SPE Member

Abstract

The monumental impact of mergers, acquisitions, divestitures and recapitalization within the oil and gas industry has dealt far reaching trauma well outside itself. This calculated rush over the past five years to substitute debt for equity and use cash to past five years to substitute debt for equity and use cash to reduce shares outstanding has gotten a significant portion of its capital from one of the industry's mainstays—drilling and exploration. One can directly relate this as being a primary component to the free fall in the national rig count and all its ensuing ramifications within an already ailing segment of the big picture: manufacturers of downhole tubulars and oilfield related picture: manufacturers of downhole tubulars and oilfield related service companies.

Introduction

The profile of the Petroleum Industry of the 80's is being sculptured by a myriad of mini and megatrends that will influence its future well into the next century. These trends I am terming an Industrial Evolution, and range from the major influences of world oil price volatility to the ever persistent influence of governmental and environmental parameters affecting drilling and exploration. These external factors just mentioned are very real and by their nature under minimal control by the industry as dictated by basic macroeconomic theory. There has however, been another trend at work ascribing more to macroeconomic theory and of the internally controlled variety. Furthermore, it is a trend that may very well outlast the current issues of declining per barren pricing of crude and the reams of environmental impact studies. pricing of crude and the reams of environmental impact studies. This trend is the economically and financially complex pattern of petroleum industry restructure and recapitalization that has been petroleum industry restructure and recapitalization that has been taking place most profoundly over the last 5 years.

This industry trend has had a ripple effect upon the "hands that feed it" as significant, if not moreso, than the one upon itself. These "hands" involve more people and dollars that the oil companies as a whole combined and run the gamut from mud and service companies through drilling contractors and oil country tubular producers.

The approach here will be to develop a framework of the industry restructuring which by necessity will be highlighted by merger-mania. Then we will evaluate some of the more meaningful critique of the trend as it relates to both the industry itself and its suppliers. And finally, outline what basic far reaching consequences can be expected as a result of these trends.

INDUSTRY RESTRUCTURING-EVOLUTION OR REVOLUTION

Opinions on the pros and cons of our industry's restructuring tend to differ as widely as, and in direct proportion to, the number of people involved in giving them. Although international commercial influences have waxed and waned for centuries, the early 1980's denotes what we see today as a concerted retreat from what can be called a growing diet in search of additional noncore related zeros on the income side of the oil company's balance sheets. The corporate decisions involved, if presented today and with the same circumstances prevailing, would in many cases still make sense. An essential flaw however, lies in what Mr. Lee Iococca so adroitly explains as the lack of any governmentally induced, Tong term direction rendering a cohesive national industrial policy. In other words, with the petroleum industry specifically in mind, the realm of the short term has taken on inordinate importance.

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