The Rise of New Bodacious Independents

Abstract

Guest editorial As almost everyone knows, there has been a dramatic consolidation in the oil industry over the past 2 decades. However, many may not realize the extensive impact this shift has had on independent producers and how these companies have reinvented themselves in the face of change. Of 36 publicly traded independent producers in 1997, only 12 remained in 2007. Fig. 1 charts the growth of the remaining independents, mostly by acquisition, measured in enterprise value. A few have emerged as so-called "super independents," such as Anadarko and Devon, followed by Apache, Chesapeake, and XTO. To put these companies into perspective, Anadarko and Devon have grown individually to become the same size ChevronTexaco was 5 years ago and more than three times the size of Unocal when ChevronTexaco bought it 3 years ago. The chart also illustrates how the corporate landscape has changed since 1997. A decade ago, Unocal was the largest US-based independent. Today, Unocal and many other familiar names are gone. Some of these surviving independents have achieved stature on an international scale. If you were to combine Anadarko and Devon, you would create a company larger than the national oil companies of Spain (Repsol) or of Norway (StatoilHydro). The growth of these super independents is also evident in the size and complexity of the field developments they are willing to tackle. Consider the Chuck prospect in the U.S. Gulf of Mexico (GOM), a USD 100 million wildcat being drilled in 6,500 ft of water. Devon is operator of Chuck, with a 40% interest. The company and its partners, ExxonMobil, ConocoPhillips, and Maersk, are drilling through a substantial salt canopy, targeting a Lower Tertiary reservoir more than 33,000 ft deep, and the Chuck exploratory well is expected to reach total depth this quarter. The GOM's deep water is a frontier even for the super majors. Yet Devon runs second behind only Chevron in acreage within the trend. Despite the technological challenges that stretch the industry to the brink of its capability, Devon has flourished in the deepwater environment. So far, the company has been involved with seven wildcat wells in the Lower Tertiary. Four have been discoveries, two were unsuccessful, and completion of the Chuck well is expected later this year. Looking ahead, Devon has 18 additional Lower Tertiary prospects waiting to be explored. In July 2007, the enormous Independence Hub began producing natural gas from 10 separate deepwater fields in the eastern GOM. The hub's designers stretched the limits of conventional construction to build a platform capable of producing 1 Bcf/D of natural gas. The Independence Hub is more than a technological feat. As its name implies, the hub represents a new day, a new stature, and a new role for the nation's independent energy producers. It represents the collaboration of Anadarko, Hydro, Devon, and Dominion. The companies combined innovation and cooperation to achieve an objective they could not have accomplished individually.