More oil company mergers seen on horizon
Mergers will continue to shrink the energy industry as the pandemic rolls into next year, giving fewer companies larger shares of U.S. oil output and threatening to further slash a workforce vital to Texas and Houston.
By mid-2021, there will be at least six deals among oil and gas companies, including one or two mergers among oil majors, two to three large independents taking over smaller players, and two or three mergers of equal-size
small and midsize companies, according to a forecast by global consulting firm Accenture.
Accenture predicts that half of the country’s onshore oil production will be in the hands of eight to 12 companies by the end of 2021, down from16 to 17 now.
“You can’t have 5,000 relevant players,” said Muqsit Ashraf, Accenture’s lead energy consultant. “There isn’t room for so many players.”
Energy companies have been joining forces since crude prices tumbled from more than $100 a barrel in 2014. The pace of mergers has accelerated after the pandemic strangled demand, sent crude prices to historic lows and squeezed company profits. U.S. benchmark West Texas Intermediate settled Monday at $42.84.
Among notable deals are Chevron’s nearly $12 billion ac
quisition of Houston-based Noble Energy last month and ConocoPhillips’ $9.7 billion takeover of Concho Resources.
The oil industry recognizes the benefits of consolidation, Accenture analysts said. Companies need scale to produce oil profitably at low prices, and larg
er companies can more easily accessWall Street capital and boost their footing in top-producing oil fields to remain relevant, Ashraf said.
“Consolidation fortifies these companies to withstand the onslaught of low oil prices,” Ashraf said.
But the mergers, while helping to boost production, leave behind a slew of redundant positions that eventually are elimi
nated, said Manas Satapathy, Accenture’s managing director for energy mergers and acquisitions.
“Companies are thinking about squeezing out a lot of inefficiencies and costs,” Satapathy said. “They’re asking why do we need so many managers in the Permian?”
Energy companies already have laid off 17,500 drilling-relatedworkers in theHouston region since 2018, with more than 70
percent of those cuts made during the nearly yearlong pandemic, according to the Texas Alliance of Energy Producers. While it appears the number of job losses stemming from the pandemic is slowing this fall, more mergers will simply add to the area’s gloomy jobless situation.
Analysts have said they’re unsure how long the current wave of consolidations will last, given the difficult economic conditions and Wall Street’s unwillingness to extend capital to the struggling energy sector. Investors worried about company spending, mounting debt and dwindling returns have pulled out of the energy sector, which this year has become the worst performer of the S&P 500 stock index.