In an interview in Tuesday's Times of London, BHP Billiton Ltd. CEO Marius Kloppers predicts
more megadeals in natural resources. The reason: companies like his will find mergers the only way to cope with falling production volumes in a world where easily exploitable assets in various sectors -- oil, gas, minerals -- are at or near production peaks, and few new deposits remain to be found.
Though speaking generally, Kloppers is of course also arguing the case for the biggest proposed deal of the
current wave: His own hostile pursuit of Rio Tinto plc in a proposed stock merger recently valued around $137 billion. He sees great efficiencies in combining BHP (which, incidentally, reported strong profits yesterday) with Rio. Scale is important when you need to produce things more cheaply, he notes.
Kloppers (pictured) goes on to express surprise that there haven't been mergers among the oil supermajors for the same reason. Here, though, his thinking contrasts with that of ExxonMobil Corp. CEO Rex Tillerson as relayed in a front-page article on the oil industry in Tuesday's New York Times. Tillerson (and others) argue that in oil, at least, the problem isn't waning resources in the ground; it's governments
asserting control over access to these resources, to the point where the major western oil companies produce a mere 13% of the world's oil.
Goldman Sachs analyst Arjun Murti, also quoted in the NYT piece, points out that there's plenty of oil to be developed in places like Venezuela, Iran, Iraq and Russia. It's just that these and other countries are insisting on developing the resources on their own terms (which also tends to mean at their own pace). The situation, Murti says, is one of "geopolitical" peak oil, as opposed to the geological kind.
BHP's Kloppers notes that political objections to a merger of oil supermajors -- say, of ExxonMobil and BP -- could impede any such deal. He's doubtless right that in the developed economies, many would fear the market power of such a colossal company.
But if geopolitical peak oil is really the fundamental problem for the supermajors, the case for such a deal gets weaker anyway. Would BP be faring any better in the battle for control of its
Russian joint venture, BP TNK, if it were twice as large? Probably not.
Kloppers, meanwhile, is experiencing some geopolitical pushback himself. The Chinese don't like the concentration of market power that a BHP-Rio deal would create. Neither does steel giant ArcelorMittal.
European regulators are expected to look hard at a deal that would give Kloppers control of a third of the world's iron seaborne ore production. -
Kenneth Klee
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