ExxonMobil Corp and Chevron Corp executives held preliminary talks in early 2020 to explore the combination of the two largest oil producers in the United States in what would have been the largest merger of all time, according to media reports.
Discussions, which are no longer active, are indicative of the pressure faced by the most dominant companies in the energy sector as the COVID-19 pandemic has grown and oil prices have fallen.
Discussions between Exxon CEO Darren Woods and Chevron CEO Mike Wirth have been serious enough for legal documents involving certain aspects of the merger talks to be drafted, a source told Reuters. The reason for the talks ended could not be learned, Reuters reported.
But the Wall Street Journal, citing its own unidentified sources, reported that talks could be revived in the future.
Michael Wirth, President and CEO of Chevron Corp (left), and Darren Woods, President and CEO of Exxon Mobil Corp (right) [File: Andrew Harrer/Bloomberg]
Reuters sources asked for anonymity because the matter is confidential. Exxon and Chevron, which have market capitalizations of $ 190 billion and $ 164 billion, respectively, declined to comment, Reuters said.
Shares of Exxon and Chevron were recorded last year after a Saudi-Russian price war and the consequences of the new outbreak of coronavirus caused the value of oil in the crater. Exxon’s shares were hardest hit as investors expressed concern about the company’s long-term profitability and spending decisions.
In their talks, Exxon and Chevron executives called for synergies through significant cost cuts to help resolve the energy market recession, a source told Reuters. At the end of 2019, Exxon had approximately 75,000 employees and Chevron approximately 48,000.
Following aborted talks with Exxon, Chevron continued to acquire oil producer Noble Energy through a $ 5 billion deal, which was completed in October.
Regulatory control
A combination proposed last year would almost certainly have triggered an intense antitrust review by the US Department of Justice, a process that usually takes months. And such a review would also have faced the presidential elections in November last year, creating further uncertainty as to how soon such an agreement could be removed, if at all.
Now, under the Biden administration, the window could be almost closed because Democrats have been less sympathetic to such transactions, said one source. President Joe Biden has put climate change at the forefront of his agenda, promoting jobs in renewable energy, as opposed to traditional ones in the oil sector.
Biden recently revoked the permit to build the Keystone XL oil pipeline. General Motors said last week that it will aim to stop selling gasoline and diesel-powered vehicles based on oil by 2035.
The White House and the Justice Department did not immediately respond to Reuters’ requests for comment.
News of the failed talks surfaced as Exxon came under pressure from some of its shareholders on its strategic direction.
Engine no. 1, a San Francisco-based investment firm last week nominated four Exxon executives and is pushing the company to spend more cash, keep its dividend and invest more in clean energy. Exxon is also in the crosshairs of the DE Shaw hedge fund, which is pressuring the company to reduce costs and improve performance.
Exxon reports fourth quarter results on February 2nd. Chevron reported a surprising $ 11 million loss in the fourth quarter last week as low fuel margins, acquisition costs and currency effects overwhelmed improved drilling results.
Giant potential
A combined Exxon-Chevron is said to be eclipsed in size only by Saudi Aramco, which boasts a market value of about $ 1.8 trillion and has previously pushed many US drillings to the financial edge, flooding the oil market.
It could also be the biggest corporate bond ever, depending on its structure. This distinction now belongs to the acquisition of approximately $ 181 billion by the German conglomerate Mannesmann AG by Vodafone AirTouch PLC in 2000, according to research firm Dealogic.
Such an agreement would bring together the two largest descendants of John D Rockefeller’s Standard Oil monopoly, which was broken by US regulators in 1911 and reshaped the oil industry.
Despite inevitable antitrust concerns, Exxon and Chevron could argue that a merger would be the best blow for the US to take over the Saudi state-backed conglomerate and other major oil producers in the world, a source told Reuters. .
Last year’s Saudi oil price war, for example, highlighted the vulnerability of US producers to foreign governments that can effectively dictate crude oil prices, forcing energy companies back to increase or reduce production.
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American oil companies compete with each other and set their own varied production targets, with Washington having only a limited capacity to intervene.
Exxon and Chevron, with their strong balance sheets, withstood the turmoil in the energy markets following the pandemic that forced some independent oil and gas producers to seek bankruptcy protection.
However, they also felt the pain. Demand for oil evaporated in early 2020 as governments imposed travel restrictions and home orders to slow the spread of the COVID-19 pandemic.
At one point in April, the price of US Texas Intermediate’s gross future became negative for the first time, which means sellers have to pay buyers to take the goods out of their hands. Since then, prices have returned to about $ 52 a barrel.
Exxon and Chevron have cut jobs in the last year. Exxon left its dividend at the end of last year after increasing shareholder payments every year since 1982.
In an interview with Wall Street Journal, which discussed Chevron’s earnings last Friday, Wirth, who – like Exxon’s Woods – also serves as chairman of his company’s board, said the consolidation could make the industry more efficient. He was generally talking about a possible Exxon-Chevron merger.
“As for things on a larger scale, it’s happened before,” Wirth told the newspaper, referring to the mega-mergers of the 1990s and early 2000s. “Time will tell.”