Bud's Offshore Energy (BOE)

With its acquisition of Pride, Ensco is about to become the worlds second largest drilling contractor (behind only Transocean). Further consolidation and a drilling boom are being predicted by giddy reporters.

Good luck to Ensco and Pride.  I hope the merger serves them well. My comments are not about them, but about the broader implications of oil and gas industry mergers.

1. Mergers reduce diversity. When two companies merge or are acquired, two opinions become one. The industry loses some of the diversity of thought that is so important in managing safety and environmental risks. There is no single perfect approach to conducting operations, and differences among companies lead to better operations throughout the industry.
2. Mergers reduce the number of participants in standards development and conferences.  Standards meetings no longer include representatives from Mobil, Amoco, Arco, Getty, Gulf, Texaco, Superior, Pennzoil, Sohio, and other successful companies that have been acquired over the past 30 years. Mergers among contractors, most notably in the drilling industry, and service companies have further reduced participation.
3. Cuts in combined research are among the “efficiencies” that can be achieved through mergers. When companies merge, research budgets seldom grow, and often decline.

New and expanding independent producers could fill the voids, but these companies tend to be less involved in industry-wide programs and projects. This needs to change and there are some encouraging signs.

There is a lot on the offshore industry’s plate right now including cooperative risk-management programs and a long list of standards projects. Hopefully, everyone will be able to maintain their focus on those needs, and the merger-mania will not be too much of a distraction.

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