Oil's great bust cycle is now nearing its one-year anniversary, and the time is now fast approaching when we need to plan for it's inevitable end and equally inevitable next boom cycle. But how will we know when that time is truly here? As I outlined in my book, we'll know it's begun when the avalanche of M+A activity begins in the oil patch and large multi-national oil majors and other privately capitalized funds begin their takeover frenzy of independent US oil producers.
As I look over the stock prices of many of these candidates, the time for that activity is not so long over the horizon.
It was in the oil bust of the late 90's where the oil patch last experienced its great consolidation drive – when Exxon merged with Mobil, Texaco was bought by Chevron and Amoco was taken over by BP. The economics that drove those deals resonate similarly today – low margins destroyed balance sheets and inflated debt positions. Today's independents simply cannot continue forever at near or under break-even oil prices, and the big wager for them was whether oil prices would recover in time to save their independence. With the latest Iranian deal, surprising increases (again) in Bakken production and Saudi Arabia breaking its all-time production record in June, the independents are looking like they are going to lose that wager.
Also let’s give the majors a chance to collect on their wager – that oil prices would stay low long enough to bring the…