Analyst says Phillips-Conoco merger will spark further consolidation

By the OGJ Online Staff

HOUSTON, Nov. 29 -- Strategy Analytics Co., Boston, says the recently-announced Phillips Petroleum Co.-Conoco Inc. merger significantly increases pressure on the remaining mid-tier majors to merge or be acquired.

Phillips and Conoco recently announced plans for a $35 billion "merger of equals" (OGJ Online, Nov. 19, 2001).

Strategy Analytics said the combined firm would be the third largest petroleum company (by assets) in the US, after ExxonMobil Corp. and ChevronTexaco Corp.

Randall Nottingham, director of Strategy Analytics's energy market practice, noted the combined firm would be the nation's largest refiner and gasoline retailer.

In terms of marketing capacity, the merged ConocoPhillips will have 16,664 service stations under its various brands, assuming no significant mandated divestitures. This would result in a 9.5% share of the market.

BP PLC would have 9.3% of the market, Motiva (Shell Oil Co., ChevronTexaco, and Saudi Aramco in eastern US operations) 8.1%, ExxonMobil 8.1%, Citgo Inc. 7.7%, Equilon (Shell and ChevronTexaco in the West) 5.4%, TexacoChevron 4.5%, Marathon Oil Co. 3.1%, Valero Corp. and Ultramar Diamond Shamrock Corp. 2.7%, Sunoco Inc. 2.2%, and Amerada Hess Corp. 0.6%.

Nottingham said the Phillips-Conoco merger will "put considerable pressure on the remaining mid-tier majors, including Marathon, Valero (Ultramar Diamond Shamrock), Sunoco, and Amerada Hess, to merge with a complementary regional partner, or be acquired by one of the super-majors."

He said while the industry's consolidation trend is likely to spare some mid-tier and regional competitors, "the previously broad middle market is becoming a lonely place and the urge to merge will be increasingly hard to resist."

Nottingham predicted at least one of those companies would be involved in a merger or acquisition by the middle of next year.

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