Phillips-Conoco Merger Likely to Spark Further Industry Consolidation

BOSTON--A new report released by Strategy Analytics Inc., a research company that provides information and insights to help develop business strategies, the recently-announced Phillips-Conoco merger significantly increases pressure on the remaining mid-tier majors to merge or be acquired. Bartlesville, Okla.-based Phillips Petroleum Co. and Houston-based Conoco Inc. have announced plans for a $35 billion "merger of equals." Currently Phillips, the sixth-largest oil company in the United States, and Conoco, the eighth largest, intend to create ConocoPhillips, which will be the third-largest petroleum company in the country following Irving, Texas-based Exxon Mobil Corp. and San Francisco-based ChevronTexaco Inc. It will, however, become the nation's largest refiner and gasoline retailer. According to Randall Nottingham, director of Strategy Analytics' Energy Market Strategies (EMS) practice."Phillips' merger with Conoco will help move the company into the realm of the super-majors. Among other things, the merger will significantly increase ConocoPhillips' international exploration and production portfolio, refining capacity and marketing outlets," Nottingham said. In terms of marketing capacity, the merged ConocoPhillips will have approximately 17,000 service stations under its various brands, assuming no significant mandated divestitures. This would result in a 10-percent share of the market, making it the single-largest retailer of gasoline in the United States.As a result of these benefits to Phillips and Conoco, Nottingham noted that the merger will, "put considerable pressure on the remaining mid-tier majors, including Marathon Oil, Sunoco Inc. and Amerada Hess Corp. to merge with a complementary regional partner, or be acquired by one of the supermajors."Nottingham continued by noting that while the industry's consolidation trend is likely to spare some mid-tier and regional competitors, "The previously broad middle market is becoming a lonely place and the urge to merge will be increasingly hard to resist," he said.Strategy Analytics expects that at least one of these companies will be involved in a merger or acquisition by the middle of next year.