Oil And Gas Mergers And Acquisitions Do Not Necessarily Guarantee Higher Profits, Executives Say

(MENAFN- Khaleej Times) Mergers and acquisitions in the oil and gas industry do not necessarily guarantee higher profits, even when they increase production and expand operations, energy executives said at Adipec 2026 in Abu Dhabi, stressing that successful consolidation must deliver operational efficiency and long-term value rather than simply increasing the size of a business.

Speaking during a panel discussion titled "Upstream Consolidation: Competitive Advantage and the Limits of Scale", Dr Ranjit Rath, Chairman and Managing Director of Oil India Limited, said consolidation could provide companies with significant competitive advantages by improving economies of scale, increasing access to resources and strengthening project planning.

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However, Ibiyemi Asaolu, Managing Director of NNPC-18, cautioned that increasing production volumes alone would not necessarily translate into higher profitability.

The discussion, moderated by Olivia Kinghorst, examined whether the growing wave of mergers and acquisitions across the upstream oil and gas sector could deliver stronger financial performance and sustainable competitive advantages.

Bigger operations do not guarantee profitability

Rath said consolidation could help companies improve operational scale across exploration, production and other energy activities.

He explained that acquiring larger exploration areas could allow companies to develop multiple prospects, improve planning and achieve greater operational efficiency.

Asaolu, however, said consolidation was not a guaranteed solution to business challenges.

She stressed that companies needed to consider their existing capabilities, production performance, execution experience and the suitability of potential partners before pursuing acquisitions.

According to Asaolu, companies must look beyond production growth and assess whether consolidation can generate sustainable financial returns.

Partnerships can create value without acquisitions

Asaolu highlighted the importance of collaboration between energy companies, saying businesses could generate additional value without necessarily merging or acquiring assets.

She pointed to opportunities involving shared resources, technical cooperation, joint studies and operational partnerships.

She also emphasised the importance of aligning management cultures, corporate strategies and investment objectives.

Differences in decision-making processes and priorities, she said, could limit the benefits of consolidation.

Asaolu noted that collaboration could strengthen competitiveness and improve the value companies generate from their existing operations.

Oil India expands operations through technology

Rath highlighted the importance of maintaining a balance between investing in new exploration and maximising production from existing assets.

He said revenue generated from producing fields was essential to financing future exploration and maintaining long-term reserves.

The Oil India executive also discussed the role of artificial intelligence and digital technologies in improving operational efficiency and reducing costs.

He said the company had expanded its operations by around three times over the past three to four years while maintaining broadly the same workforce, demonstrating the productivity gains made possible through technology.

Rath said technological advancements could help companies expand their operations while making better use of existing employees and resources.

Exploration remains essential for future supply

Rath said exploration would remain central to the oil and gas industry's long-term growth, even as companies seek to maximise output from existing fields.

He highlighted the importance of seismic data, geological studies and advanced technology in identifying new resources and improving recovery from existing assets.

Asaolu also discussed the importance of improving recovery from existing reserves, noting that companies could create additional value by developing resources they already controlled rather than relying exclusively on new acquisitions.

The executives stressed the need to balance exploration spending with production growth and financial discipline.

Early execution critical after acquisitions

Rath said the first months following an acquisition were particularly important for turning newly acquired resources into commercial value.

He explained that the time required to monetise an asset depended on its characteristics, with oil, gas and deepwater projects involving different development requirements and timelines.

For oil fields, production and commercial returns may be achieved more quickly, while gas projects often require additional infrastructure, including gathering facilities, compressors and pipelines.

Deepwater discoveries can take several years to develop before commercial production begins.

Rath stressed the importance of accelerating project execution while maintaining investment in appraisal and development activities.

Asaolu said successful consolidation also required timely decision-making, effective management and alignment between stakeholders.

Shareholder returns remain the priority

The executives said successful consolidation should ultimately be measured by profitability, operational performance and the value delivered to shareholders.

Rath emphasised the importance of maintaining a balance between exploration investment, production growth and shareholder returns.

Asaolu said companies needed to assess the commercial rationale behind acquisitions carefully and ensure that expansion translated into sustainable business value.

The discussion highlighted that while consolidation could strengthen companies' competitive positions, size alone was not a guarantee of long-term success.

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