logo  
Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?

Register
    

Major Integrated Oil & Gas: Standard Oil, Super-Majors, and Resource Nationalism

By  +Follow February 6, 2014 9:28AM
Share:
Tickers Mentioned:

Vertically integrated oil and gas companies, otherwise known as the “majors,” "big oil," or "super-majors," differ from the rest of the industry for the simple fact that their operations involve the integration of most or all aspects of the value chain, from exploration to marketing and retail.

Conversely, most of the industry is only involved in one of three streams. Drilling-exploration companies and independent producers constitute the bulk of the oil and gas industry’s upstream segment, while pipeline companies make up its midstream or transportation segment, and refiner-marketers represent the downstream segment, processing resources for any number of end-users, and handling the marketing and retail sale of petroleum products. Oil and gas services companies, for their part, are not tied by ownership to one specific segment of the industry but have the equipment and expertise that allows them to make profits from contracting out a number of services to all segments of the industry.

Vertically Integrated Oil Companies: When the Whole is Greater than the Sum of its Parts

Major-integrated companies stand apart for more than just their total or near-total ownership and operation of the entire supply chain (however impressive a feat of organization this might be on its own merits). “Big oil,” the so-called “super-majors,” are also significant because they are the most visible face of the oil and gas industry.

The huge market-caps and densely layered corporate structures of companies like ExxonMobil (XOM) , Chevron (CVX) , and BP plc (BP) exceed the capacities of many of the far-flung nation-states in which they operate, and the ubiquitous presence of retail gas stations brings big oil to the constant attention of the public — a level of exposure that can quickly become a public relations challenge when prices at the pump suddenly increase.

Victims of Their Own Size

Greater public presence can also backfire when the never-ending quest to secure reserve replacements goes catastrophically wrong and a company becomes synonymous with an environmental disaster. The archetypal (but by no means most recent) case is the Exxon Valdez catastrophe that occurred in Alaska back in 1989, an event whose name became a metonym for the company for many years. It was only with enormous effort and at great cost that the company was able to rehabilitate its image in the court of public opinion.

The broad range of operations of vertically integrated oil giants also makes them difficult stocks to assess. This is explained to some extent by the fact that majors do not spread themselves across the three different segments of the industry in equal proportion, but also because each segment operates according to very different parameters.

When looking at the income statement of an Exxon or a Chevron, then, it is important to keep in mind that fundamentals such as earnings-per-share, while still important, are less descriptively valuable than other metrics. Due to their size, integrated companies are not growth stocks, and this puts a premium on the size of the dividend payout. But more crucial still perhaps are a company’s reserve estimates and production statistics.

Upstream Operations Make the Rest Possible

In trying to form a preliminary sense of the long-term health of a big oil company, a good rule of thumb is to start with exploration and production results. No matter what else a super-major does, nothing will be more important than its ability to replenish reserves on a yearly basis. To put this into perspective, it is a common occurrence to see revenue from upstream operations subsidizing the other segments of a company.

The anxiety over replacement reserves is in part a function of the sheer size of integrated majors. As the industry rushed to consolidate in the 1990s, these companies found themselves having to exceed ever larger output expectations every year in order to please Wall Street investors. But a sense of urgency is also built into the very geology of the business, as oil and gas wells are by definition finite and diminishing assets.

The Era of Mergers & Acquisitions

Towards the close of the 1990's, a serious downturn in oil prices forced the industry into a period of consolidation. In an effort to hedge against price fluctuations and redeploy substantial cash reserves, the largest privately-owned major oil companies embarked on a spectacular series of mergers and acquisitions that resulted in the creation of several "super-major" firms. BP acquired Amoco in 1998, and ARCO in 2000, Exxon and Mobil merged in 1999, France's Total merged with Petrofina in 1999 and Elf Aquitaine in 2000, Chevron bought out Texaco in 2001, and Conoco Inc. moved in with Philips Petroleum in 2002.

