In the wake of the recently announced merger between US oil companies Texaco Inc. and Chevron Corp. and the announced $3.5 billion takeover of UK independent Lasmo PLC by another American major, Amerada Hess Corp., debate as to the implications of the continuing trend of consolidation within the international oil business has been reawakened.
To judge by a panel discussion of current merger and acquisition activity at a conference in London last week, the received wisdom that, in all matters corporate, bigger is necessarily better is coming under closer scrutiny.
Yet the consensus appears to be that the mergers and/or acquisitions that have or will relegate the likes of Amoco Corp. and Elf Aquitaine SAto the annals of oil industry history are just the latest in a cycle that took the form of hostile takeovers in the 1980s, shifted shape in the 1990s as one of any number of commercial arrangements going by the name of alliance, and is now, as either merger or acquisition, continuing apace.
Because Lasmo's erstwhile CEO Joe Darby, scheduled to speak at Global Business Network Ltd.'s conference on post-merger divestments, acquisitions, and consolidation, was an understandable no-show, the task of making the case for the future of the independent oil company fell to another speaker-Enterprise Oil PLC boss Pierre Jungels.
Jungels is sanguine about the future of the smaller independent E&P outfits in an environment ever more dominated by juggernauts. While he rails against London analysts who, he believes, are "obsessed with size" when it comes to a company's valuation, he feels no less positive about a post-merger world where portfolio overlap means there are "more assets on the market"-a boon to operators the scale of Enterprise and smaller.
The new world order in the oil and gas industry, Jungels acknowledges, will be made up of "fewer and bigger operators" driven by observers and analysts demanding "action" in a market where "steady as she goes appears to not be an option." But to what extent these companies are "better," he challenges, "is a matter on which we will continue to speculate."
Flashback to April 1997 when then-CEO of British-Borneo PLC Alan Gaynor was making similar noises as Gulf Canada Resources Ltd. swallowed Clyde Petroleum PLC. Gaynor countered suggestions of the independent sector's decline with the assertion that there was "a fundamental misunderstanding as to what exactly is happening, and a confusing of numbers of companies with the quality of companies" remaining in the sector.
Gaynor saw industrial survivalism as assuring the continued existence of independents as competition led them to become "more evolved;" British-Borneo was quietly taken over by Italy's ENI SPA in March. In the UK, there are 11 independents, and solidarity-if ever such a spirit existed-is looking rather evanescent.
That Jungles opened his speech with a reference to the captain of the aircraft carrier that survived Pearl Harbor, on whose desk sat the Victor Hugo motto "If there is only one left, I shall be the one," was never more telling of the future big picture for independent oil companies in this "eat or be eaten" business.