Publications: Notes at the Margin

Too Big to Succeed: The Failure of the Multinational Oil Company Experiment (January 18, 2021)

 

The multinational oil companies formed at the end of the twentieth century by the mergers of large major oil firms were justified as necessary by the rising cost of finding and developing new oil reserves. Twenty-three years later, the forecasts that drove the mergers are considered to be incorrect, possibly some of the most disastrous errors of corporate planning ever. The scenario planning so valued by firms in the industry led to catastrophe as technological breakthroughs opened shale reserves in the United States.

 

Today, most investors have little interest in seeing oil companies diversify away from oil. Instead, increasingly the large investors seem to be demanding that oil firms concentrate on their core business—producing oil and natural gas—while boosting returns. Today, large investors take significant positions in companies, often demanding seats on their boards, and then seek actions that increase rates of returns. Here we discuss the likely deconstruction of the multinational oil companies. The justification for the existence of these "gargantuan" corporations no longer applies. Their financial returns have been poor, and the idea that large energy “conglomerates” are essential no longer applies. As pressures to address global warming increase in 2021, we will likely see large investors take on one multinational oil company after another, just as a wolf pack takes on a herd of elk, seeking out the weakest member and then attacking again after feasting on the first victim.

 

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