Nine Pitfalls of Valuing OTC Derivatives in the Oil and Gas Industry

Business Valuation Update
Business Valuation Australia
April 15, 2016

Summary

Oil and gas firms are in an industry that is highly sensitive and subject to volatility in returns, so these firms use derivatives regularly to manage their risks. Many other companies, including private firms, now use derivatives. For example, an Australian manufacturer that buys parts from overseas may use forward contracts to hedge currency risk. A trucking company might use energy futures to stabilise profit margins. Some derivatives are traded on an exchange, but most derivatives are traded over the counter (OTC).