(Petrolytic) – While Chevron’s acquisition of Noble Energy certainly feels like a bargain, and it undoubtedly appears that way, the deal could be indicative of a start to larger wave of consolidation. The oil and gas industry a year or two from now will most certainly look different than today. The consequence of such compression will be more formidable majors and less smaller independents. Even more, as Chevron CEO Wirth puts it, “it’s not a great market right now to be selling assets into. I don’t think you’ll see us rushing out to do anything until we feel like we have a decent market for the prospective transactions.” Regardless, the acquisition appears to be much more prudent, albeit smaller, than the Oxy-Anadarko deal.
As an aside, we sometimes wonder if the oil patch today is reminiscent of the industry in the 80’s and 90’s. Perhaps it echos of the past, however, the social climate has changed. And while fossil fuels will most likely remain a staple industry for the foreseeable future, especially as countries in Africa, South America, and Asia industrialize even further, there’s mounting pressure from ESG movements to become more generalized energy players. We tend to believe that a lot of this ESG noise is a symptom of a bigger issue – that is, slowing global growth. We hypothesize that the shift to sacrificing returns for global wellbeing is less about social responsibility and more about excusing the lack of growing investment returns. We’ll most likely begin to see CEO compensation tied to feel-good metrics like community responsibility, and away from tangible financial metrics of performance. What’s ironic, is these financial metrics of performance lead to community wellbeing (jobs, investment, infrastructure, etc). Those leading the ESG movement know this, but need an excuse for the deteriorating investment landscape. Again, our opinion (we support any form of energy that stands on merit).
Enough of the tangent (we’ll devote a post to ESG), below are an assortment of links to get you through the morning:
- API’s June Petroleum Fact at a Glance and Monthly Statistical Report
- TX RRC Commission Chairman Wayne Christian condemns oil dumping
- New Mexico proposes 98% gas capture
- EIA Financial Review of O&G Q1 – summary: lots of impairments
In any case, time will tell who will survive, but the industry needs to evolve (or end up like Blockbuster and Kodak). In our opinion, it needs to change in a way that maintains cheap, value-accretive, and easily accessible energy to those who need it most (cough, natural gas, cough). The human factor is absolutely priority number one. In closing, we highly recommend the Switch Energy Alliance’s pragmatic approach to the ever-changing energy landscape.