. These observations should lead to stakeholders proactively working together to solve and mitigate the necessary problems to remain solvent. | |
