Two recent historic mergers—between Exxon and Mobil, and BP and Amoco—have rocked the global petroleum industry. Much as the oil shock of 1973 ushered in a new era, the underlying forces at work in the industry will stimulate yet more reshaping in the next few months and years.
The "megamergers" have created a new class of company with advantages based on size and scale. Meanwhile, smaller and more focused players like Huntsman in petrochemicals, Landmark Graphics in exploration information technology, and QuikTrip in gasoline retailing have the skills and cost structures to compete with any company in the industry.1 Left out in the cold by these two trends are the "mezzo" players: smaller integrated petroleum companies, as well as midsize companies (including the smaller majors) with broad product and geographic coverage but not world-class scale or distinctive skills. These mezzos now find themselves squeezed between the new class of "megamajors," on the one hand, and high-performing specialized players, on the other. As the mezzos seek to gain scale, sharpen their focus, redefine their businesses, or simply get out, their predicament will generate a second wave of mergers and acquisitions, alliances, and divestitures.
Bigger can be better ...
The...