3E Intelligence

In a recent post, we drew attention to David Strahan’s controversial prediction that “Western big oil companies are heading for liquidation”. Today, even the conservative Wall Street Journal is asking questions about the future of big oil.

According to the article written by Sacha Kumaria, senior advisor to the Center for Energy Studies at Cambridge University, “a growing number of industry voices suggest that the era of the vertically integrated supermajor may be over, and that IOCs have been unable to adapt to the new global business environment.

The article explains:

IOCs are facing both structural and cyclical challenges. Depressed oil prices throughout the mid- to late 1990s caused a period of low investment in new exploration by IOCs and nationalized oil companies (NOCs) alike, which has left many firms reliant on a relatively smaller number of “superfields” that are beginning to dry up. As the oil price has steadily risen, several governments — most notably in Russia and Venezuela — have responded by expropriating foreign-owned oil and gas fields for their own state-run firms, usually under the guise of environmental transgressions or tax irregularities.”

Confronted with the growing influence of the nationalised oil companies and the new geopolitical use of the energy weapon by countries such as Russia and Venezuela, the IOCs are “relegated […] to the role of an oil services provider like Schlumberger or Halliburton” but at very “punative terms” (Kumaria gives the example of Total’s deal with Gazprom over the Shtokman gas field).

And the WSJ article concludes:

With NOCs undertaking ever-more challenging exploration — Pemex, the Mexican state oil company, recently leased three semisubmersible drilling rigs which can operate in 5,000 feet of water — competition between oil services providers and IOCs to provide technical support will intensify. Such competition is likely to radically reshape the oil industry over the next two decades. Total’s deal over Shtokman may represent the beginning of the end of the supermajor.”

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