Looking at oil and gas, the industry seems to be at consolidation Stage 3. Major M&A activities have been experienced in the recent years. Exxon’s acquisition of Mobil (1999), BP acquiring Amoco (1998) and Arco (2000), the merger of Chevron and Texaco (2001) as well as the recent Philips Petroleum and Conoco merger are the most eye-catching events. The three major players in the oil and gas industry – ExxonMobil, Royal Dutch/Shell and BP – today own roughly 50—55% of the entire industry.

However, an even deeper study of the industry reveals that oil and gas sector is at different stages of its consolidation, depending on the major value chain segment. To analyze the oil and gas industry, three industry segments can be differentiated:

Oil and gas downstream is situated in the scale phase. For downstream players regional closeness, and fulfillment of market and customers specifics is crucial. That is why some local downstream players scale up to create regional leaders. A leading geographical position accompanied by strategic advantages or regional specialization arising from the closeness of the downstream business to its local customers is perceived by these companies as the winning strategy to withstand the increasing consolidation pressure of global majors.

Orlen or MOL are good examples for downstream-driven companies in Stage 2. Orlen’s acquisition of BP’s North German retail network has to be seen in this context as well as the expected initiation of regional partnership in downstream, enabling Orlen, MOL and OMV to capture and defend a leading regional position in the mid-term.

However, future success of all three companies will depend on their ability to compete against global industry leaders. A survival of focused downstream players is more than unlikely as they mark most attractive targets for global industry leaders to further sweeten their global oil and gas portfolio.

Also for oil and gas upstream the industry is still relatively dispersed. Risk sharing in E&P as well as high investment requirements in this segment are expected to further trigger consolidation and to focus on highly attractive assets and resources. Access to strategic resources as well as financial and technical capabilities are the key prerequisites in this segment.

Gazprom has already been identified by global integrated industry leaders like Royal Dutch/Shell as one of the most attractive acquisition targets in this region. First negotiations between the Anglo-Dutch industry leader and Russian authorities are underway. The sale of major stakes in Gazprom to the external investors would further open the Russian market.

Integrated oil and gas entered Stage 3 of the consolidation curve. In this segment, the titans of the industry emerge. Only few East European companies like YukosSibneft or LUKOIL are expected to compete on equal terms. Here, the consolidation is not so much a question of mega-mergers as the selective exchange of business units. However, being successful in the past does not mean to be on the winning side for the future. The East European market leaders are already identified as preferred targets for some global industry leaders.