Peak Oil is You
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Page added on April 7, 2015
The world’s largest oil companies are about to start devouring each other
It was only a matter of time.
The Wall Street Journal reports that international oil giant Royal Dutch Shell is in talks to buy BG Group, a giant shipper of natural gas with extensive holdings in Brazil’s oil fields. It may be the opening shot of a consolidation war that many have been expecting.
The reason, of course, is the collapse of global oil prices over the last year. Still, most expected that if a merger mania were to break out in the energy industry, it would be primarily focused on smaller cash hungry companies that have seen their valuations slashed by the collapse of crude oil prices.
A deal between BG, which has a market value of roughly £31 billion ($46 billion), and Royal Dutch Shell, whose value hovers around $193.4 billion, would be a merger of a different order. It would leapfrog Chevron as the second-largest publicly traded oil entity on earth, behind Exxon Mobil.
Royal Dutch Shell’s motivation is clear. It’s making a bet, in part, that BG’s oil and gas holdings look cheap. (BG had to write down the value of its assets by $9 billion recently to reflect the decline of energy prices.) But the deal is risky too. BG Group partnered with Brazilian oil giant Petrobras to develop its highly productive fields in the South American nation. And with Petrobras increasingly distracted by a widening corruption scandal, it raises the prospect of disruption for BG. Elsewhere BG’s giant investment in Australia aimed at converting and exporting natural gas has also been jolted by the sharp changes in energy prices.
Of course, this deal might never come to fruition at all. But given the massive jolts in the energy markets it likely won’t be the last you hear about energy M&A over the next few months.
13 Comments on "The world’s largest oil companies are about to start devouring each other"
Bandits on Wed, 8th Apr 2015 5:19 am
This is natural ! If you didn’t know that this was the the inevitable outcome of a finite resource, then you haven’t been listening.
Mergers, takeovers, consolidation, synergies, bankruptcies, buyouts are all buzzwords or affirmations that will be heard increasingly from now on. It really sounds like like the gig is up, it’s a race to the bottom, last man standing and all that of sort of stuff…….nah just kidding, party on, electric cars are the answer.
If your ducks are not in a row or you have no preparations then may pity help you……and me.
Makati1 on Wed, 8th Apr 2015 5:34 am
And just imagine all of those resources just sitting in Russia waiting to be plundered … if only they didn’t have nukes and Putin. LMAO
OFT on Wed, 8th Apr 2015 6:30 am
The BBC reports that this deal is agreed, and they quote a combined market value of the new entity of 296 Billion USD.
Importantly for Shell, it provides defence against take-over bids, plus an increase in of ‘25% to its proven oil and gas reserves and 20% to production capacity’. Expect more cost cutting and consolidation, plus short term joy for shareholders and of course the executive directors.
http://www.bbc.co.uk/news/business-32213341
rockman on Wed, 8th Apr 2015 7:00 am
I should have hit the front page first. Here’s a bit of my post that just went to one of the threads:
BBC reports the acquisition will increase Shell’s reserve base by 25%…a truly impossible achievement by drilling new wells alone. I’m sure Shell could have acquired Chesapeake for much less. But what Shell (and all the other Big Oil’s) desire is long lived PROVED PRODUCING conventional reserves. And thanks to the high decline rates of the shales, that ain’t Chesapeake. Recall Shell abandoned the US shale plays back when oil was around $100/bbl after pissing away around $2 billion in the Eagle Ford Shale play. And it ain’t just about oil: the international LNG market has gotten soft in recent months. BG apparently has significant LNG resources with an eye on the Chinese market.
