Oil and gas alliances are set to unlock many billions of dollars of shareholder value in years to come, generating new growth for the industry. Already, Shell and Amoco have pooled most of their west Texas oilfields to become the first majors to combine operations across an entire region. Shell and Mobil are doing the same on the west coast. Amoco has linked its Austin Chalk seismic data and resources position in Louisiana with Union Pacific Resources Group (UPR). And in the deep waters of the Gulf of Mexico, Texaco and others have established the Deepstar consortium to cut costs and cycle times.

According to most oil companies, alliances will play an important role in reshaping the industry over the next five years. In a recent survey, we found that 84 percent of senior managers from leading US and Canadian oil companies expect alliances rather than internal operations to be the main source of performance improvements (Exhibit 1). Alliances are often preferred to acquisitions and divestitures because they bypass or reduce the valuation, tax, and regulatory issues associated with outright changes in control, and allow both parent companies to retain oil reserves as a hedge against price increases.

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