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Is it the End Game for Oil & Gas Super Majors?

Is it the End Game for Oil & Gas Super Majors?

In the 1990s, the Oil & Gas sector was shaken by a string of mergers that transformed the business dynamics of the sector. The seven sisters of the 1950s - BP, Esso, Gulf Oil, Mobil, Royal Dutch Shell, So Cal and Texaco along with some smaller entities in the sector, formed “The Super Majors”.

At present, everything seems to be picture perfect for the mega listed oil companies. The global energy demand is absorbing everything they supply, the price of oil is on a high, and the profits are sky rocketing. For instance, Exxon Mobil (market capitalisation of $ 417 billion), competes with Apple for being the most valued listed company. Royal Dutch Shell is recognised as the most valued firm on the London Stock Exchange, while Chevron has employee strength of 62,000 on its payroll.

But, a penetrative insight would reveal the real scenario. In the 1950s, the seven sisters controlled around 85% of the world reserves. Currently, more than 90% of the reserves are under state controlled national oil companies (NOCs). The NOCs used to depend on the technological competencies, project management capabilities, and accessibility to global markets of the mega international oil firms to produce, refine and sell their oil. However, things are different now. The NOCs are able to manage the process independently.

As a result, the super majors are increasingly dependent on oil which is difficult to access. The reasons could be many – geology (oil found offshore in deepwater’s), chemistry (oil combined with tar sands) and geopolitical (availability of oil in countries facing political unrest).

Though their large size, technical skills, and overall business experience enables them to manage operations in challenging environments, they are spending a huge amount of money for lesser output.

According to industry experts, the demand for oil is going to rise exponentially in the near term - more and more automobiles hitting the road, reduction in trade barriers means more global business opportunities and an increase in airline travel.

However, the majority of demand for oil is from emerging markets, and not the developed countries.

The automobiles available today are more fuel efficient, hence burn less fuel. The energy sector is looking at natural gas, which is a direct threat to oil. The NOCs are playing a dominant role in the energy sector.

Against the background of these factors, if the super majors are not able to cater to the rising demand or the demand for oil tapers in the near future, the increasing operational cost combined with lesser output would push them against the wall, and shrink their market share.

- Jess Potts

Jess Potts
Published on:
July 25, 2014
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