More On The Unocal Sale

The Los Angeles Times has a useful article about the Unocal sale with a number of choice quotes:

The biggest projects today come with price tags in the billions of dollars —- with the largest among them projected to cost more than $12 billion, [Daniel Yergin, chairman of Cambridge Energy Research Associates] said. "You don't have to be big, but if you're big, your scale and size enables you to handle some of these projects more efficiently and to take on more risk."

Indeed, many of the biggest mergers were driven in part by the steady decline in production from the prolific and easy-to-tap fields like those on the Alaskan North Slope or in the North Sea, said Quoyeser, the Charles River vice president.

"When those hit peak oil and production started to decline, [the companies] needed to find the next game to play," Quoyeser said. The mergers that followed, he said, "were a recognition that the next wave of growth was going to come from different types of plays, like liquefied natural gas or tar sands, or in different places like Russia."

But the reality is that Unocal represents a company in a dying industry. Coupled with demand from India and China, the majors aren't replacing reserves by exploration, they're replacing them with buyouts of other companies. And the number of targets is dwindling yearly.

Matthew Simmons, chairman of an energy investment banking firm, says you don't have to be a major to be successful in the oil business.

"I am making the case that bigger is not necessary better, and if anything, bigger is a liability today," he said. "It's harder to grow."

Ain't it the truth.