First Oil

No, there is no mirror-ball trophy for the winner, as in the popular American reality TV series, Dancing with the Stars. But in the ballroom that is the oil field, operating and service companies are taking creative steps in strategic efforts for survival and growth. The fox trots, waltzes and tangos performed by the leading oil industry players, through acquisitions, mergers and collaborations in just over the last 15 years, are quite fascinating.

In August 1998, BP announced a $48.2-billion merger with Amoco. Within three months, Exxon merged with Mobil in a mammoth $81-billion transaction. The Total + Fina + Elf merger took place in 1999 and Chevron + Texaco took the plunge in 2001. As a result, the oil industry suffered a major contraction to match the loss in demand for petroleum products. The combined Exxon and Mobil employment in 1998 was 122,700. The workforce dropped to 88,000 in 2008, and since then, has risen to 99,100 in 2012. The primary trigger for these oil company mergers in the late 1990s was a precipitous drop in the oil price from $90/bbl in 1982 to $12/bbl in 1998.1

The acquisition fever became contagious again in 2010 on the service company side, with Baker Hughes acquiring BJ Services and Schlumberger acquiring Smith International. These acquisitions were driven by a desire to fill major gaps in service portfolios. Baker Hughes needed a pressure pumping company to take advantage of the fracturing boom in the shale plays. And Schlumberger needed a drill bit manufacturer to offer the full complement of drilling services.

Another trend in the oilfield M&A has been collaboration. Partnerships are the norm in the high-risk international E&P projects. So, it was a natural extension for major international operators, such as Statoil, Total, PetroChina and Reliance Industries, to have farmed into the North American shale business by forming collaborations with the small U.S. independent shale operators. The outlier in this trend was ExxonMobil, with its outright purchase of XTO for $41 billion. The primary motivation for the IOCs was to get access to shale technology, and for the independents, to receive funds for leasing and drilling operations in the face of dropping natural gas prices.

In early December, Noble Energy and its local partners brought in Woodside Petroleum with a 9.66% working interest in the Leviathan project offshore the eastern Mediterranean for cash payments of $464 million. Noble is a great upstream explorer, with a string of wildcat successes in the Gulf of Mexico, Wattenberg field in the Rockies and the eastern Mediterranean. With Leviathan likely to be a LNG-export project, Noble needed a partner with LNG experience. As such, Noble, with its 30% working interest, will continue as the upstream operator. Subsequently, Woodside will come in as the LNG operator.

A similar collaborative process is underway among the service companies. On Nov. 5, Baker Hughes and CGGVeritas announced a collaboration, to integrate log-derived, near-wellbore geomechanical and petrophysical properties from Baker Hughes with calibrated seismic data from CGGVeritas to optimize well placement and completion design. Just ten days later, Schlumberger and Cameron announced a joint venture for subsea developments—bringing together reservoir expertise and equipment manufacturing to enhance subsea production.

Whether it is mergers, acquisitions or collaborations, oilfield companies seem to follow each other in acquiring partners and learning a new gig in quick succession. They would get “10s” from Dancing with the Stars judging panel of Len Goodman, Bruno Tonioli and Carrie Ann Inaba, if these judges knew anything about synchronized survival in the oil field. 

LITERATURE CITED
¹ Inflation-adjusted prices