Top energy firms' ranking reflects new competition

May 29, 2000
The most recent ranking of the world's 50 largest energy companies reflects a new competition with in the industry, as well as heightened emphasis on financial, international, and energy convergence.

The most recent ranking of the world's 50 largest energy companies reflects a new competition with in the industry, as well as heightened emphasis on financial, international, and energy convergence.

Click here to enlarge image

The Energy 50 ranking was unveiled last month by Petroleum Finance Co. (PFC), Washington, DC, (see table).

Based on the 50 companies' market capitalization, the list illustrates "a new competition in the energy business," the analyst said. In addition to its findings, PFC officials also observed several industry trends among the top energy firms.

PFC Chairman J. Robinson West highlighted these trends among the ranked companies:

*Financial, not volumetric measures, are now the key gauges of scale and performance.

*The industry is becoming increasingly international.

*Oil, gas, electricity, and services companies will all be actors on a growing but converging stage.

"The energy industry is being transformed," West said. "Energy companies and investors must understand the powerful forces driving change. The Energy 50 is a new and useful way to understand who the winners will be and why."

Rapid changes

There have been some notable, if not dramatic, changes during the first quarter and since the initial release of the Energy 50 rankings earlier this year, says PFC. In an effort to emphasize the "new business environment," the analyst resolved to rank the top 50 energy firms based on market capitalization. The leading five companies are all traditional oil and gas firms, said PFC.

Singled out as firms that were "rising up in the ranks"-but yet to make the Energy 50 list-PFC cited four companies that demonstrated "innovative approaches to the new marketplace." These were Calpine Corp., San Jose, Calif.; CMS Energy Corp., Dearborn, Mich.; and Kinder Morgan Inc., and Reliant Energy, both in Houston. Also, PFC said, "Certain European utilities are sleeping giants that are being awakened by EU [European Union] deregulation and will be players to reckon with."

Several state-owned energy firms, however, were not ranked on market value, the analyst said. These included Saudi Aramco, Venezuela's Petroleos de Venezuela SA, Mexico's Petroleos Mexicanos, Indonesia's Pertamina, Malaysia's Petronas, and Norway's Statoil AS.

To keep in step with the rapidly changing energy industry, PFC says it will be updating the Energy 50 list quarterly. Many companies, explains the analyst, will continue to actively pursue acquiring other firms, while others will disappear through takeovers.

"The rankings can change quickly," PFC explained, "For example, Enron [Corp.]'s market cap rose over 50% in January 2000 alone, as its broadband communications strategy unfolded."

Top trends

One of the most prominent trends among the top firms over the last decade, says PFC, has been energy convergence. "This convergence represents a fundamental shift for many firms from manufacturing oil-related productsellipseto becoming 'energy' service companies, selling units of energy-whether barrels, btus, or kilowatt-hours-in whatever form the consumer wants," PFC said.

Drivers fueling this convergence, says the analyst, include continuing deregulation and privatization. The analyst also sees companies' movement toward telecommunications as "the next logical step" as gas and power companies continue to converge. In fact, firms that have already made moves in this direction include Enron, Tulsa-based Williams, Houston's El Paso Energy Corp., and the UK's National Grid, says PFC.

Three of the top five share price performers-Enron, Williams, and Centrica PLC-are in the emerging class of energy and telecommunications (E&T) companies. As an example of the growth seen in the E&T sector, PFC cited Centrica, which made an announcement regarding its telecommunications and internet strategy in late February that moved its average share price up by about 32%.

"But hitching onto bandwagons in telecommunications and the internet is not the only guarantee for higher corporate valuations amidst the current dynamics at play in the energy sector and stock market," the analyst noted, citing Dynegy Inc.'s notable growth without any telecom-related announcements.

PFC said, "For the traditional gas and electric utilities, deregulation is driving them to pursue new strategies in the energy business. Faced with earnings pressures and the disappearance of their monopoly markets, they are seeking to build positions in other markets or in different parts of the value chain.

"All of these changes are transforming the marketplace and leading to huge new opportunities-and risks-for new and existing players. As traditional companies change they may undergo major revaluationsellipsewith big moves up the rankings."

Five energy companies have added their names to the Energy 50 list since it was first released earlier this year. These are Baker Hughes, Coastal Corp., Dominion Resources Corp., Dynegy, and FPL Group.