The following are the six "super-majors" that emerged from this activity, with their current market-caps:

·         ExxonMobil (XOM)  - $392.60 billion

·         Royal Dutch Shell ($RDS.A) - $224.86 billion (Netherlands)

·         Chevron (CVX)  - $211 billion

·         BP plc (BP)  - $145.50 billion (United Kingdom)

·         Total S.A. (TOT)  - $128.07 billion (France)

·         ConocoPhillips (COP)  - $78.43 billion

Aside from creating some of the largest multi-national corporations the world had yet seen, the industry's transformation at the turn of the millenium also created new difficulties, particularly with regard to finding new reserves in order to replace diminishing ones. While these companies were more powerful, and had greater global presence, they also had to find and secure larger reserves in order to keep up with greater production output. To this end, all six of the super-majors found themselves initiating or deepening ties with unsavory, authoritarian regimes throughout the developping world.

But many of these projects would prove costly, both in terms of money invested as well as in the court of public opinion. Perhaps more importantly, however, was the fact that while the super-majors had their hands full solidifying production-sharing contracts with client regimes, back in the United States, technological advances were allowing independent exploration and production companies to tap into massive oil and especially natural gas reserves locked withing shale formations deep beneatht he surface of the earth. Unlike their larger relatives, they were able to do so in a low-cost and business-friendly environment, snapping up the best acreage, and leading in 10 short years to what is now ubiquitously known as the "shale boom."

Resource Nationalism in the New Millennium

The subject of replacement reserves is also intimately connected to one of the most serious challenges with which super-majors have had to grapple in the last three decades, and that is the relatively new form of resource nationalism that has, as if overnight in some instances, led to the creation of truly massive state-owned oil companies in rapidly developing countries like China, Brazil, and Russia.

Prior to the arrival of the state-owned super-majors, the world’s largest integrated companies were all more or less various concentrations of the leftovers of John D. Rockefeller’s Standard Oil Company, after it was broken up by the US Supreme Court in 1911 after serial violations of antitrust laws in the effort to establish an industry monopoly.

The state-owned companies operate in a very different environment than their free-market predecessors, primarily because their operatational goals are determined by the interestes of the State, and less by the whims of the market, or shareholders.

In the meantime, however, a whole new class of vertically integrated, state-owned companies has come online. Several of them trade shares publicly, and they are:

·         PetroChina Co. Ltd. ($PTR) - $273.60 billion

·         China Petroleum & Chemical Corp. (SNP) - $90.41 billion

·         Petroleo Brasileiro ($PBR) - $71.94 billion

·         Ecopetrol (EC) - $70.60 billion (Colombia)

·         YPF S.A. (YPF) - $9.14 billion (Argentina)

·         Petrobras Argentina SA (PZE) - $898.56 million

PetroChina is currently the industry’s second-largest entity, with a market cap of $276.48 billion. But there are other state-run giants that are even larger in size, though in some instances exact estimates are hard to come by. The Kingdom of Saudi Arabia’s Aramco has been said to be worth up to $10 trillion, while the National Iranian Oil Company has been pegged at as much as half of that. Russia’s Gazprom doesn’t trade shares on US markets, but is valued at around $100 billion, and the same goes for Malaysia’s Petronas, estimates at around $14 billion. There is also Petroleos de Venezuela S.A., whose size is difficult to determine in dollars, but can be guessed in a number of ways. For starters, in 2010 the company reported proven reserve estimates of nearly 300 billion barrels of oil, and over 20 billion cubic meters of natural gas.

There are also a number of oil giants that are partially state-owned:

·         Eni SpA (E)  - $80.61 billion, 30 percent-owned by the government of Italy

·         Statoil ASA (STO)  - $75.12 billion, 67 percent-owned by the government of Norway

·         Sasol Ltd (SSL)  - $$28.71 billion, partially owned by the government of South Africa

Super-Majors are Still Holding Most of the Cards

Despite their size, to say nothing of the size of the domestic reserves on which these companies sit, however, they are not likely to want to put their Western, free-market predecessors out of business any time soon.

In fact, the long-standing, wide-ranging expertise of the old guard is key to implementing much-needed infrastructure upgrades, as well as to obtaining the know-how and equipment necessary to tap what are widely believed to be unconventional plays with vast potential, whether these are located far offshore, or deep beneath the earth’s surface in shale and limestone formations.

