BP: Oil industry consolidation wave unlikely

OREANDA-NEWS. April 22, 2015. A wave of oil industry consolidation is not likely despite a recent series of mega-mergers, BP chief executive Robert Dudley said today.

"I don't see forces at work for a wave of consolidation, unless oil stays low for longer," Dudley said at the IHS CERAWeek conference in Houston, Texas.

Oil major Shell earlier this month reached a deal to buy UK-listed BG for \\$70bn. Late last year, the world's second-biggest oilfield services company Halliburton agreed to acquire its rival and the third-largest player Baker Hughes for about \\$35bn. The deals, particularly Shell's move to buy BG, triggered talk that other majors such as ExxonMobil may be on the prowl for mergers.

Dudley cautioned that the oil industry should brace itself for a "lower for longer" market as the nascent but booming US shale industry has proved to be "remarkably resilient." Weak demand in the world's second-biggest oil producer China, steady US output and prospects of higher Iranian supplies hitting the market following the recent advances in reaching a nuclear deal between world powers and the Islamic Republic are all pointing to a weak market, he said.

Dudley's comments on a resilient US shale industry echoed earlier ones by ExxonMobil's chief executive Rex Tillerson who compared the shale oil industry to the gas industry. While the US rig count has plunged by nearly half, the jury is still out on whether that will result in a significant drop in oil output or if the industry will replicate developments in the US gas sector where production has risen despite a plunge in the number of rigs, aided by technological innovations, Tillerson said.

Dudley also said US onshore shale operations will remain key for BP, and he ruled out any possibility of selling off those assets. BP is in the process of spinning off its shale business to a separate company. Starting this year the unit will separately report its income.

The current weak environment will lower exploration costs and prompt governments to offer better terms such as lower taxes, Dudley said. These measures will help oil companies sustain their drilling activities through the weak oil price environment, he said.

Dudley also warned of a "painful" process of restructuring aging fields in the North Sea following the collapse in oil.