What is a supermajor? How many are there?

edited February 15 in General

When reading newspapers and watching the news on TV I hear the word supermajor a lot, but never found a proper formal definition. What's the history behind it, and is there some kind of threshold needed to attain supermajor status? I mean, who would decide that?

I realize that the term is used for the biggest oil companies in the industry, the global operators. Is there a set of rules or criteria involved, and could any oil service company rise up to this status if they get big enough?

Comments

  • Broadly speaking, supermajor is the term used for the world largest publicly owned oil companies. When we see the word used, we immediately think of companies such as Shell, BP or ExxonMobil.

    Here are the names of the 6 companies widely accepted as supermajors:

    • BP (UK)
    • Royal Dutch Shell (UK + Netherlands)
    • Chevron (USA)
    • ExxonMobil (USA)
    • Total (France)
    • ENI (Italy)

    I also had never researched the history, so got curious about your question and did so.

    As you're probably aware, the oil and gas industry is cyclical, and just like most industries experiences booms and busts. What happens is that many businesses fail, and get bought up by larger ones. Whilst large companies benefit from economies of scale, they also get so large that a downturn can cripple their finances and make them vunerable to takeover bids.

    This has always happened, and just like in the banking and mining industries, over time the biggest companies become enormous as they are able to secure financing to 'cannibalize' their suppliers and competitors. This is done through the more palatable process and term of 'mergers and acquisitions'

    The supermajors were created between 1998 and 2002 when a series of huge mergers occurred. In what seems like very recent history to many of us, the price of oil went from $120 Bbl in April 1980, down to $21 in October 1998. The initial steep drop at the end of 1985 was followed by a few years of apparent stabilization, followed by a 'double dip' or 'second leg down'. Take a look at the historic chart.

    It's no surprise that such violent and sustained drops in profitability would produce business failures and created mergers and acquisitions.

    Here are the major events between 1998-2002:

    • Exxon's merger with Mobil (1999) forming ExxonMobil.
    • Total's merger with Petrofina (1999) and Elf Aquitaine (2000), then renamed Total S.A.
    • BP's acquisitions of Amoco (1998) and ARCO (2000).
    • Chevron's acquisition of Texaco (2001).
    • The merger of Conoco Inc. and Phillips Petroleum (2002) forming ConocoPhillips.

    This consolidation is far from a recent phenomena, in fact the name 'Seven Sisters' was applied to the biggest companies from the 1940's to the 1970's:

    • Anglo-Persian Oil Company (now BP).
    • Royal Dutch Shell.
    • Texaco (now Chevron).
    • Gulf Oil.
    • Standard Oil of New Jersey (previously ESSO).
    • Standard Oil Company of New York (SOCONY and now ExxonMobil).
    • Standard Oil of California (SOCAL).

    This group was also known as the consortium for Iran, and before the 1973 oil crisis controlled more than 80% of the worlds oil reserves.

    Another term used to describe these companies is simply 'Big Oil' and this generally has negative connotations. Journalists and activists might discuss big oil and the 'robber barons' of 100 years ago in the same context.

    Just as with most media created labels such as the economics term BRICS (which stands for Brazil, Russia, India, China and South Africa) any list of 6 or 7 is debatable.

    For example, there are a number of national oil companies that are larger than some of the supermajors. China Petroleum and Chemical Corporation (Sinopec) and China National Oil Corporation (CNOOC) are 3 and 4 in Forbes top global companies by revenue. Royal Dutch Shell and ExxonMobil are the only others in the top 10. Other examples of national oil companies with similar size and influence as the supermajors include Gazprom, Petrobras, Petronas and Saudi Aramco. These companies are arguably just as powerful as 'big oil' or the supermajors.

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