Independent Consolidation to Accelerate
Consolidation among oil and gas independents will accelerate in the face of the energy transition, according to Wood Mackenzie.
In a statement sent to Rigzone on Tuesday, the energy research and consultancy company outlined that consolidation will be a defining theme over the coming decades. Many of the most attractive independents will combine, either as pure-plays with niche attributes at scale or as diversified ‘mini-majors’ with growing carbon, capture, utilization and storage, or renewables businesses, Wood Mackenzie noted.
“A world on a 2-degree glidepath does not need thousands of independents chasing volume,” Wood Mackenzie Vice President Luke Parker said in the statement.
“The independents’ strategies will need to evolve, as they move to minimise risks they can control. For most, investment horizons will get progressively shorter across the board – exploration, development, and acquisition. Anything that does not pay back in a narrowing timeframe will be increasingly overlooked,” he added.
“But with that shift, the very nature of the independents will change. The risk-reward balance that has always been core to the exploration and production ‘value proposition’ gets diluted. Independents increasingly look and act like larger companies, only without the advantages of actually being a larger company,” Parker went on to say.
According to Parker, independents with advantaged assets who are cash generative, resilient to low prices, have a strong balance sheet and are in the top quartile for ESG are best placed to evolve.
“They are able to remain independent for longest, but they also make the most attractive consolidation targets,” he said.
Parker warned that independents that did not or could not adjust face wind-down in the longer term. While mergers among them may prolong the inevitable, most will not make it to 2050 in any guise, he stated.
“Independents will no longer get endless chances to re-invent themselves,” Parker said. “Failure at the margin will, increasingly, be terminal,” he added.
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