For energy companies, size matters

Revenue, assets, market cap, enterprise value – how to measure size, and why it matters

Across the oil & gas sector, the biggest companies are trying to become even bigger.

In industry jargon, this is called “consolidation”. It’s the combination of two or more companies that are each quite large themselves.

Consolidation has received a lot of attention since 2022, but it’s not a new phenomenon.

In perhaps the most well known example of consolidation, Exxon and Mobil joined forces in 1999. Of course, they were historically both part of John D. Rockefeller’s Standard Oil, but were forced to separate in 1911 after the U.S. Supreme Court’s antitrust ruling.

The Exxon and Mobil deal was valued at $81 billion when announced in 1998, which would be about $156 billion in 2024.

Just before Exxon and Mobil officially merged, BP and Amoco combined in a £30 billion deal in 1998, or around $98 billion in 2024.

Another big one was the combination of Chevron and Texaco, which was completed in 2001. The deal value was $39 billion at the time, or $91 billion in 2024.

In the past couple of years, we’ve heard of the combinations of ExxonMobil and Pioneer for $60 billion, Chevron and Hess for $53 billion, and ConocoPhillip and Marathon for $23 billion, among many others.

Image generated by Google Gemini via the prompt “two refineries on a desk, each made of Lego pieces, with one refinery made of many more pieces than the other”

It’s no surprise that Standard Oil got so big in the first place, and that today’s oil companies are rapidly trying to get bigger.

In Standard Oil’s case, there were some market control ambitions that aren’t available to today’s players.

(It’s easy to underappreciate just how much larger Standard Oil was compared to any oil & gas entity that has existed since. The US Justice Department won’t allow any oil & gas company in the future to even approach Standard Oil’s historic size.)

But even without market control, being bigger means having more financial resources. And in a market as turbulent as oil & gas, it helps to have a strong balance sheet and low borrowing costs so that you can ride out whichever storms happen to arrive.

The uncertainty around long term global oil & gas demand is increasing. When will demand for hydrocarbons peak? How quickly will demand fall off after the peak? Investors are grappling with these questions.

Oil & gas management teams are doing their best to argue that they’ll be the last one standing in a game of musical chairs, because they have the size and strength to push past competitors that will fail more quickly.

It’s not just oil & gas companies that care about size. We see the same thing in the investor owned utility space, where some of the most consequential investments of the US power system are occurring. In order for these companies to engage meaningfully in the energy transition, they need access to enormous amounts of capital, something that becomes much easier with size.

In this post, I want to talk about how exactly we measure the size of energy companies. We have metrics like revenue, assets, market cap, and enterprise value that are each widely reported, but also each tell us different things about the company in question.

We’ll go through examples of these metrics for different companies, and explain what we learn from each.

We’ll then close with a discussion of why exactly size matters so much in the energy space, and why these reasons are even more salient right now than they’ve been historically.