Economic and financial implications of the dismemberment of U. S. oil companies

Journal Article · · J. Energy Dev.; (United States)

OSTI ID:7331058

Johnson, W A ^[1]; Messick, R E

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1. George Washington Univ., Washington, DC

The probable economic and financial costs of legislating divestiture for the eight major oil companies are examined to determine what consequences divestiture will have for the American consumer and economy. The most serious impact will be an increased dependence on imported oil and vulnerability to price and supply changes. The capacity of vertical integration to reduce risk and maintain stability has attracted investors in the past. Provisions of divestiture legislation, however, will cause bondholders to develop a new relationship, making it difficult for the industry to either attract the debt capital it needs for expansion or be able to pay the higher interest rates. Equity markets will also be disrupted, which will lower security prices and be felt by a large segment of the population. The industry will not only find it difficult to form capital, but it will be reluctant to re-invest in units that stand to be divested. Research and development programs will be curtailed during the transition period. Long-run reduction of research and development efforts will result from the loss of interaction that is available in an integrated industry. This will reduce the innovation needed to develop energy sources. Problems for foreign nationals will arise if the estimated $3.5 billion debt of subsidiaries is subject to foreign litigation and if joint ventures lose the stability of integrated backing. (DCK)

• OSTI ID: 7331058
• Journal Information: J. Energy Dev.; (United States), Journal Name: J. Energy Dev.; (United States) Vol. 2:1; ISSN JENDD
• Country of Publication: United States
• Language: English

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