"If integrated international oil companies did not already exist, there would be no reason to create new ones."
A manager of institutional capital
Herold Industry Insights, November 1994

The vertically integrated international oil company no longer represents the winning formula in the petroleum business. Instead, a new breed of tightly focused and vertically specialized "petropreneurs" are capturing most of the industry's growth and shareholder value.

Consider the recent financial performance of the major oil companies. On aggregate, the shares of Exxon, Shell, Mobil, Chevron, Texaco, Amoco, and BP lagged the S&P 500 between 1991 and 1996. For each dollar invested on January 1, 1991 in a portfolio of the majors, a shareholder would have received $2.47 in December 1996, compared with $2.64 if that dollar had been invested in the S&P 500. But investing in the petropreneurs would have been a much smarter move: on aggregate, their shares made $4.21 for every dollar invested (Exhibit 1). After adding in estimates for several privately held petropreneurs—Koch Industries, Huntsman, Arcadian, QuikTrip, NGC, and Racetrac—we find that, on a risk-adjusted basis, these new competitors created shareholder value that exceeded the S&P 500 by a whopping $17 billion.

Much of the industry's...