Survivor profitability, as measured by return on equity, was unremarkable in comparison with nonsurvivors (Figure 16). Given the lack of difference in return on equity, it is not surprising that the ratio of market value to book value for the survivors did not continuously exceed that of the nonsurvivors until 1990 (Figure 17).
The survivors carried more debt relative to equity than the nonsurvivors throughout the post-price collapse period (Figure 18). They also tied up relatively more cash in fixed interest payments than did the nonsurvivors (Figure 19). The greater reliance on debt may reflect an intentional strategy on the part of the survivors, or may have been the result of investor perception that these firms were a better bet for eventual repayment of debt.
The cost of capital for the surviving independents, represented by interest expense on total debt, has declined throughout the post-price collapse period (Figure 15). The decline reflected steadily falling long-term interest rates (e.g. Moody's Aaa rate) and a reduction in investors' perceptions of the riskiness of the independents. Still, the surviving independents paid about the same for borrowed funds as the nonsurvivors (Figure 20).
The one remarkable difference between the surviving and nonsurviving independent oil and gas producers was the cost of replacing oil and gas reserves. Throughout the post-price collapse period, the surviving independents (who began the period with slightly lower reserve replacement costs than the nonsurvivors) successfully added to reserves at ever lower costs than the nonsurvivors (Figure 9 in Chapter 4). By 1990, their costs were as low as those of the majors. This was a critical accomplishment for the independents, since the majors in general achieved lower costs by scaling back exploration, development, and reserve purchases, presumably dropping higher cost operations. The independents achieved lower costs in spite of the expansion of their U.S. reserve and asset base (Figures 1 and Figure 8).