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Financial Times: Oil ’supermajors’ ten years on: ‘Scandals at Shell and BP have shown how difficult it is to manage behemoths’

Published: January 9 2008 09:41 | Last updated: January 9 2008 09:41

Only ten years after “supermajor” entered the oil industry’s lexicon, the term is already showing its age.

At the start of this decade, once the industry’s mega-mergers were completed, the combined market capitalisation of ExxonMobil, Royal Dutch Shell and BP was around $700bn – nearly two-thirds of the global sector’s total. These days, the supermajors represent just 23 per cent. BP and Shell have been surpassed by Gazprom and PetroChina (floated in 2000) in a decade of tightening oil supplies and resurgent resource nationalism. One data point missed during the emergence of the supermajors between 1998 and 2000 was that they held less than 3 per cent of global proved oil and gas reserves. Meanwhile, the size gap with other western majors such as Total and Chevron has closed significantly.

For investors, the supermajors no longer constitute the sector. But they are big enough that growing upstream production and reserves is an immense challenge. Scandals at Shell and BP have shown how difficult it is to manage behemoths. Exxon’s much better record is one reason why its market cap is now higher than the combined total for the other two. Even so, it is hard to convince investors that bigger, especially on this scale, is necessarily better. Rising crude prices have lifted most energy stocks in the past few years – but smaller, specialised upstream companies and oil services firms have done best.

In this year of gathering uncertainty, the supermajors will be touting their defensiveness. But even this must be qualified. BP is undergoing major restructuring. Shell is making a big, expensive push into unconventional fuels.

Exxon is undoubtedly better placed as a yield stock. But its premium valuation already reflects this. Meanwhile, upstream growth is weak and the outsized refining margins that boosted profits in the first half of 2007 are unlikely to be repeated. For all three, the challenge of gaining access to enough new competitive resources to move the needle, and excite investors, remains. Ten years on, the “super” in the supermajors’ tag is starting to look, well, superfluous.

Copyright The Financial Times Limited 2008 and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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