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A Note on Vertical Integration and Stock Ratings of Oil Companies in the U.S.

Abstract:
This note examines some evidence for a link between profitability of oil companies and operational vertical integration into pipelines and crude oil. All empirical specification is estimated using ordered probit. Levels of integration into pipeline and crude that maximize stock ratings are derived using recent oil company data. Integration into pipelines has a weak positive effect on the stock ratings of oil companies, and integration into crude oil has a stronger positive?effect.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Investment and Finance – Corporate Strategy

JEL Codes: L95: Gas Utilities; Pipelines; Water Utilities, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels, Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, Q35: Hydrocarbon Resources, G12: Asset Pricing; Trading Volume; Bond Interest Rates

Keywords: oil prices, oil company stock ratings, oil sales, vertical integration

DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No2-7


Published in Volume21, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.