Oil production companies in the U.S. keep consolidating
JUANA SUMMERS, HOST:
U.S. oil companies are betting that the world will use a lot more oil in the future, and they are betting with their pocketbooks by snapping up smaller companies in billion-dollar transactions. NPR's Camila Domonoske is here to explain what this means. Hello.
CAMILA DOMONOSKE, BYLINE: Hi.
SUMMERS: So, Camila, can you give us a couple of examples of the kinds of deals we're talking about?
DOMONOSKE: Yeah. Back in October, there were two enormous ones. ExxonMobil bought Pioneer for $60 billion. Then Chevron snapped up Hess for 53 billion. I should note these deals aren't final yet. They're still in progress. But those were the No. 1 and No. 2 biggest mergers announced in any industry last year. And since then, we've seen a lot more oil mergers - smaller ones, you know, just a few billion dollars - but a lot of them. And Andrew Dittmar, who's with the energy data company Enverus - he calls this trend historic.
ANDREW DITTMAR: I think you really have to look back to the late '90s, early 2000s, when you had the formation of the supermajors - things like Exxon merging with Mobil - to see a comparative consolidation in the oil patch.
SUMMERS: OK, Camila, but why is this happening?
DOMONOSKE: Yeah. The oil industry had really been expecting something like this for years now because there were a bunch of smaller companies, especially in the Permian Basin, this very prolific oil region mostly in West Texas, that were all doing similar things. I mean, the company that ExxonMobil is buying - right? - it's called Pioneer. And that's a very apt name because these small- and medium-sized companies really did pioneer the kind of oil production that fueled the Permian boom - things like fracking, new ways of making oil that gave a huge boost to U.S. oil production. So you had all these smaller companies - not necessarily small but not the giant oil companies that were out there figuring out how you do this. Austin Elam is a lawyer at Haynes and Boone, and he works on these kinds of oil transactions.
AUSTIN ELAM: And the expectation is once that matured, the larger companies would begin gobbling those companies up.
DOMONOSKE: So that was the expectation. It didn't happen for a while. Then COVID caused absolute chaos in oil prices - not a great time to do a big deal. But now things have stabilized, and so after years of waiting, it is gobbling time. Companies are snapping each other up.
SUMMERS: Indeed. And, Camila, what does this all mean for oil production?
DOMONOSKE: Right. You have the same amount of oil underground, whether you have a lot of little companies or a few big companies pulling it out. But it really can make a difference who's doing the drilling. The whole logic behind these mergers is that big companies are in some ways more efficient, right? So maybe they can get more oil out. Individual companies also have different goals. Like, ExxonMobil - it's particularly aggressive. It wants to get that oil out a lot faster than Pioneer was going to.
I don't want to make it sound like there's going to be a huge spike in oil production. Investors do not want that. If companies made too much oil, they would flood the markets. Prices would come down, and that would hurt profits. Big companies in particular are under a lot of pressure from investors on that front. But overall, with these mergers, they strengthen companies. We'll probably see continued gradual growth in the Permian. And the U.S., powered by the Permian is the world's top oil producer not just right now but ever in history, setting records for production. And that production is continuing to grow.
SUMMERS: I mean, Camila, this all raises the question, what do all of these mergers mean for climate change?
DOMONOSKE: Right. On the one hand, you have countries agreeing to phase out fossil fuels to avoid the worst effects of climate change, pivot towards electric vehicles, invest in renewable energy. And at the same time, these oil companies are spending billions of dollars to get bigger. People in the oil industry will point out that companies - bigger companies do a better job controlling things like methane emissions, a very potent planet-warming gas. So maybe there's a climate case that you want bigger companies making the oil that you use.
DOMONOSKE: But if you consider the fundamental question of how much oil and gas we use, these companies are betting that the world will keep buying a lot of it, signaling that they don't think a transition will happen as quickly as climate scientists say it has to.
SUMMERS: That's NPR's Camila Domonoske. Camila, thank you.
DOMONOSKE: Thanks. Transcript provided by NPR, Copyright NPR.
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