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Oil majors mull mega-mergers as they eye minors

Reuters

Fri Feb 13, 2009 9:30am EST

By Daniel Fineren

LONDON (Reuters) – Some of the world’s biggest oil companies have shown renewed interest in merging with rival majors during talks about buying smaller producers to increase their reserves, a banker close to the discussions said.

Oil prices have dived from a record last July of over $147 to around $35 a barrel, cutting big oil’s profits and making buying existing production assets more attractive than exploring for more.

The last oil price crash in the late 1990s sparked a round of mergers between the big international oil companies (IOCs), with Exxon (XOM.N) buying Mobil and BP (BP.L) buying Amoco.

It could happen again as the oil majors look to increase their reserves without poking around the globe for increasingly hard to reach resources at a time of uncertain demand.

“It’s an active point of discussion among the super majors and their leading banks about consolidation in the sector,” said Andrew Moorfield, head of oil and gas at Lloyds Banking Group (LLOY.L) in London.

“We see consolidation at the super-major level which will generally be stock, an equity deal, stock to stock. And we see consolidation at the independent level, which will be cash based,” he said in an interview.

When oil was trading at over $100 a barrel, smaller independent oil companies were attractive targets for bigger IOCs, and the smallest developers got ambitious bank loans based on potentially valuable, but unproven, reserves.

The slump in oil prices since last summer makes these assets likely targets for independent oil companies, which in turn look set to be gobbled up by the reserve-hungry multinationals.

“They are clearly going to be buying some larger independents. But the larger independents really don’t move the dial,” said Moorfield, who heads the bank’s energy financing operations.

“If they are going to meaningfully increase production, particularly at $40, it’s going to have to be a more sizeable merger. And if you have a more sizeable merger, then one is only left with other supermajors,” he said, adding that mergers between IOCs and state-owned oil companies were also possible.

The biggest six IOCs are ExxonMobil, BP, Royal Dutch Shell (RDSa.L), Chevron CVN.X, ConocoPhilips (COP.N), and Total (TOTF.PA).

(Reporting by Daniel Fineren, editing by Will Waterman)

 

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