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Big Oil, No More? Don't Jump To Conclusions



August 09, 2011 – Comments (0) | RELATED TICKERS: BP , COP

The economy and market is currently in shambles. Will the big oil model continue to dominate the market? Will it even work? All great questions, and Shelly DuBois asks them as well. She has compiled her input on the issue, and concludes big oil won’t be leaving anytime soon, and here is why.


" A few days ago, Fortune pointed out that many big oil companies are undervalued. Splitting them, in theory, could be worth billions of dollars to shareholders. But Big Oil companies need to consider many more factors than short-term shareholder perks before making such drastic decisions. Some may go for it, deciding to opt out of the integrated, one-stop-oil-shop model. But despite the changes major petroleum companies may experience, oil will likely stay Big with a capital B.

When it makes sense to be big, and when it doesn’t

Within the industry, different parts of oil companies are descried as sections of a river: upstream, midstream and downstream. A typical Big Oil company owns the whole river. Upstream involves looking for new wells, drilling them, and pumping crude out of the ground. Midstream means the transportation of new oil by ship routes and pipelines. Then you hit downstream, which is all about processing the product. Downstream assets include refineries, which distill crude into different chemicals, including gasoline. Gas stations, and other retail operations, are also downstream."

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