In the context of oil price fluctuations inducing boom and bust cycles, this empirical study is a survival analysis of the Canadian oil and gas exploration and production (E&P) industry. The population includes 540 public Canadian E&P firms that have their headquarters and production activity in Canada, and the data covers the periods of Q1-2002 to Q1-2016 representing over 15,850 firm-quarter observations. The method is an extended Cox model with repeating events, allowing for the use of time-varying predictor variables and the analysis is executed in R, a free statistical software. The study introduces a new definition of financial distress as two consecutive quarters of negative operating cash flow to total assets ratio, develops a baseline model with financial ratios and industry-specific covariates and tests three hypotheses. The first two hypotheses examine the extent to which hedging and company size respectively correlate to the state of financial distress, and the third hypothesis explores how being financially distressed contributes to being a target in a merger and acquisitions (M&A) transaction. The findings show that a hedging firm is 18.5 times less exposed to the hazard of financial distress than a non-hedging firm; and with each unit size increase, a firm is 1.18 times less likely to experience financial distress, but financial distress is not a valid predictor of the hazard of being an M&A target. This study provides a new perspective supporting the use of hedging and size increase for increasing corporate resilience in Canadian oil and gas firms.
