The worldwide oil industry is driving a frantic search for new, large capital projects to replenish a weakening supply of crude amid questions over the ability of top-tier producers to grow.
For nearly a decade, firms including ConocoPhillips and Royal Dutch Shell have been sitting on vast stockpiles of oil in the U.S. Gulf of Mexico and elsewhere. As early as next month, these companies and others could announce efforts to resume major new operations in the shallow waters off the coast of Florida.
But until they do, they are challenged to find ways to funnel billions of dollars into unconventional fields that hold the highest potential for oil and natural gas. It is a feat that has eluded them for years.
“In the long term, we believe that we’ll see some consolidation,” said Daniel Yergin, an independent oil analyst and vice chairman of IHS Markit. “It will be the case that, to regain growth, some of the traditional oil companies will have to merge. But that will probably not be the case in the short term.”
Shale, an oil-rich rock formation in the U.S. and elsewhere, is a challenge for so-called super majors. Oil is easy to extract but exceedingly hard to sell.
“The quality of that oil is so, so low,” said Doug Hock, a senior industry consultant with KBC. “There is a huge elephant hunt, basically, for these large assets that might allow some people to get scale.”
ConocoPhillips has been the most active in the New Mexico and West Texas fields of the Permian Basin, The Times found in a review of company and industry data. A ConocoPhillips spokesman declined to comment.
According to the Petroleum Consultants Association of Canada, ConocoPhillips made eight acquisition deals worth nearly $12 billion in the first three quarters of 2018.
Source: Petroleum Consultants Association of Canada
Shell, meanwhile, is moving toward a $52 billion deal to take full control of two companies operating in Brazil, a possible indicator of a willingness to strike more acquisitions. A Shell spokesman declined to comment.
A source with knowledge of Shell’s thinking told The Times that the company is under intense pressure to expand. The company has been plagued by troubles in its various upstream operations, from the steep drop in oil prices to tumbling gas prices.
“We’re totally focused on how to grow from here,” the person said. “You have to see some kind of opportunistic business combinations to help this.”
The potential for large deals is compounded by the scale of the industry’s historical portfolio rotations, The Times found. Executives say that unless the glut of lower-quality oil matures before the crash, the companies’ attention will need to turn to the sands of Brazil.
The Times turned to this New Mexico field to try to gauge the industry’s strategy. By all appearances, ConocoPhillips and others are not interested in the very resource they had earlier tapped for huge deposits, and then scrapped when it dried up. In 2001, ConocoPhillips sold half of its stake to BP for $40 billion; the company scrapped the sale in 2008 amid price declines. Last year, ExxonMobil did a deep dive into the Permian Basin, acquiring acreage in the region and spending $3.5 billion for a 50 percent stake in Rosneft, Russia’s state-owned oil company.
ConocoPhillips is also said to be disappointed with ExxonMobil’s acquisition of a Canadian oil sands project for $5 billion.
With the spring breakup of the eastern U.S. shelf, ConocoPhillips’s only other large prospect is in the Gulf of Mexico. But even in that remote area, the company has pressed ahead.