On one side of the debate is a belief that oil prices must fall, taking asset values with them, and severely denting the value of any acquisition made at the current high oil price.
On the other side is a belief that oil may ease a bit, but the long-term trend is up, making now the best time to buy – before asset values move out of reach.
In a world often filled with far more complex problems this is simplicity itself, potentially aided by the flip of a coin. Heads says oil is rising. Tails points to a price fall.
Humour aside, Slugcatcher reckons the consequences of a chief executive picking the wrong side of the coin will be devastating, potentially leading to their own company becoming takeover bait and the chief executive himself forced to sell the holiday mansion in Bermuda, or the one in St Tropez – ah, decisions, decisions.
What also makes the “to buy or not to buy” debate so interesting is that different bosses are arriving at different conclusions – setting the stage for a mega-shake-out if oil moves significantly in either direction.
Chevron boss, Dave O’Reilly, is a subscriber to the higher-price view of life. If not, why did he just fork out a cool $US18.5 billion for Unocal with oil priced around the $US50 a barrel?
In effect, O’Reilly has set Chevron on track to become an even more important global player in the oil game, or he’s put the business on the chopping block when oil prices plunge.
In defence of O’Reilly, perhaps Chevron needs Unocal’s reserves to prop up its own ailing reserve position, a proposition that Slugcatcher believes contains more than bit of truth because of all the majors Chevron is the one which has to run hardest to keep up.
But, if Chevron has blinked, and bought, what do the others do – sit around and watch an upstart overtake them in pecking order?
At this point, The Slug finds this entire debate about “to buy or not to buy” a rather interesting variation on schoolboy games, you know, the ones about who’s got the biggest, fastest, longest … that sort of stuff.
The only difference with big oil is that about nine extra zeros are added to the competition and the fate of a few million investors, plus a few small countries is at stake.
Meanwhile, back at the game, we have O’Reilly with $US18.5 billion on the table, and ExxonMobil boss, Lee Raymond, saying “no way, Jose”. On his watch, ExxonMobil is not a buyer or, to more accurately quote him from the latest Petroleum Intelligence Weekly “we were implicitly saying that we don’t think this price structure is going to last”.
Well, if O’Reilly says it is, and he’s got $US18.5 billion to back up his belief, and Raymond says you’re wrong, what does the long suffering Jeroen van der Veer, boss of the deeply-troubled Royal Dutch/Shell group do?
Van der Veer’s problem is that he desperately needs to plug his own embarrassing reserves gap while, at the same time, assist inquiries into what went wrong, oversee the creation of a new-look Shell, and worry about whether the “oil reserves horse” is bolting from the stable.
The jury is out on van der Veer, but The Slug believes he will move soon and buy something simply because his reserves hole is so large.
But, all the time in the back of everybody’s mind is the view of people like ExxonMobil’s Raymond as he sits tight, watches the game unfold and, possibly, prepares for a post oil-price fall market to pounce – and wouldn’t Chevron be a tasty target as investors trash the stock for paying too much for Unocal.
