Economic Report 2000 Index

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Meeting the Challenge Industry Performance Many external commentators are critical of the perceived high profits that the oil industry has made over recent years. Often this misrepresents the reality, since many observers fail to give recognition to the risks and capital intensive nature of oil and gas enterprises. Companies need to deliver acceptable returns to retain the confidence of investors and lenders alike, and to do so over the full cycle of the ups and downs of the oil and gas markets. With recent mergers several players are much larger and other things being equal will deliver higher reported profits though not necessarily higher returns. One measure that financial analysts use to judge performance is return on capital employed (ROCE). Figure 24 summarises and compares the ROCE of selected industries based on the financial performance of the UK quoted companies that are represented in each sector. The graph clearly indicates that the oil industry remains a long way below that of certain high performing sectors. Figure 24 - Returns on capital employed -3 year rolling average