Yuri Barsukov on the wave of mergers in the US oil market

While Western countries are unsuccessfully trying to separate Russian oil from the global market with sanctions and price ceilings, significant changes are taking place on it. Thus, on December 11, the largest independent shale oil producer in the United States, Occidental Petroleum, announced the purchase of its competitor CrownRock for $12 billion. The announcement came two months after Exxon announced an agreement to take over Pioneer Natural Resources for almost $60 billion, and six weeks after Chevron and Hess deals worth $53 billion.

There hasn’t been similar activity in the Western oil and gas industry since the late 1990s, when a series of deals led to Exxon (after buying Mobil), BP (after buying Amoco) and Total (through its merger with Elf) taking their current forms. The concentration of capital and resources helped these major companies when oil prices began to soar in 2001 after about 15 years of low prices.

What is striking is that this time the mergers are only between American companies and mainly affect North American shale assets. Over the past year, there have been active rumors that Exxon or Chevron might try to absorb their European competitors (for example, in October, Exxon’s capitalization was four times that of BP, and twice that of Shell), but less attractive working conditions for European companies and the tiresome environmental agenda of the EU scared off Americans.

As a result, US companies have used record 2022 profits to acquire US shale assets that are as geologically and geopolitically safe as possible. The country’s shale industry, buoyed by thousands of small companies, now finds itself largely under the control of big players.

For the Russian reader, who has little interest in the fate of American shale fields, the consolidation trend may be important for this reason. Usually, although not always, waves of such mergers occur during periods of low oil prices, when competitors can be acquired relatively cheaply. And after that, often – although, again, not always – the price trend goes up.

There are also opposite examples: for example, Occidental bought Anadarko for $55 billion in 2019 and made a mistake, since oil prices collapsed in 2020 due to the pandemic. However, as a general rule, if people with a lot of money buy assets in their sector thinking they are cheap, they probably are.

Now Occidental, having not yet paid off its debts for Anadarko and ignoring shareholder dissatisfaction due to low dividends, is making new purchases, afraid of not keeping up with its larger competitors. It is unlikely that the management of Occidental, like the managers of Exxon and Chevron, would carry out such transactions if they were afraid of falling prices – rather the opposite.