Note that even this very bearish piece from the HOUSTON CHRONICLE says that oil industry consolidation will not impact OS pricing in the long run.
HoustonChronicle.com
Section: Business
HoustonChronicle.com Business forum
December 04, 1998, 09:55 p.m.
Mergers may squeeze out oil-services companies
By LOREN FOX
NEW YORK -- If there is one clear loser in the planned merger of Exxon Corp. and Mobil
Corp., it may be oil-services companies.
Exxon's chairman, Lee R. Raymond, in announcing his $75.6 billion bid for Mobil, said he
could conceivably cut $1.5 billion from the combined companies' capital spending of roughly
$15 billion.
That means less money spent on the companies that rent drilling rigs, evaluate rock, make drill
bits and provide the whole array of products and services that make the oil field work. Worse
yet, many observers believe the Exxon-Mobil merger, following the announcement of British
Petroleum Co.'s planned purchase of Amoco Corp., will spark a wave of consolidation
among oil companies, which will lead to further spending cuts.
Declines in capital spending have been a worry all year for the $85 billion oil-services
industry, as oil companies have cut back in response to depressed oil prices. Since the spring,
oil prices have lingered at 25 percent to 45 percent below typical levels.
"Spending will be down just because of low oil prices. But now consolidation will bring
spending down too," said Lehman Bros. analyst Paul Chambers.
Oil companies have been turning to mergers as a way to cut costs, as low prices have hurt
their operations. Last month, for example, independents Houston-based firms Seagull Energy
Corp. and Ocean Energy agreed to merge in a $1.1 billion deal that some observers viewed as
a combination of two weakened players.
Chambers expects global capital spending on oil services to fall 25 percent next year, a bigger
drop than the 10 percent to 20 percent projected by many analysts, partly due to the mergers.
He pointed out that three supermajor oil companies -- Exxon Mobil Corp., Royal Dutch/-Shell
Group and BP Amoco PLC -- would control close to 28 percent of all oil services spending.
Chambers said the market would favor the larger oil services companies, such as
Schlumberger Ltd., Halliburton Co. and Baker Hughes.
Oil mergers will mean short-term pain, said Arvind Sanger, an analyst at Donaldson Lufkin &
Jenrette Securities Corp. But he said spending cutbacks eventually will lead to less production
growth, which will help oil prices.
Sanger said larger oil companies won't have any greater pricing power in dealing with oil
services companies. "Pricing for services is driven by supply," he said. |
