O&G Business landscape at end 2023

The recent flurry of mega-deals and mergers in the oil and gas industry, such as Chevron's acquisition of Hess for $60 billion and ExxonMobil's purchase of Pioneer Natural Resources for $64.5 billion, reflects a changing landscape for oil companies. These industry giants are expanding their portfolios with a clear eye on the future. Their aim is to secure valuable drilling assets and maintain their positions as dominant players, despite the uncertainties surrounding the energy transition.

Chevron and ExxonMobil are using their shares to finance these acquisitions, instead of relying on costly debt. This strategy underscores their confidence in the continuing relevance of fossil fuels. Chevron's purchase of Hess provides them with significant assets, including offshore Guyanese production and the Bakken shale deposit in North Dakota. ExxonMobil, on the other hand, is set to double its output in the Permian Basin, a crucial shale area.

These acquisitions are part of what can be described as an industry "arms race." Major companies are racing to secure assets that will keep them competitive. The trend in capital expenditure (CAPEX) over the years underscores these shifting dynamics. Global CAPEX declined in 2020 but is now showing signs of recovery, with forecasts pointing to a 7.5% increase in 2023. High oil prices and strong demand for liquefied natural gas (LNG) are driving this revival.

Nonetheless, the long-term future for oil companies remains uncertain. The transition to cleaner energy, differing policies in the U.S. and Europe, and the mounting pressure to reduce carbon emissions will likely continue to influence CAPEX trends. Some oil companies are embracing decarbonization and low-carbon technologies, diverting resources from traditional projects. In contrast, state-backed national oil companies (NOCs) are positioning themselves to increase market share as Western companies face more scrutiny.

Adding to this evolving landscape is the possibility of a merger between energy giants BP and Shell. While nothing has been confirmed yet, rumours of such a merger are circulating. If it were to happen, this merger would create one of the world's largest energy companies and further reshape the industry. It would be a response to the need for scale and diversification, as these companies aim to navigate the energy transition while remaining profitable.

The differing policies in the U.S. and Europe play a significant role. U.S. supermajors like Chevron and ExxonMobil seem less inclined to shift toward renewables and are capitalising on the immediate profitability of oil and gas. In contrast, European oil companies have faced more pressure to embrace the energy transition and reduce carbon emissions. The long-term future of oil companies hinges on their ability to navigate these complex and sometimes conflicting forces. They need to balance shareholder returns, sustainability, and the evolving energy landscape. All in all, these acquisitions and CAPEX trends reflect the industry's ongoing transformation and its efforts to secure a place in a shifting global energy paradigm. The potential BP and Shell merger adds an extra layer of complexity and intrigue to this evolving narrative.