As the major oil companies divest properties in California, the role of independent oil companies grows in importance. California is one of only two states in the country where the major oil companies dominate drilling and production. It is important for the major oil companies to have a strong, vibrant independent presence. A healthy independent oil and gas presence in California assures the majors of the following in their divestment programs: Financially capable companies to assume plugging, abandonment and environmental liabilities; Responsible acquisition companies to assure that the major's reputations remain intact; and a competitive market place.
Independents have traditionally been risk takers in other producing areas, often leading exploration and development efforts and new technologies. A greater number of independents also assure more innovation in California's oil and gas operations. This paper documents the efforts of California independents over the past decade as they have successfully filled the void left by the major oil companies divestment of California properties. Further, it is demonstrated that the health of the oil and gas industry in California has improved by the emergence of these innovative and progressive California independent oil and gas companies.
The oil and gas industry has gone through a major transformation since the oil price collapse in 1986. The U.S. oil business has been particularly impacted in the past decade. The major oil companies have made a conscious effort to focus overseas where opportunities for major discoveries in new basins are possible. The U.S., containing mostly mature basins, can't fuel continued growth by the majors.
California has been uniquely impacted over the past decade. California is one of only two states (Alaska being the other) that is dominated by the majors. However, there has been a significant shift in the balance of power in recent years. In 1993 the major oil companies produced 71.6% of the State's production, while currently it has dropped to 66.0%. This decline has been hastened by the departure from the state by Unocal, Phillips, and Conoco. All of the remaining major oil companies have sold off significant numbers of properties during this period.
There are a number of reasons the majors have exited or divested from California. The primary reasons are as follows:
Lack of opportunities for growth
Better investment opportunities elsewhere
Perceived environmental risks
Perception of California as a business unfriendly state
Mature basins, with many small fields
Decision to concentrate on "core" properties.
As more and more properties are divested, it is important for majors and independents alike to understand the needs of the sellers and the buyers in order to efficiently transfer properties and satisfy the objectives of both parties.
The California oil industry has gone through a major change over the past ten years and the pace of change appears to be accelerating. Since the oil price collapse of 1986 significant changes have occurred as detailed below:
Exodus of Majors. Since 1986, three majors have exited from upstream operations in the state: Conoco (1993), Phillips (1996), and Unocal (1996). While each of these majors pulled out for their own particular reasons, the six reasons listed previously all played a part in the decision making process. In addition to the departure of Conoco, Phillips, and Unocal, the other majors have retreated to the South San Joaquin Valley.