This development is so significant for big oil because it raises serious obstacles to the preferred model of production-sharing contracts that were used to guarantee outright ownership over a significant percentage of the reserves from a project. The advent of these new and formidable negotiating partners does not by any means preclude the ability of big oil to continue being profitable and dominant for a long time to come, but it will certainly make for more equally-weighted arrangements than those to which companies have become accustomed over the years.

While big oil is probably not going to see its influence over and role in the global energy economy diminished any time soon, there is no doubt that the international scene is becoming a more restrictive and expensive environment in which to do business. But while these sprawling corporate entities may be more exposed to risk than their high dividend payouts and large treasure-chests would seem suggest, it is this bulk that also insulates them from seemingly momentous developments like the shale boom that many have suggested would be the undoing of big oil.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


Liked What You Read? Join Equities.com as a contributor and get eyeballs on your content FOR FREE!

Results for xom
Christian
1 Nov 14 02:15:29
RT @bored2tears: Exxon Mobil Q3 EPS of $1.89 beats by 18c. Revenue of $107.49B beats by $1.98B. $XOM #earnings #oil #stocks
Unknown
1 Nov 14 02:07:24
RT @bored2tears: (1/2) Before the bell: #Earnings from $ABBV $AXL $AON $AVIV $CBOE $CVX $CIR $CLX $COMM $D $DRC $DW $DRQ $XLS $XOM $GWR $GHC
Media Sentiment
1 Nov 14 01:49:55
$XOM received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 7
iHangout
1 Nov 14 01:37:40
http://t.co/l4qmOlz0qf chartguy89: Stock Charts: XOM 96.71 Stock Charts $XOM Exxon Mobil Corp. http://t.co/Mg2Netl04e
chartguy89
1 Nov 14 01:21:46
XOM 96.71 Stock Charts $XOM Exxon Mobil Corp. (NYSE) Last Updated: 11/01/2014 03:21:46 XOM Stock Chart - 1 Mon http://t.co/UPAIiki3YB
paul bratby
1 Nov 14 00:50:08
#Swing #Trading #Stocks for a living!! , Check out my full trade diary for recent trade on $XOM http://t.co/mdTzwOYmdM #nyse
iHangout
1 Nov 14 00:35:24
http://t.co/l4qmOlz0qf chartguy89: Stock Charts: XOM 96.71 Stock Charts $XOM Exxon Mobil Corp. http://t.co/JufkckvqwS
TalkMarkets
1 Nov 14 00:24:00
Results Pour In From $XOM, $COL, $SBUX, $GRPN And $LNKD http://t.co/5Rz5JTCuip
chartguy89
1 Nov 14 00:18:10
XOM 96.71 Stock Charts $XOM Exxon Mobil Corp. (NYSE) Last Updated: 11/01/2014 02:18:10 XOM Stock Chart - 1 Mon http://t.co/gdrSaTPRJ3
Sideways
31 Oct 14 23:34:57
RT @StockSignaling: Movers and Shakers: Trading on Major News: $CVX $NEM $GPRO $HD $UAL $DIS $C $MS $WMT $INTC $LNKD $TWTR $AAPL $XOM $CMCS…
Sparti
31 Oct 14 23:18:16
RT @StockSignaling: Movers and Shakers: Trading on Major News: $CVX $NEM $GPRO $HD $UAL $DIS $C $MS $WMT $INTC $LNKD $TWTR $AAPL $XOM $CMCS…
Stock Signaling
31 Oct 14 23:01:04
Movers and Shakers: Trading on Major News: $CVX $NEM $GPRO $HD $UAL $DIS $C $MS $WMT $INTC $LNKD $TWTR $AAPL $XOM $CMCSA #analyst #trading
Anthony Boerio
31 Oct 14 22:01:11
