October 26, 2023 [Texas Standard]- Back in 2021 the CEO of Pioneer Natural Resources said the era of consolidation among major oil and gas producers was largely over, forecasting a slowdown of mergers and acquisitions due to questionable future demand.
Fast forward to October 11 of this year – ExxonMobil announced a merger with none other than Irving-based Pioneer. Not two weeks later another major merger: Chevron said it was acquiring Hess Corporation for $53 billion.
Are we in a new era of Big Oil consolidation?
Joshua Rhodes, research scientist for the Webber Energy Group at the University of Texas at Austin, spoke with the Standard about why oil companies are consolidating and what it means for energy prices. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: So this new announcement from Chevron saying that they’re going to merge with Hess, what led to this deal?
Joshua Rhodes: Well, I mean, I think there’s a couple of things going on. You know, there’s a couple of ways of looking at this.
One is, if you think that the good times are going to continue, then you want to open up more access to more oil and gas. If you think that the good times are over and you want to consolidate or you want to reduce cost, you consolidate and you let personnel go and things like that.
So it’s a couple of ways of looking at it. But each way mergers and consolidations can help in this.
When you say can “help,” what do you mean can help in terms of the economic viability of these companies that are such a part of the Texas landscape?
All right. So if you look at these companies that are being acquired, they’ve got assets that are valuable, where you’ve got assets in the Permian that are valuable. We’ve also got offshore assets in South America that are valuable. And for these reserves, they can be very lucrative or can look very good to these companies that are coming in and trying to buy them.
I’m wondering if you think that the oil companies are sort of hedging their bets a bit. I mean, when when the economy starts to turn away from oil and more toward renewables – we’ve seen the rise, of course, in electric vehicles and that sort of thing – you start to see investors sort of pulling out and you have companies like ExxonMobil saying, “wait a minute, Pioneer could be a discount at this price. We’re going to swoop in and we’re going to be well positioned should things turn around.” Is this, in other words, a bet that perhaps that revolution, the energy revolution that a lot of people have been talking about, may not be all that some believe it to be?
May not be all – some believe it to be or maybe slower than some believe it was originally going to be. I mean, we are seeing, you know, the OEMs maker, the car makers kind of maybe tapping the brakes on some of their EV rollouts and things like that.
You know, things like charging stations and networks and things like that are not as not as easy as maybe people would like them to be. You know, one of the things about this, though, is some of the equity holders of energy companies have really gotten crushed compared to, say, the Nasdaq for the past while.
And so, you know, this consolidation could also be an exit path for some of the equity holders of these smaller companies. But yeah, so in such, may look like a good deal to these majors that when the dust settles would still be around to produce those last few barrels.
So as someone who watches this industry, what are you watching for? I mean, obviously you would expect that, if indeed we’re talking about the reshaping of the oil industry, we’re going to see more mergers and acquisitions here.
I mean, I think generally when you’ve got some uncertainty, this is one of the things you see. I mean, I think we’ll continue to see it. We’ve seen it in other industries like defense. So I wouldn’t be surprised to continue to see more M&A activity, mergers and acquisitions activity, in the near future.
Well, ExxonMobil and Pioneer, both major Texas players. Hess, based in the U.S. How different are these deals and what do they tell us about what the oil companies are looking for?
Yeah. So, you know, we have two Texas based companies, you know, but a lot of companies, whether they base in Texas or not, are going after Texas fields like the Permian. Some of these, you know, major plays as well… You know, Hess had a 30% stake in the oil fields off the shore of Guyana, which Exxon manages or owns. And so that kind of puts them in the same spot in those fields down there. You know, they’re saying it might be a thousand Gulf of Mexicos.
So, you know, it may not be over just yet.
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