Exxon, Chevron CEOs discussed the merger

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 reshape the oil industry.

The market value of a combined company could exceed $ 350 billion. Exxon has a market value of $ 190 billion, while Chevron is $ 164 billion. Together, they would probably form the world’s second largest oil company by market capitalization and production, producing about 7 million barrels of oil and gas a day, based on pre-pandemic levels, second only to Saudi Arabia. Aramco.

But a merger of the two largest US oil companies could face regulatory and antitrust challenges within the Biden administration. President Biden said climate change is one of the country’s biggest crises. In October, he said he would push the country to “transition away from the oil industry.” He was not as vocal on antitrust issues, and the administration has not yet appointed the head of the Justice Department in that division.

One of the people familiar with the talks said the parties missed the opportunity to finalize the agreement under former President Donald Trump, whose administration was seen as more industry-friendly.

A handful of significant oil and gas transactions were completed last year, including Chevron’s takeover of Noble Energy Inc. with $ 5 billion and ConchoPhillips taking over $ 10 billion from Concho Resources Inc., but nothing close to the scale of the San Ramon, California combination. based in Chevron and Irving, Texas, Exxon.

Such an agreement would go far beyond the mega-oil-merger dimension of the late 1990s and early 2000s, which included the combination of Exxon and Mobil and Chevron and Texaco Inc.

It could also be the biggest corporate bond ever, depending on its structure. This distinction currently belongs to the acquisition of approximately $ 181 billion by the German conglomerate Mannesmann AG by Vodafone AirTouch Plc in 2000, according to Dealogic.

Many investors, analysts and energy executives have called for consolidation in the oil and gas industry, arguing that reducing costs and improving operational efficiency would help companies weather the recession caused by the pandemic and prepare for an uncertain future as many countries try to reduce dependence. their fossil fuels to combat climate change.

In an interview discussing Chevron’s revenue on Friday, Mr Wirth, who, like Mr Woods, is also 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 said, referring to the megafusions of the 1990s and early 2000s. “Time will tell.”

Paul Sankey, an independent analyst who hypothesized a merger between Chevron and Exxon in October, estimated at the time that the combined company would have a market capitalization of about $ 300 billion and $ 100 billion in debt. A merger would allow them to reduce a combined amount of $ 15 billion in administrative expenses and $ 10 billion in annual capital expenditures, he wrote.

Exxon was the most valuable company in America seven years ago, with a market value of over $ 400 billion, almost double that of Chevron. But Exxon fell from a height after a series of wrong strategic steps, which were further exacerbated by the pandemic. It has been eclipsed as a profit engine by technology giants such as Apple Inc.

and Amazon.com Inc.

in recent years and was removed from the Dow Jones industrial average last year for the first time since it was added as Standard Oil in New Jersey in 1928.

Exxon shares have fallen nearly 29% in the past year, while Chevron shares have fallen about 20%. Chevron briefly won Exxon in market capitalization in the fall.

Exxon has suffered one of the worst financial performances ever in 2020. It is expected to report a fourth consecutive quarterly loss for the first time in modern history on Tuesday and has already lost more than $ 2 billion in the first three quarters of 2020.

Chevron also struggled, reporting losses of nearly $ 5.5 billion in 2020 on Friday. But investors have expressed more confidence in Chevron because it entered the recession with a stronger balance sheet – in part because it moved away from its $ 33 billion bid to buy Anadarko Petroleum Corp. before the pandemic, being overburdened by Occidental Petroleum Body.

in 2019.

Exxon has debt of about $ 69 billion in September, while Chevron has about $ 35 billion, according to S&P Global Market Intelligence.

Some investors have become increasingly concerned about Exxon’s Woods leadership as the company faces a rapidly changing energy industry and growing global awareness of climate change. Some are also worried that Exxon should cut its sharp dividend, which costs it about $ 15 billion a year, due to the high level of debt. Many individual investors rely on payments as a source of income.

Mr Woods began an ambitious plan in 2018 to spend $ 230 billion to pump another million barrels of oil and gas a day by 2025. But before the pandemic, production grew only slightly and Exxon’s financial flexibility has been diminished. In November, Exxon withdrew from the plan and said it would cut billions of dollars in its capital spending each year by 2025 and focus on investing in only the most promising assets.

Meanwhile, the company’s troubles have helped attract the attention of activist investors. One of them, Engine No. 1 LLC, argued that the company should focus more on investing in clean energy, while reducing costs elsewhere to keep its dividend. The company on Wednesday nominated four directors to Exxon’s board and asked it to make strategic changes to its business plan.

Exxon has also held talks with another activist, DE Shaw Group, and is preparing to announce one or more board members, further spending cuts and investments in new technologies to help it reduce its carbon emissions.

Rivals such as BP PLC and Royal Dutch Shell PLC have embarked on bold strategies to rebuild their business as regulatory pressure and investor to reduce carbon emissions. Both said they would invest heavily in renewable energy – a strategy their investors have not rewarded so far.

Exxon and Chevron did not invest substantially in renewable sources, instead choosing to double oil and gas. Both companies have argued that the world will need large amounts of fossil fuels in the coming decades and that they can capitalize on the current underinvestment in oil production.

Write to Christopher M. Matthews at [email protected], Emily Glazer at [email protected] and Cara Lombardo at [email protected]