Vertical integration a big boy’s game

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The international oil and gas industry should continue to be a source of large M&A deals over the next decade as increasingly fewer of its companies – both national and international – will be able to maintain a drill-bit to petrol pump capability in future.

This was a clear message from Shell chief executive Peter Voser at the World National Oil Companies Congress 2013 in London at the end of last week.

Voser said that while all areas of the supply chain still offered value for technology-driven and innovative companies, the escalating cost of the investment required to sustain a universal presence meant it was no longer an “affordable” proposition for medium-sized operations. “You need to have a certain size to have both upstream and downstream companies,” he said.

Voser pointed to the example of his own company, which is currently spending US$35bn a year on top of the US$11bn its makes in dividend payments. He said that gave an idea of the free cash flow now needed to sustain a fully integrated operation.

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