need to talk again,” said Mulva.
Months of negotiations followed. In November 2001, the two companies announced their merger, creating ConocoPhillips, the third-largest oil company in the United States with, in fact, the largest downstream system in the nation. Dunham become chairman. Mulva, who was now the CEO of the combined company, was very clear as to the purpose of this merger: “ We’re going to do this so we can compete against the biggest oil companies.”16
STANDING ASIDE : SHELL
One company was notably absent from the fray, Royal Dutch Shell, which had been, prior to the mergers, the largest oil company of all. There were several reasons. An internal analysis had concluded that the long-term oil price would be determined by the cost of new non-OPEC oil, which it pegged at $14 a barrel ; and so it used a $14 oil price to screen investments. It had also concluded that size mattered, but only up to a certain threshold. But there was a still more important reason—the structure of the company itself.
When Mark Moody-Stuart would introduce himself at conferences, he would say, “I’m the chairman of Shell. I’m also the closest thing you’ll ever see to a CEO of Shell.” That was the problem. Shell had a unique structure. Although it operated as one company, it was actually owned by two separate companies with two separate boards—Royal Dutch and Shell Transport and Trading. It had no CEO; it was run by committee. This was the compromise reached to carry out a much earlier merger, in 1907, and then modified in the late 1950s. This “dual structure” had worked well for many decades, but had become increasingly inefficient. The dual ownership also made it “very difficult,” as Moody-Stuart put it, to do a stock-based merger with another large company. In fact, it had made such a merger virtually impossible. During the merger years, Moody-Stuart had tried to push through an internal restructuring , but the reaction from many of the directors was, as he said, “quite stormy.” 17 Nothing happened. After all the mergers were done, Shell was no longer the largest oil company.
What had unfolded between 1998 and 2002 was the largest and most significant remaking of the structure of the international oil industry since 1911. All the merged companies still had to go through the tumult and stress of integration, which could take years. They all came out not only bigger but also with greater efficiencies, more thoroughly globalized, and with the capacity to take on more projects—projects that were larger and more complex.
Looking back a decade later on the consolidation, on this earthquake in the industry structure, Chevron CEO David O’Reilly observed, “A lot of it has played out as was expected. The part that hasn’t quite played out relates to the national oil companies. Are these larger companies competitive with the national oil companies?”18
When a minor corner of the world economy—the overleveraged Bangkok commercial real estate market—began to convulse, and the overvalued Thai baht began to plummet from speculative attacks, no one expected that the consequences would lead to an Asian, and then a wider global, financial crisis. Certainly none of the managements of the world’s major oil companies would ever have expected that the distress of this rather obscure Southeast Asian currency would trigger a collapse in the price of oil and the massive restructuring of their own industry. Yet more was to come. For the consequences would also transform national economies and countries, including one of the world’s most important oil producers.
5
THE PETRO-STATE
For oil-importing countries, the price collapse was a boon to consumers. Low prices were like tax cuts. Paying less for gasoline and home-heating Boil meant that consumers had extra money in their pockets, which was a stimulus to economic growth. Moreover, low oil prices were an antidote to inflation, allowing these countries to grow faster, with lower interest rates and less risk of inflation.
CRISIS FOR THE EXPORTERS
What was a boon for the consumers was a disaster for the oil producers. For most of them, oil and gas exports were the major source of government revenues, and the petroleum sector was responsible for 50 or 70 or 90 percent of their economies. Thus, they experienced sudden large drops in GDP. With that came deficits, budget cuts, considerable social turmoil, and, in some cases, dramatic political change.
The most dramatic change of all would be in Venezuela. Because of the scale of its resources, Venezuela could be described as the only OPEC “Persian Gulf country” not