The chief executives of ExxonMobil Corp and Chevron Corp held preliminary talks in early 2020 to explore the combination of the two largest U.S. oil producers in what would have been the biggest merger of all time, according to media reports.
The discussions, which are no longer active, are indicative of the pressure that the most dominant companies in the energy sector faced when the COVID-19 pandemic broke out and oil prices plummeted.
The talks between Exxon Chief Executive Darren Woods and Chevron Chief Executive Mike Wirth were serious enough that legal documents involving certain aspects of the merger discussions were drafted, one of the sources told the news agency. Reuters. It was not possible to find out why the talks ended, Reuters reported.
But the Wall Street Journal, citing its own unidentified sources, said the discussions could be resumed 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 requested 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.
Exxon and Chevron’s shares plummeted last year after a price war between Russia and Saudi Arabia and the aftermath of the new coronavirus outbreak caused a crater in the value of oil. Exxon’s shares were the hardest hit as investors expressed concerns about the company’s long-term profitability and spending decisions.
In their talks, the CEOs of Exxon and Chevron predicted to achieve synergies through significant cost cuts to help tackle the slowdown in the energy markets, one of the sources told Reuters. At the end of 2019, Exxon employed about 75,000 people and Chevron about 48,000.
After the aborted negotiations with Exxon, Chevron acquired oil producer Noble Energy in a $ 5 billion cash and stock deal that concluded in October.
Regulatory analysis
A combination proposed last year would almost certainly have triggered an intense antitrust review by the United States Department of Justice, a process that typically takes months to complete. And such a review would also have the potential to run counter to the US presidential election last November, increasing uncertainty about when such a deal could be struck, if at all.
Now, under the Biden government, the window may be practically closed, as Democrats have historically been less sympathetic to such deals, one of the sources said. President Joe Biden has put climate change at the forefront of his agenda, promoting renewable energy jobs as opposed to traditional ones in the oil sector.
Biden recently formally revoked the license to build the Keystone XL pipeline. General Motors said last week that it plans to stop selling petrol and diesel-powered vehicles, which depend on oil, by 2035.
The White House and the Justice Department did not immediately respond to Reuters’ requests for comment.
News of the unsuccessful negotiations emerged when Exxon was pressured by some of its shareholders about its strategic direction.
Engine No. 1, a San Francisco-based investment company, last week appointed four directors to Exxon’s board and is pressing the company to better spend its money, preserve its dividends and invest more in clean energy. Exxon is also targeted by the DE Shaw hedge fund, which is pushing the company to cut costs and improve performance.
Exxon reports results for the fourth quarter on February 2. Chevron last week reported a surprising loss of $ 11 million in the fourth quarter, as low fuel margins, acquisition costs and foreign currency effects outpaced the best drilling results.
Potential giant
A combined Exxon-Chevron would be eclipsed in size only by Saudi Aramco, which has a market value of around $ 1.8 trillion and has already pushed many U.S. drills to the financial limit by flooding the market with oil.
It may also be the largest corporate association of all time, depending on its structure. That distinction now belongs to the purchase of about $ 181 billion from German conglomerate Mannesmann AG by Vodafone AirTouch PLC in 2000, according to research firm Dealogic.
Such an agreement would bring together the two greatest descendants of John D Rockefeller’s Standard Oil monopoly, which was disbanded by US regulators in 1911 and would reshape the oil industry.
Despite the inevitable antitrust concerns, Exxon and Chevron may argue that a merger would represent the best chance for the U.S. to face the Saudi state conglomerate and the other largest state-backed oil producers in the world, one of the sources told Reuters.
The oil price war between Russia and Saudi Arabia last year, for example, highlighted the vulnerability of U.S. producers to foreign governments that can effectively dictate the price of oil by forcing energy companies to increase or decrease again the production.
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American oil companies compete with each other and set their own variable production targets, with Washington having only limited intervention capacity.
Exxon and Chevron, with their powerful balance sheets, resisted the turmoil in the energy markets after the pandemic that forced some small independent oil and gas producers to file for bankruptcy.
However, they also felt the pain. Demand for oil evaporated in early 2020, when governments imposed travel restrictions and requests to stay at home to slow the spread of the COVID-19 pandemic.
At one point in April, the price of US West Texas Intermediate oil futures became negative for the first time, meaning that sellers needed to pay buyers to get the commodity out of their hands. Since then, prices have rebounded to around $ 52 a barrel.
Exxon and Chevron cut jobs last year. Exxon at the end of last year left its dividend stable after increasing shareholder payments each year since 1982.
In an interview with the Wall Street Journal discussing Chevron’s earnings last Friday, Wirth, who – like Exxon’s Woods – also serves as chairman of his company, said the consolidation could make the industry more efficient. He was speaking in general and not about a possible Exxon-Chevron merger.
“As for things on a large scale, it has happened before,” Wirth told the newspaper, referring to the mega-mergers of the 1990s and early 2000s. “Time will tell.”