Back in June of 2011, Marathon Oil (MRO) took the unusual step of spinning off its wholly-owned subsidiary, Marathon Petroleum (MPC). That went against conventional wisdom, which holds that diversification and integration are good things in oil companies. In many ways they are, but the recent earnings releases of the two Marathons showed a different approach to dealing with the current crisis in the oil patch, and the flexibility to do that may be more of an advantage right now than size and diversification.
The giants, such as Exxon Mobil (XOM) and Chevron (CVX) in the U.S., are integrated firms. They have interests throughout the life of oil, from exploration and production to retail gas stations. Under normal circumstances, that smooths the inevitable bumps that come with being in a commoditized business. When oil is falling, crack spreads are rising, so the company’s downstream operations’ increased profits offset the decrease from E&P to some extent.
As I am sure you don’t need me to tell you, though, these are not normal circumstances.
The complete collapse of crude pricing and the massive impact of the coronavirus shutdown on the global economy mean that for most oil companies, it is all about survival. That means cutting if not completely canceling dividends, massive cuts in capex, and closing a lot of existing wells. That is what the big boys have done, but the last two set up for possible future problems.