The merger is already starting to transform the

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Unformatted text preview: world’s biggest oil firm – and, on some measures, the largest firm in the world. The merger is already starting to transform the world’s oil industry. Firms that were once considered big, such as Chevron and Texaco, are rushing to find partners. This is true even in Europe, where national champions have traditionally resisted pressures to merge. France’s Total announced in 1998 that it was buying Belgium’s Petrofina for some $13 billion (The Economist, 1998) and, more recently, Total Fina have also bought France’s Elf. Whilst some argue that this is just typical oil industry over-reaction to the bottom of the price cycle (for example, Euan Baird of Schlumberger in The Economist, 1998), others believe that the structure of the oil industry has altered irreversibly: “…the changes unleashed by the mergers look unstoppable” (The Economist, 1998 p74) Indeed, whilst there may well always be a role for the “scrappy entrepreneur” (The Economist, 1998), size is becoming increasingly important in the oil industry. It takes a great deal of capital and a “matching appetite for risk” (The Economist, 1998), to succeed in the Caspian or West Africa. Tackling a $6 billion project in China will be a huge effort for Texaco, with its revenues of some $50 billion. For Exxon Mobil though, which is four times that size, such projects will be, according to The Economist (1998), “small potatoes”. This section has highlighted the current global challenges facing the oil industry. Since the current study will focus on those petroleum companies operating in the U.K., the next section examines the effect of the worldwide challenges on the U.K. industry. The impact on investment decision-making will then be investigated. 3.3 THE OIL INDUSTRY IN THE U.K. In the U.K. there are approximately 257 offshore fields currently in production on the United Kingdom Continental Shelf (UKCS) and 12 under development. In 1999 in the U.K. North Sea, daily oil output averaged 2.69 million barrels per day including a contribution of some 89,000 barrels per day from onshore fields. In 2000, Wood 47 Mackenzie predicts that oil production will remain at this level. In total, North Sea production (including Norway) averaged some 6.15 million barrels per day in 1999. This is forecast to increase to an average of some 6.46 million barrels per day in 2000 (Wood Mackenzie Newsletter, February 2000). Since 1964, the industry has contributed significantly to the U.K. economy. It has provided, via taxes, £89 billion to the exchequer; significant employment, with currently 30,000 jobs offshore and over 300,000 direct and indirect jobs onshore (Foreword of The Oil and Gas Industry Task Force Report published by the Department of Trade and Industry, 1999); and in 1999 it was responsible for 36% of the U.K.’s industrial investment (U.K. Energy in Brief published by the Department of Trade and Industry, 2000). However, in the early 1970s the average size of a UKCS discovery was about one billion barrels of oil (Brown,...
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This document was uploaded on 03/30/2014.

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