4/06/2005

Oil Merger

Chevron Texaco is the US’s second largest gas and oil company and the fifth largest in the world. In a recent merger, Chevron Texaco purchased Unocal the US’s ninth largest gas and Oil Company. This is just one of many mergers and buyouts that Chevron Texaco has acquired in past months. With the price of oil at an all time high, many thought oil companies would be concentrating efforts and funds toward new explorations. What is on the horizon for the oil industries? If the largest companies gobble up the smaller ones will we be at the mercy of these large oil barons like Standard Oil in days gone by?

2 comments:

Fred said...

There are mergers going on in all types of businesses; oil is just one that everyone notices. I don't think we will have to worry much about a monopoly in the near future. The government, with all of its power and regulations will probably prevent that from happening. But then again, it is possible.

Dr. Tufte said...

No offense to Rex, but hyperbole is a good word to learn to describe his post and general sentiment towards oil companies as well (Fred's comment acknowledges this).

Firms acquire other ones because they can. This requires cash or other liquid assets (including their own equity).

You always need to remember that one of the biggest threats to the existence of any firm is liquid assets. These are an invitation to other firms to take you over to get those assets.

So any firm with lots of liquid assets has 3 choices: 1) spend them on some investment, 2) take someone else over, or 3) get taken over. Management obviously doesn't like the third option. The fact that ChevronTexaco took the second option probably means that they don't have a lot of investment options available to them right now. Perhaps they are buying Unocal's investment opportunities.