Oil baby, oil!!! Exxon, Chevron Earnings Top As Refining Profit Rises http://t.co/y880ytJy6c #IBDNews via @IBDinvestors $XOM $CVX
TalkMarkets
31 Oct 14 21:53:32
#ExxonMobil Q3 #Earnings Beat Estimates On Improved Margins $XOM http://t.co/KlTb0ZemQN
Leilani Pips
31 Oct 14 21:25:29
EARNING CALLS FRIDAY Exxon, Chevron post higher earnings despite drops in production $XOM $CVX http://t.co/yo84fab5jp
stockblaster14
31 Oct 14 21:08:49
Exxon Mobil Corp (XOM) 96.71 $XOM Refining lifts Exxon, Chevron at Investor's Business Daily - Fri Oct 31, 5:3 http://t.co/HCkynvJkFB
Marvin Clark
31 Oct 14 19:09:01
Halloween Treats: Financial Review $XOM $CVX $ABBV http://t.co/vFQDTDXLAm
TalkMarkets
31 Oct 14 19:09:00
Halloween Treats: Financial Review $XOM $CVX $ABBV http://t.co/pkvyODUwwH
L H Wood
31 Oct 14 18:47:52
“@JESMCT: What do these stocks have in common? $AMX $T $BA $CVX $XOM $GE $IBM $MCD $PFE $UTX $WMT Anyone?” DJIA and down YTD
Kevin G. O'Neill
31 Oct 14 18:20:36
.@ExxonMobil is taking your money and hating your planet, people, and #ClimateMarch. Wanna fight $xom? RT http://t.co/TfeohmGlug
J. Royden Ward
31 Oct 14 17:46:27
RT @FactSet: Energy sector saw largest jump in earnings growth for Q3 this week due to upside earnings surprises from $XOM, $CVX http://t.c…
MICHAEL FILLOON
31 Oct 14 17:41:30
Union workers ready for a fight with oil refiners http://t.co/yICRQP14So $RDS.A, $RDS.B, $XOM, $CVX, $MPC, $TSO http://t.co/wQxRXd7fof
INVEX Banco
31 Oct 14 17:30:09
Las acciones de $XOM y $CVX subieron por lo menos 2.3%, después de reportar por arriba de las estimaciones de los analistas
Stock Wire
31 Oct 14 17:29:49
Options Radar: Barrick Gold Corporation, Exxon Mobil, and Visa Inc $XOM http://t.co/78MmN0utIx
Jim McT
31 Oct 14 17:21:08
What do these stocks have in common? $AMX $T $BA $CVX $XOM $GE $IBM $MCD $PFE $UTX $WMT Anyone?
SwingTradeBot
31 Oct 14 16:39:06
Back above their 50-day moving averages - $INTC $HPQ $CSOD $GPRO $XOM $JBLU $SCHW $LNKD $EXPE $YUM $ARUN $PCLN $BITA http://t.co/KxsyVV6we5
FinSentS SP500
31 Oct 14 16:37:24
$XOM:US Exxon Mobil Q3 14 Earnings Conference Call At 9:30 AM ET #EXXON MOBIL CORP http://t.co/9V0peICjwm #SP500
Stock Wire
31 Oct 14 16:36:45
Exxon Mobil (XOM) Q3 2014 Results - Earnings Call Transcript (XOM) $XOM http://t.co/fSCGW6aKgC
Carolyn B Miciano
31 Oct 14 16:30:35
Options for dummies course http://t.co/qpxNEWAu2d $WFC $AXP $XOM
FinancePress
31 Oct 14 16:26:16
$XOM Exxon Mobil (XOM) Q3 2014 Results - Earnings Call Transcript (XOM): Exxon Mobil (XOM) Q3 2014 Results - ... http://t.co/U0QHdLOeUx
Stock Wire
31 Oct 14 16:15:07
UPDATE: Exxon Mobil Q3 Profit Beats Street View $XOM http://t.co/j6b62UrpYl
Stock Wire
31 Oct 14 16:15:06
ExxonMobil Q3 Earnings Beat Estimates on Improved Margins - Analyst Blog $XOM http://t.co/z7TAgPeS01
Carolyn B Miciano
31 Oct 14 16:03:41
Practical guide to selling Call options http://t.co/HtiLcRQ93k $WFC $AXP $XOM
Russell Barbour
31 Oct 14 15:50:38
http://t.co/dLuORqMf5z <<-- Three Real Traders That Make lots of MONEY! $GPRO $LNKD $UGAZ $GLD $XOM
Scott Wickman
31 Oct 14 15:42:15
