You probably don’t recall what you had for breakfast, but it’s worth your while to remember what happened in 1906 because it helps to explain consolidation in this sector. That was the year that Vilfredo Federico Damaso Pareto, father of microeconomics as well as an engineer, sociologist, political scientist and philosopher, developed his Pareto Principle. It’s based on his realization that 80% of the land in Italy was owned by 20% of the population.
That seeming inequality is, in fact, a model of business efficiency. More recently, the energy team at KPMG LLP examined the upstream sector and confirmed that about 80% of that segment’s market capitalization belonged to 20% of E&P companies. Midstream, populated by many smaller companies, is far less concentrated.
This article appeared in the Mar 2015 issue of Midstream Business and appears here with the publisher's permission.