Are We Seeing the End of Big Oil? 230
Hugh Pickens writes "Cyrus Sanati writes in Fortune Magazine that up until now, it has been widely accepted that being bigger was better for oil companies, but the announcement that ConocoPhillips plans to break up into two separately traded companies, separating its exploration and production unit from its refining and marketing units, took Wall Street by surprise, raising uncomfortable questions about the future of Big Oil. 'That's because the exploration side and the refining side of the oil business have little to do with one another,' writes Sanati. 'Contrary to popular belief, Big Oil has almost no control over the price of oil these days. That power squarely rests with oil-rich nations that hold most of the world's oil reserves and the Wall Street banks and hedge funds that speculate and make markets in the oil trading game. So even though ExxonMobil pumps oil, it can't guarantee that its refining unit will be able to profitably process a barrel into gasoline or heating oil.' ... 'If the ConocoPhillips story is a success for shareholders, there will be calls to break up Big Oil just in time for the annual meetings in the spring. So by this time next year, it is possible that Big Oil will go the way of Rockefeller's once gargantuan Standard Oil — with the markets, not the government, forcing a break up this time.'"
Does this matter (Score:5, Interesting)
to anyone besides investors?
What I got from the article is that one really big company is becoming two merely large companies for market purposes. How does this impact any of us down here?
I was however relieved that this wasn't another "year of the electric car" type article and it had a fair amount of substance!
logical (Score:4, Interesting)
Any conglomerate should be split up. It just make sense. Like modular programming does.
The output of any division of a conglomerate should be accessible to the whole market, not just the big encompassing company that holds the division.
Letting companies grow bigger and bigger only leads to near-monopolistic situations, and eventually less choice for the consumer. :)
If, for example, Apple were split into two companies, one for software, one for hardware, this would probably lead to a much richer variety of products. And, also important, more opportunities for users to tinker
Re:logical (Score:4, Interesting)
How about we allow success.
Monopolies are not in and of themselves bad.
Only when they use their position unfairly should the government step in.
Strategy to limit liability? (Score:5, Interesting)
Sounds like a good way to limit exposure to unexpected costs associated with drilling. Sell the crude to the refining unit at cost of production and the drilling unit accumulates no profits that would be paid out as a result of a large spill. It would just go bankrupt, sell off any equipment it owns (if it owns any at all) and reform under a new corporate charter. Profit!
Re:logical (Score:5, Interesting)
If, for example, Apple were split into two companies, one for software, one for hardware, this would probably lead to a much richer variety of products. And, also important, more opportunities for users to tinker :)
Much as I hate apple, the tie in that have with software and hardware is one of the advantages they have over PC from (most) consumer perspectives. The operating system works nearly perfectly with the hardware because they define the hardware. They don't have to deal with a bazillion unique configurations.. only a few that they've chosen.
Apple splitting up this way would be a mistake on their part.
And I think what we draw from this is that in a lot of cases (especially cases where things are evolving) there is an advantage of being a big blob. I think where it makes sense to split something up is when the components stop evolving significantly (which may at this point be the case with oil). When a widget just becomes a widget, it makes sense.
Re:Markets?!? (Score:3, Interesting)
Re:With profits like these... (Score:4, Interesting)
It is probably just a crafty way to hide the hordes of money they are making...
I'd say it's more likely a way to seperate the reputations of the two units.
As oil and gas supplies dwindle we are being driven towards sources that are dirtier and/or riskier. Remember the deepwater horizon incident? remember the tar sands controversy? remember the fracking controversy? If you were running a consumer facing buisness would you really want to be associated with that?
Re:With profits like these... (Score:5, Interesting)
Not just hiding profits, also splitting liability. BP is going to be paying a lot for the oil spill. Wouldn't it be so much more convenient if they didn't own or operate the rig and could just blame it on a small company, which could then pay its entire $1M capitalisation in compensation and then go bankrupt?
You write as if you don't know very much about the oil business, at all. BP did not own nor operate the rig, TO did.
One problem you have not considered is your solution would probably have saved the gulf. TO and BP are multibillion dollar companies, and as such every interaction between them is handled almost lawerly, with infinite levels of ass covering and record keeping. As anyone who has ever worked in a situation like that knows, that leads to horrendous paralysis. Which is unfortunately exactly what you don't want on a drilling rig hovering over a 3 mile deep gas filled hole.
In your scenario, Mr Million dollar company says F U guys I'm hitting the big red switch and pumping the heavy kill pill downhole. Its only a million bucks not a billion. What actually happened was a lot of "you don't wanna be the guy who broke the billion dollar contract relationship" and "who is authorized vs who is liable to declare an emergency or not to" and "who gets to push what button when and why". Which is fine if you have all the time in the world, but if you don't then the platform blows up, everyones killed, and the gulf is flooded with oil, because you can sue individuals but you can't sue oil spewing out of a well.
Basically we have a super monopoly / ogliopoly situation now. That doesn't work so well. A bunch of little companies, even if a little artificial, would provide more efficient and safer operations overall.
Re:With profits like these... (Score:4, Interesting)
That's probably the most intelligent comment I've seen in this thread in all regards. Especially the point about locking people into futures trades.
And the original article is right -- oil exploration/production and refining have relatively little to do with each other. They don't even profit based on the same numbers. Production profits based on the market value of the particular type of crude. Refining profits based on the "crack spread", the difference in price between a particular refined product and its feedstock. Both fluctuate wildly and independently.
There is an "oil cartel" -- OPEC. But acting as though every entity involved in the oil industry, from multinationals to refiners, is likewise a cartel, is just plain silly. The amount of competition between different oil companies is huge. They're all selling basically the same product**, so they deal in very small margins, trying to out-optimize their operations relative to each other, with pure, raw scale being the way to keep their total profits up.
** -- There are some ways oil companies try to distinguish their products from each other, namely in how they market branded gasoline (not just commercials talking about additives or whatnot, but more in terms of marketing to retailers -- getting them to pay a small premium in exchange for services like delivery and whatnot).