The Death of International Oil Companies

Could we be seeing the end of international oil companies? According to Professor Paul Stevens, a distinguished fellow in the Energy, Environment and Resources department at Chatham House, their business model is, and has been, failing:


“The future of the major international oil companies (IOCs) – BP, Chevron, ExxonMobil, Shell and Total – is in doubt. The business model that sustained them during the 20th century is no longer fit for purpose. As a result, they are faced with the choice of managing a gentle decline by downsizing or risking a rapid collapse by trying to carry on business as usual.”


While Professor Stevens attributes the fall in recent prices as a contributor to their failure, he believes their failures began long ago. According to him, their failures began before many governments and countries became serious about tackling climate change and the price of oil collapsed. He writes:


“The most recent iteration of the IOCs’ business model emerged during the 1990s and was built upon three pillars: maximizing shareholder value based on a strategy that provided benchmarks for financial returns, maximizing bookable reserves and minimizing costs partly based on outsourcing. This model began to face serious challenges as the operating environment changed. It is the accumulation of these challenges, on top of those evident since the 1970s, and the failure of the IOCs to adapt to them that indicates that their old business model is gradually dying.”


While the international oil companies have been able to weather the storm for the past 25 years, they are beginning to exhibit signs indicating their businesses are faltering:


“As well as poor financial performances, the symptoms include growing shareholder disillusion with a business model rooted in assumptions of ever-growing oil demand, oil scarcity and the need to increase bookable reserves, all of which increasingly lack validity.”


Professor Stevens goes on to explain the different strategies available to ensure their survival which include: shuffling their portfolios around, expanding diversification, rebuilding their in-house technology, and more mergers.

Regardless of the actions taken by these oil companies, none alone is great enough to deter the threat faced with their current business models. Oil companies can no longer just wait for oil prices to increase once again. They cycle of low and high prices is no longer attainable. These international oil companies must make fundamental business model changes or face their death.


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