Big oil and the energy transition: Evidence from M&A

International Oil Companies (IOCs) represent a significant source of capital and expertise that could be deployed to contribute to the investment required to achieve the energy transition to a low carbon future. This paper sheds light on the current motivations for mergers and acquisitions (M&A) by the various energy sectors and focusses on policies and commercial contexts that would favour IOCs incorporating renewables into their core business. An empirical analysis of a twenty-year history of M&A in the energy sector, covering over 10,000 transactions, is complemented by an economic model that differentiates between investment for innovation and investment for scale and transaction benefit. The analysis confirms that in the case of renewables, IOCs are currently at the exploratory stage of business development and appear to be valuing innovation based on renewables on subset of their business. The analysis concludes that IOCs favour core investment in functioning competitive energy markets rather than in rate-of-return regulated assets, and that for IOCs in particular policies and market rules directed towards that end would favour both near- and long-term investment by them into low carbon energy.