Musings: A Retrospective View of A Restructured Energy Industry

Musings: A Retrospective View of A Restructured Energy Industry
G. Allen Brooks shares his predictions on how the global oil and gas industry will be in 2025.

This opinion piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.

Using our time machine, we ventured to 2025 where the global oil and gas industry is enjoying its fifth year of the “new normal” – crude oil prices were settled in the $95 a barrel range. Luckily for the industry, demand for its oil continued to grow, albeit ever so slowly. The steady growth since 2020 of 250,000 barrels a day represented an environment some are starting to call “boring.” That may be a welcome respite for managers following the volatility of the first 20 years of this Century and the toll it took on companies, technology and investment. Countries have become less fearful of oil shortages now that renewable fuels supply a significant share of the world’s energy needs and electric power generation. In developed economies, crude oil is essentially reserved for transportation fuels, but even then, the increased penetration of green fuels, electric vehicles and social attitude changes toward the use of vehicles and mobility in general have limited the growth of hydrocarbon-based transportation fuels.

People contemplating this new petroleum industry environment have been reflecting on how dramatically the industry was restructured as it recovered following the oil price war of 2014-2017. The students of the industry understood that industrial sector restructurings usually don’t occur until after the worst of an industry’s downturn has passed and company management teams can begin to fathom how the underlying structure of the industry was altered by the forces that birthed the downturn. The last downturn was driven by the growth in crude oil and liquids output in response to the successes in harnessing horizontal drilling and hydraulic fracturing technologies to tap hydrocarbons trapped in shale formations all across the United States. The shale revolution slowly expanded from the United States to the rest of North America and then to Europe, Australia/Asia and South America. Global oil supply grew further when Russia embarked on drilling shale formation along with various Middle East countries. The high oil prices that existed during the decade of 2004-2014 were coupled with extraordinarily cheap capital in the last half of that period as central banks globally embarked on huge monetary easing campaigns in an attempt to boost economic growth in the central bank’s countries. The need to flood local markets with cheap money was mandated by the tepid pace of economic recoveries following the 2008 global financial crisis and the recession that followed.

The speed with which oil prices recovered in 2009 after governments around the world injected essentially “free” money into their economies shocked many observers. Those in the industry, however, assumed that 2008-2009 was merely an interruption in the long-term trend in oil prices that would soon take them back to and well above $100 a barrel. Between 2010 and 2014, global oil prices traded within a range of $80 to $107 a barrel, which signaled that the world was desperately short of crude oil supply to meet the projected growth in demand. High oil prices provided the cash flow necessary to explore and develop new supply sources, especially the high-cost ones such as shale, oil sands and offshore/deepwater resources.

One observer commented that if the industry had its own version of Rip Van Winkle who just happened to fall asleep in the summer of 2015 and awoke now in 2025, he wouldn’t recognize the industry today. Forget the days of the Seven Sisters, now the members of the global oil industry could be counted on the fingers on one hand. The last major wave of oil industry consolidation occurred at the end of the 1990s and right after the turn of the current century. In 1998, Exxon bought Mobil Oil while BP plc purchased Amoco (formerly known as Standard Oil of Indiana). Early the following year, BP snapped up ARCO, the former Atlantic Richfield. In 2001, Chevron bought out Texaco following its bankruptcy fiasco fallout from losing its lawsuit with Pennzoil over Texaco’s tortuous interference in merger negotiations between Pennzoil and Getty Oil. The following year, Oklahoma-based Phillips Petroleum merged with Houston’s Conoco and then three years later the combined company acquired Burlington Resources in hopes of becoming the king of the domestic natural gas industry. Unfortunately, the timing of that transaction came as U.S. natural gas prices peaked and fell from double-digit price levels to mid- and then low-single digit prices. Later ExxonMobil became the largest U.S. natural gas producer when it acquired the large independent, XTO Energy, a company almost totally focused on gas.

Now, the international oil industry was finishing digesting its latest merger wave. Royal Dutch Shell had successfully integrated its 2015 purchase of BG Group; originally the UK government’s British Gas Company that helped pioneer the development of the North Sea as a leading oil and gas basin. ConocoPhillips was neatly tucked in under the ExxonMobil wing helping keep its place as the world’s largest oil company.

Musings: A Retrospective View of A Restructured Energy Industry
History of Oil Industry Merger Activity


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