The price of oil has stuck around $40 per barrel with no recovery in sight. As a result, major oil companies are combining to cut costs to ride out the effects of the COVID-19 pandemic. Here, the CEO of Ferrari Energy, Adam Ferrari, discusses mergers and acquisitions that could potentially occur within the oil industry, detailing the possible consequences.
ConocoPhillips and Concho
ConocoPhillips is the largest independent American oil company. However, their size hasn’t saved them, as their stock price has plummeted by roughly half in 2020. The company primarily operates in the Bakken Shale field of North Dakota and the Eagle Ford shale field in South Texas but seeks to expand into the Permian Basin, the world’s most lucrative shale field.
Concho has a strong presence in the Permian Basin, which straddles West Texas and New Mexico. Through the acquisition of Concho, ConocoPhillips will more than triple its 170,000-acre position in the basin by adding 550,000 additional acres. The merger serves as a remarkable feat, as ConocoPhillips will likely be unmatched in its scale. In regards to land alone, ConocoPhillips is adding enough acreage to compete with ExxonMobil’s already massive program in the region.
With oil production continuing to decline in the United States, it remains to see if the Concho acquisition will be enough to keep ConocoPhillips afloat through the remainder of the pandemic.
Chevron Acquires Noble Energy
Chevron’s acquisition of Noble Energy was viewed positively by investors and is generally believed to strengthen both companies involved. By seeking to add profitable acreage and shareholder value rather than distressed drillers at knockdown prices, this appears to be a movement centered around the future. Although Chevron took a substantial loss in the second quarter of 2020 due to impairments, the company still boasts a relatively healthy balance sheet.
Chevron is staying focused on the oil and gas sector in hopes that oil demand will recover over the next two years. If this does turn out to be the case, Chevron’s measures could prove to be fruitful. If the opposite occurs, recovery takes longer. Then expected or never coming at all, the move could prove too costly.
While it has generally been viewed as more favorable than the ill-timed Occidental-Anadarko deal. This has now been perceived as a poorly managed pursuit of a leveraged transaction. Analysts agreed that Chevron’s acquisition of Noble Energy has in no way been a home run. Major oil companies are making monumental moves in an attempt to mitigate the effects of the global pandemic. However, COVID-19 isn’t exclusively to blame for the hardships faced in the oil and gas industry.
With oil prices stuck at about $40 per barrel with no measurable end in sight, it remains to be seen if the moves made by Chevron and ConocoPhillips will be enough to salvage the company’s future in the long term.
About Adam Ferrari
Ferrari Energy is founded by Adam Ferrari his company is discovering the mineral acquisitions. He got a degree in chemical engineering and is an accomplished petroleum engineer by profession. Adam Ferrari is also involved in the financial sector based on his experience in an investment banking firm. He supported numerous charitable organizations under his leadership including St. Jude Children’s Hospital, Denver Rescue Mission, Coats for Colorado, Freedom Service Dogs, and Next Steps of Chicago.