Sunday, March 30, 2008

Review of “Syriana”

The movie Syriana depicts corruptions of the global oil industry. The movie started with Connex, a big oil company in Texas, lost the drilling right to a high Chinese bid, which alarmed the company and people who is related to oil in the region. As a result, Connex was merged with Killen, a small Texas owned company who possesses the drilling right of Kazakhstan.

There are many similar incidents of oil companies merge in real life. For example, Exxon merged with Mobil in a “historic $80 billion deal that reunites fragments for the Standard Oil monopoly” (CNN Money, 1998). Conoco merged with Philips to form ConocoPhilips, Marathon oil company completes merger of Pennaco Energy, and chemical company Dow Chemical Corporation bought Union Carbide about ten years ago and end up hurting its profit.

The big oil companies use “merging” with another well known oil company as part of their strategy. This corporate strategy results a better finance, because it helps the growing company grow faster, and creates oil giant in the industry. Also, the name “merger” creates an illusion of security. People feel the merger companies will become wealthier and more stable; therefore, more people are interested in the particular company and thus their long term profitability increases.

In the movie, Connex complete its merger with Killen because the company just lost to the drilling rights in Mid-Eastern. Connex chose Killen because it was attracted to Killen’s drilling rights in Kazakhstan. As a result, Connex feels more secure for merging with Killen, and Killen is benefited by being able to grow more rapidly for having a big business entity such as Connex.

I enjoyed the movie Syriana because the movie portrayed a true identity. The story is interesting where it showed oil, terrorism, money, and power. It also demonstrated humanity and the connection between wealth and power.


bhansen said...

I think I’m with the majority opinion on Syriana – the movie was pretty confusing the first time – especially during the movie. However, after watching it a couple of times now, I think I can better understand the larger picture. One thing that caught my attention was the insinuation that there was an inside deal in the merger. After working in the oil and gas industry for 6+ years, I’ve come to realize how small the industry really is. Many folks jump from one oil company to another or are consumed into larger companies in M&A deals. As a result, anytime a deal is done, there is a lot of familiarity between counterparties. I think this environment can sometimes breed deals that cross the line of what is fair game.

I also wanted to make a comment to this blog in regards to some of the reasons for a merger. I would think it would certainly be the hope of the acquiring company that the result of the merger would be a healthier and more financially sound company as well as a more competitive company. Specifically, companies can often merge for the following reasons:
- Increased access to a new country/consumer.
- Access to a new technology (rather then developing in house)
- Vertical integration in a specific industry (example of an E&P company purchasing oil transportation pipelines and/or refineries). This allows companies access to the value chain up and downstream from their current operations in an industry.
- Horizontal integration that allows economies of scale. By being the ‘big player on the block’ companies might be able to offer lower price to consumers, negotiate better deals with suppliers, etc. This is largely what Standard Oil did in the 1900s. By owning a huge amount of the industry, they were able to set price and force competition to go out of business. The Sherman Anti-trust act eventually stopped this and broke up Standard Oil.

There are many other reasons that could advocate merging with another company. It is interesting though in that companies generally overestimate the synergies that they hope to achieve in a merger. Merging with another company and ultimately with another culture is a very difficult thing to do and can often result in companies destroying value.

Bonnie Beavers said...

I just finished watching this movie. As others stated, it was very confusing throughout the entire movie. This was my first time watching it and I was still left at the end with many questions.

The inside deal that took place in the merger of Killen and Connex does show the ongoing connections within the oil industry and the compromise of ethics within these types of mergers. I do think that these types of things happen in the oil and gas industry. Probably more so in the past, but I am very confident that these types of things still occur. As a chemical engineer who is about to enter into this industry, I think it is very important to never compromise your ethics or the ethics/values of your company. Many people do not think they will ever have to encounter this within their careers, but I have heard of instances from people within the industry who have been posed with such dilemmas. Be conscious of your own ethics and values and while upholding them be sure to uphold the ethics and values of your company as well.

Syriana was an interesting movie. But it was very confusing and somewhat of a "hard" watch. The audience is left in the dark for most of the story, but in the end all things seem to come together. Overall, I am glad I watched it and got a perspective of the bad decisions that can be made within the oil and gas industry. Most of these decisions are based only on the money at hand, unfortunately.