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Gas Industry Combinations Quadruple this Decade

Gas Industry Combinations Quadruple this Decade

Not only has the gas industry seen a surge in mergers, the value of gas mergers and acquisitions has nearly quadrupled in this decade from $10.4 billion in 1990 to $39 billion in 1997, according to the Energy Information Administration.

The increase parallels a surge in corporate combinations (mergers, acquisitions, joint ventures and strategic alliances) across the energy sector, from $21.4 billion in 1990 to $106.4 billion in 1997, and then, with the announcement of such blockbuster mergers as British Petroleum with Amoco and Exxon with Mobil, to $220 billion in 1998.

These findings were released last week by the EIA in an analysis titled "Mergers and Other Corporate Combinations in the Natural Gas Industry." The findings are part of an upcoming EIA report titled "Natural Gas 1998: Issues and Trends" expected to be published next month. EIA gathered information from the Mergers Yearbook, company press releases, Internet sources, and Benjamin Schlesinger and Associates research.

The growth in gas industry combinations does not indicate a decrease in competition, EIA said. For example, between 1992 and 1997, the share of sales by the top four marketers declined by one-third to 21%, while their sales volumes more than doubled. Sales by the top 20 slipped only from 69 to 66% but sales volumes more than tripled to 40 Tcf.

The current wave of corporate combinations appears set to continue as companies throughout the energy sector jockey for position not only in North America but worldwide with both the number and size of combinations increasing. Nevertheless, combinations in the energy sector remained a relatively small part of corporate combinations in general, representing only about 11% of the total value of all combinations in 1997.

Corporate combinations in the natural gas industry have become an integral part of the strategies developed to address changing conditions in the industry. Specific objectives behind the combinations vary, but many combinations share the goal of expanding beyond a single commodity or a single function to encompass a broad spectrum of energy sources, products, and services, thus becoming a "one-stop energy center."

The types of business combinations enumerated by EIA are full and partial, vertical and horizontal mergers, acquisitions, hostile takeovers, divestitures, active salvage, joint ventures and alliances, and foreign investment. Becoming more popular are joint ventures, particularly in areas of convergence, the EIA found. "Joint ventures are less binding than mergers, and although subject to regulatory review, they avoid many of the complications that can encumber the merger process."

William Trapmann, industry economist in EIA's office of oil and gas, said the agency's report is intended for use by federal and state policy-makers attempting to understand changes taking place within the industry. "[From] the state level we often hear requests for additional information and insights that would help them understand some of the information they're seeing before them."

Joe Fisher, Houston

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