Mergers and restructuring in the world oil industry

Abstract

This study focuses on the world oil industry since the relevant markets are global. Mergers and acquisitions (M&As) in the petroleum industry reflect the accelerating rate of M&A activity worldwide. The basic change forces are: technological advances, globalization, deregulation, industry dynamics, pressure for economies, and favorable economic environments. The change forces have blurred the boundaries of industries and have multiplied the forms and sources of competition. M&As and restructuring have had positive influences in the performance of the economy. Since the 1980s, real GDP growth in the U.S. has been strong with only short interruptions. During the past 2 decades, almost 2 million new jobs per year have been created. Patterns in the oil industry have mirrored these changes in the economy as a whole, emphasizing technological improvements and cost reductions. Instabilities of prices and other increased risks in the oil industry have triggered M&As and restructuring. Financial analysis of the BP acquisition of Amoco demonstrates that even if a fraction of the estimated cost savings are achieved, market values will be increased. If five major mergers are completed, the HHI for the world oil industry will rise from a very low 389 to 581, still well below the 1,000 critical level specified by the regulatory authorities. Analysis suggests that the BP Amoco acquisition will have positive economic effects on the economy of Alaska.