Oil industry consolidations will create stable prices: Analyst

The oil industry is seeing major consolidations at play as Hess (HES) shareholders approved a $53 billion merger with Chevron (CVX), and ConocoPhillips (COP) will acquire Marathon Oil (MRO) in a $17.1 billion all-stock deal. TD Cowen Analyst Jason Gabelman joins Morning Brief to discuss how these M&A moves should be viewed from a shareholder perspective.

"We think it creates a more healthy environment for our shareholders," Gabelman explains. He says that the mergers will lead larger companies to have more control of the oil (CL=F, BZ=F) in the US, which will ultimately allow them to execute "moderate, low-to-mid single-digit oil production growth that should result in a healthier commodity backdrop where there will be less responsive to spikes in oil prices and support higher and more stable oil prices."

He adds that more stable oil prices will be a relief to consumers as they grapple with tighter budgets amid high inflation.

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This post was written by Melanie Riehl

Video transcript

Let's talk about what these deals mean for our shareholders and the broader economy for that.

We wanna bring in Jason Gableman, he's TD Cowan's analyst covering integrated oil Refiners and the liquefied natural gas.

It's great to have you here, Jason.

So going off of what ness was just telling us and especially in light of the news this week, talk to us just about what exactly these types of M and A deals, how it should be viewed from a shareholder perspective.

Hey, thanks for having me.

We think it creates a more healthy environment for shareholders.

If we think back to pre COVID, you had a lot of small oil companies who are very responsive to prices moving higher.

So you'd have prices tick up and companies would start to drill more that resulted in depressed and more volatile oil pricing and less returns available to shareholders.

What we're seeing now is because of the consolidation, you're getting larger companies who have control of more of the oil in the US and are going to be able to execute on moderate low to mid single digit oil production growth that should result in a healthier commodity backdrop where they'll be less responsive to spikes in oil prices and support higher and more stable oil prices.

What is the pass through effect to consumers from all this consolidation?

Jason?

Well, I think a more stable oil price certainly helps a consumer and anyone trying to manage their personal budget, manage it better.

Like I said, we're not going to see spikes.

So that works both to the upside and the downside.

And as a consumer you're able to likely better manage your, your personal spending.