Given the political instability in the world as well as the sometimes totalitarian attitude of national oil companies one might think the focus would be on US production acquisitions. But, again, the same problem: short life of relatively small reserves. The Deep Water GOM might be viewed as an exception. Big reserves, of course, but still relatively short lives of 6+ years once they start producing. Those fields are more likely targets of company divestitures during hard time. Consider Devon: when the NG price collapsed and horizontally drilling hales nearly killed this company they began selling off assets in order to keep their lights on. This included DW GOM, Brazil and African properties. Unfortunately Devon used much of that new capital to make the biggest oil/NG acquisition in 2014: $5.5 billion to buy into the Eagle Ford Shale play. Needless to say Devon is back to bleeding from its ears.
joe on Wed, 8th Apr 2015 8:24 am
Worth noting a future story that everyone seems to have missed. Saudi is looking to hire US tight oil drillers laid off. With growing domestic demand and little chance of a massive increase in easy oil it’s logical that those resources are reserved for maximum profit. They will however need to refine what they dig up. Tight oil is also a mining operation not a gift from the ground for the king. Foreigners will be preferred over a domestic Arab driven industry. Easier to manage, no need for Arabs in arabia to learn that they have rights etc. In terms of peak easy oil it’s clearly going to drive Saudi choices.
Plantagenet on Wed, 8th Apr 2015 10:44 am
When its cheaper for Shell to buy oil reserves by buying another company then to find it on their own, of course they will buy another company. Look for more big mergers before this oil glut is over.
BobInget on Wed, 8th Apr 2015 1:34 pm
http://www.eia.gov/forecasts/steo/pdf/steo_full.pdf
Roughly 60% of European oil demand is for transport (with the majority being gasoline and diesel), this means it is likely that Europe will experience growth in oil consumption this year should current growth in auto fuel sales continue. If we were to assume 2.5% growth in European oil consumption in 2015 due to low prices in addition to improved economic activity that would increase European oil demand to 14.5m from 14.13m in 2014 or a 370K barrels increase. If we opt to be yet more conservative and assume only 300K increase (2.1% growth over 2014) this would increase global demand for oil this year by 30% from 1m barrels to 1.3m barrels.
Based on the demand trends I see in Europe, US and Asia global oil demand this year is probably being underestimated by 600K to 800K barrels. I expect the EIA/IEA and OPEC to revise their oil demand estimates materially higher as we progress through the year.
Regards,
Nawar
Mike989 on Wed, 8th Apr 2015 5:54 pm
Consolidation makes sense if oil had a future, it doesn’t.
Solar, Wind, EV’s and battery’s hitting geometric growth rates. Electric power to drop to 2 cent per kWh in less then 10 years.
That’s why the move to Fossil Free Index funds is growing. Carbon is a Dead End.
Only a FOOL fights a geometric curve.
Davy on Wed, 8th Apr 2015 6:12 pm
Mikie, is telling funnies again. Ha ha ha. Mikie geometric of little is little. Your AltE’s have not made a dent in FF’s. You have lowered FF’s growth slightly that is it. Plus Mikie, what about liquid fuels? Your battery situation is still poor. Come on and get real wonder boy.
Nony on Wed, 8th Apr 2015 7:09 pm
plant: I think even I am getting sick of the glut remarks. And I’m a cornie troll.
OK…you were right, it is a glut. Who cares. It will work itself out so that the maginal barrels exit and the futures curve becomes more normal shaped, in a few months.
Dredd on Thu, 9th Apr 2015 9:21 am
Oil-Qaeda gives new meaning to “I’ve got your back.”
Ken300 on Thu, 9th Apr 2015 9:29 am
OIL companies need to transform themselves to “ENERGY” companies and move away from fossil fuels and expand their use of alternative energy sources like wind and solar.
Climate Change is real … we can deal with the cause or we will deal with the impact.
Pope Francis’s edict on climate change will anger deniers and US churches | World news | The Guardian
http://www.theguardian.com/world/2014/dec/27/pope-francis-edict-climate-change-us-rightwing
Head Of The Episcopal Church Says It’s ‘Sinful’ To Ignore Climate Change
http://www.huffingtonpost.com/2015/03/26/katherine-jefferts-schori-climate-change_n_6949532.html?utm_hp_ref=green&ir=Green
GregT on Thu, 9th Apr 2015 9:53 am
Mike said:
“Carbon is a Dead End.”
Yes it is Mike, and so is the electric grid that fossil fuels built, as well as modern industrial society itself.