RT @FactSet: Energy sector saw largest jump in earnings growth for Q3 this week due to upside earnings surprises from $XOM, $CVX http://t.c…
Stock Wire
31 Oct 14 15:38:05
Exxon Mobil 3Q Results Beat the Street $XOM http://t.co/CEXS3dwGor
Joshua McIntyre
31 Oct 14 15:34:45
RT @SAlphaTrending: Exxon Mobil (XOM) Q3 2014 Results - Earnings Call Transcript http://t.co/eKZsCo8IwN $XOM
BUZZ Just-In
31 Oct 14 15:32:39
See why these assets are trending in 1 watchlist $FB $AAPL $XOM Dow Jones $BABA http://t.co/OoolQ6VOm4
Seeking Alpha
31 Oct 14 15:30:02
Exxon Mobil (XOM) Q3 2014 Results - Earnings Call Transcript http://t.co/eKZsCo8IwN $XOM
Forex  News Insider.
31 Oct 14 15:16:31
Exxon Mobil (XOM) Q3 2014 Results - Earnings Call Transcript http://t.co/ooMiRV5zAB $XOM
FinancePress
31 Oct 14 15:14:14
$XOM Options Radar: Barrick Gold Corporation, Exxon Mobil, and Visa Inc: Options Radar: Barrick Gold Corporat... http://t.co/HhTZitaqCO
FactSet
31 Oct 14 15:05:29
Energy sector saw largest jump in earnings growth for Q3 this week due to upside earnings surprises from $XOM, $CVX http://t.co/ipehgKKITA
Forex  News Insider.
31 Oct 14 15:05:14
Union workers ready for a fight with oil refiners as contract set to expire http://t.co/rouWbonUw5 $RDS.A $RDS.B $XOM $CVX
Forex Signal
31 Oct 14 15:03:47
RT @MarketCurrents: Union workers ready for a fight with oil refiners as contract set to expire http://t.co/tBxkaZcUie $RDS.A $RDS.B $XOM $…
Forex  News Insider.
31 Oct 14 15:02:00
Exxon, Chevron Q3 results boosted by refineries, but resilience may fade http://t.co/T6hMkV6R6W $XOM $CVX
Quantpost Basic Mats
31 Oct 14 14:56:22
$XOM $CVX News: "Union workers ready for a fight with oil refiners as contract…" http://t.co/JVuC2HGLxk Board view: https://t.co/zzlnMoMX9d
MarketCurrents
31 Oct 14 14:56:21
Union workers ready for a fight with oil refiners as contract set to expire http://t.co/tBxkaZcUie $RDS.A $RDS.B $XOM $CVX
Finestra
31 Oct 14 14:53:32
Dow Jones ganó 1.13% colocándose en 17,390.52 unidades con las emisoras $INTC y $XOM liderando la sesión #mercados
KbestTrading
31 Oct 14 14:42:54
Exxon, Chevron Q3 results boosted by refineries, but resilience may fade $XOM $CVX http://t.co/oVYbXFa0Em
Consestimate
31 Oct 14 14:38:34
US STOCKS-Dow, S&P 500 end at record highs; BoJ move adds fuel to rally. $SPX, $XOM, $CVX. http://t.co/h1F8V3eFbe
				
				
By  +Follow February 6, 2014 9:28AM
Share:

Comments

 

blog comments powered by Disqus

About us

Equities.com is the most advanced interactive online social ecosystem for the financial industry, serving as a resource center and next-generation communication platform that connects self-directed investors with public issuers, market experts, and professional service providers and vendors. Registered members can leverage our exclusive proprietary research tools such as the Small-Cap Stars, which outperformed 90% of all small-cap mutual funds, and robust do-it-yourself E.V.A. research reports. The Equities.com Issuer Dashboard is the ideal tool to communicate and manage investor awareness campaigns to the investment community, as well as to access valuable resources to help your company grow.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.