History often repeats itself. Industry booms become busts, only to boom and bust again. One place where this boom, bust, recovery, and repeat scenario plays out every decade or so is in the oil patch. The industry has gone through a series of major swings in the 1980s, 1990s, and 2000s. The latest boom ended abruptly last summer when the price of oil fell off a cliff as production surged past demand, leading to a glut of petroleum on the market. This caused oil stocks to fall, creating a lot of panic in the market that some energy companies might not make it out of the downturn in one piece.

What typically happens around this time is that stronger oil companies prey on their weaker rivals via buyouts. That has created consolidation waves as downtrodden oil companies paired up in order to survive the downturn so that the combined entity could thrive once normalcy returned. Here's a look at some of the biggest mergers of the past, as well as deals that could occur in the near future.

The birth of Big Oil
The price of oil collapsed in late 1997 as global growth slowed due to a financial crisis in Asia that nearly led to a worldwide economic recession. Oil companies were forced to cut costs, and the best way to do this was to boost their scale via a merger. This led to a series of megamergers that created many of today's Big Oil giants.

 

Source: BP plc. 

BP (BP 1.25%) got things started in August 1998 when it agreed to acquire Amoco for $48.2 billion in stock, which at the time was the largest oil industry merger in history. The deal created the world's third-largest multinational oil company. The following April, BP sealed a $27 billion deal to buy ARCO, further solidifying its spot as a top three oil company.

However, in between those two deals BP was trumped by Exxon (XOM 0.23%), which bought Mobil for $80 billion. Not only is that the largest oil merger ever, but it created the largest publicly traded oil company in the world. Prior to agreeing to a deal with Exxon, Mobil had actually been in talks with BP on a merger, but the deal couldn't be hammered out.  

Other notable large oil mergers in the past include Chevron's (CVX 0.23%) $39.5 billion buyout of Texaco in 2001, Conoco's (COP 0.39%) $18 billion merger with Phillips in 2002, and the combined entity's $33.8 billion purchase of Burlington Resources in 2005.

 

Photo credit: Flickr user Jason Sussberg.

The beginning of the next wave
There have been a number of other oil mergers and acquisitions over the past decade, but most of those deals were made because oil companies were looking to bulk up on shale assets or were cashing out while oil prices were high. So far, the only merger inspired by the downturn that began last summer is Halliburton's (HAL -0.07%) $38 billion agreement to buy rival Baker Hughes (BHI). The merger will push the combined entity closer to top oil-field service provider Schlumberger (SLB 0.25%). 

There likely will be more mergers over the next few years. ExxonMobil recently built up an $8 billion cash war chest to make a deal for a weaker rival. CEO Rex Tillerson said "there's really no limitation on what we might be interested in or considering" when it comes to a deal target. That has spurred rumors that a deal for beleaguered BP, which is still reeling from the 2010 Deepwater Horizon disaster, might not be beyond the realm of possibility. Such a deal would easily be the biggest oil merger ever as BP's current market cap is well over $120 billion.

Once the first domino falls as it did in the late 1990s, a massive consolidation wave could hit the industry. A number of small U.S. shale drillers hold too much debt for the current oil price and could look to sell out to a better-capitalized rival. Reports are already flying around the market that shale-focused drillers including Whiting Petroleum (WLL) and Penn Virginia Corp. (NYSE: PVA) are on the auction block. Meanwhile, Norway's Statoil (EQNR -0.28%) is also rumored to be pursuing the acquisition of top U.S. shale driller EOG Resources (EOG 0.81%) for upward of $50 billion to bolster its shale presence after buying Brigham Exploration for $4.4 billion in 2011. While all this is just market chatter at the moment, it's growing increasingly likely that we'll see a number of deal announcements hit the wire, with a distinct possibility for an all-new largest oil merger in history. 

Investor takeaway
The oil industry has had its ups and downs over the years. One way it gets back up after a fall is by consolidating in order to cut costs. This has yielded a series of megamergers in the past and could lead to more in the future.