Two general and related trends have affected the total cost to produce oil and gas over the decades. One is that countries that contain, and thus own, the cheapest reserves of oil and gas still to be produced in the world have increasingly limited access to these reserves by foreign companies. For example, one of the largest remaining reserves of crude oil lies beneath Saudi Arabia. The oil was first discovered and produced the world's largest international oil companies. But the only company now allowed to produce the oil is Saudi Aramco, the national oil company of Saudi Arabia. Other countries, such as Russia, allow international oil and gas companies to explore their territories for hydrocarbons, but only in partnership with the country's national oil and gas companies. And only under profit sharing agreements favorable to the host country. For some oil and gas prospects, the international companies will deem such partnerships with the host country worth the cost risk. For other prospects, the international companies will not. So, even in countries that allow outside access to their reserves, exploration and production has been throttled. This has led the international oil companies to explore for and produce oil and gas resources that only these companies have the technological know-how and financial resources to go after. Thus the other general trend to oil and gas production costs over the decades has been one of increasing cost for finding, developing, and producing new reserves of oil and gas. Paralleling these trends has been an ever-rising global demand for more oil and gas. When this demand has approached the maximum rate that oil and gas can be produced in the world, prices have risen, spurring increased exploration for new reserves. And changing reserves that were formerly too expensive to extract into reserves that are now economic to produce. The greater investment in exploration and production often leads to the formation of many new companies. While the rising oil and gas prices created by high demand can spur existing companies to expand production of more costly types of oil and gas. However, the supply and demand for oil and gas is subject to fluctuations. For example, economic downturns in the 1970s, 1990s and in the late 2000s triggered sharp drops in demand for oil and gas. And cost reductions in producing oil sand, shale gas, and shale oil resources have dramatically increased oil and gas production during the 2010s. Both of these circumstances have created periods of excess supply relative to demand, leading to sharp price drops. Most companies can weather these price drops if they do not last long. But if the low prices persist then the highest cost reserves to produce once again become too expensive to extract. In theory, companies could halt going after these types of reserves until prices climb once again to levels that make the reserves economic to extract, and in fact many companies will often do this. But other companies that have taken out considerable debt to help finance the drilling of wells and production facilities may have to go after these more expensive reserves, even though they are losing money, just so that they can service the company's debt. And, even if a company is still able to turn a profit from such wells, those profits can be significantly reduced when the price of oil and gas remains low. In either case, the stock values of such companies can decline to the point that they become targets for other oil and gas companies with strong balance sheets. And thus enough liquid assets or financial resources to potentially acquire or merge with the weaker company. The stronger company's motivation for doing this might be because acquiring the proven reserves of the weaker company is a cheaper and more sure way of building the stronger company's own reserves than drilling new wells. The motivation might also be that the weaker company might have assets, and or expertise that help reduce the stronger company's operation costs. Or instantly make it a significant player in a new type of asset for the stronger company were it to merge with or acquire the weaker company. For example, Exxon Mobile's purchase of XTO in 2009 helped the supermajor become a significant operator in shale gas plays. And Shell's ongoing purchase of the BG Group in 2015 is helping this supermajor also become a major player in natural gas. Such mergers and acquisitions between oil and gas companies can also happen when oil prices are high or rising. But at these times, the stocks of all oil and gas companies tend to rise, making it far more expensive to take over another company. Hence the most significant mergers and acquisitions have tended to occur when prices have experienced an extended low. This was the case between 1998 and 1999 when a number of major oil and gas companies merged to become supermajors. These include Exxon and Mobil, BP, Arco and Amoco, and Chevron and Texaco.
