Exxon, Chevron CEOs discussed merger

Such an agreement would bring together the two greatest 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 can reach $ 350 billion. Exxon has a market value of $ 190 billion, while Chevron’s has a market value of $ 164 billion. Together, they would probably form the second largest oil company in the world by market capitalization and production, producing around 7 million barrels of oil and gas per day, based on pre-pandemic levels, second only to both measures for the Saudi Aramco.

But a merger of the two largest American oil companies could face regulatory and antitrust challenges under the Biden administration. President Biden said that climate change is one of the biggest crises facing the country. In October, he said he would pressure the country to “make the transition away from the oil industry”. He was not so vocal about antitrust issues, and the government has not yet appointed the head of that division to the Department of Justice.

One of those familiar with the talks said the sides may have missed the opportunity to consummate the deal under former President Donald Trump, whose government was seen as more friendly to the industry.

A handful of sizeable oil and gas deals were completed last year, including Chevron’s $ 5 billion acquisition of Noble Energy Inc. and ConocoPhillips’ $ 10 billion acquisition of ConchoPhillips, but nothing close. the San Ramon, California combination scale. based in Chevron and Exxon based in Irving, Texas.

Such a deal would be noteworthy in the oil industry, surpassing in size the oil mega-mergers of the late 1990s and early 2000s, which included the combination of Exxon and Mobil and Chevron and Texaco Inc.

It may also be the largest corporate association of all time, depending on its structure. That distinction currently belongs to the purchase of about $ 181 billion from 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 beleaguered oil and gas industry, arguing that cutting costs and improving operational efficiency would help companies overcome the pandemic-induced crisis and prepare for an uncertain future that many countries seek to reduce. its dependence on fossil fuels to combat climate change.

In an interview discussing Chevron’s earnings on Friday, Wirth, who, like Woods, also serves as chairman of his company, said the consolidation could make the sector more efficient. He was speaking in general and not about a possible Exxon-Chevron merger.

“As for things on a larger scale, it has happened before,” said Wirth, referring to the megamergers of the 1990s and early 2000s. “Time will tell.”

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

Exxon had been America’s most valuable company for seven years, with a market cap of more than $ 400 billion, almost double that of Chevron. But Exxon fell from its heights after a series of strategic mistakes, which were exacerbated by the pandemic. It was eclipsed as a profit engine by tech giants like 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 of New Jersey in 1928.

Exxon’s shares fell nearly 29% last year, while Chevron’s shares fell about 20%. Chevron briefly outperformed Exxon in market capitalization in the fall.

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

Chevron also struggled, reporting nearly $ 5.5 billion in losses in 2020 on Friday. But investors expressed more faith in Chevron because it entered the crisis with a stronger balance sheet – in part because it failed in its $ 33 billion bid to buy Anadarko Petroleum Corp. before the pandemic, having been overcome by Occidental Petroleum Corp.

in 2019.

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

Some investors are increasingly concerned about Exxon’s direction under Mr. Woods, as the company faces a rapidly changing energy industry and a growing global awareness of climate change. Some are also concerned that Exxon may have to cut its high dividends, which cost about $ 15 billion annually, due to its high levels of debt. Many individual investors rely on payments as a source of income.

Woods embarked on 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 increased only slightly and Exxon’s financial flexibility decreased. In November, Exxon gave up on the plan and said it would cut billions of dollars in its capital expenditures each year by 2025 and focus on investing only in the most promising assets.

Meanwhile, the company’s problems helped to attract the attention of activist investors. One, Engine No. 1 LLC, argued that the company should focus more on clean energy investments while cutting costs elsewhere to preserve its dividends. The company appointed four directors to Exxon’s board on Wednesday and asked it to make strategic changes to its business plan.

Exxon is also in talks with another activist, the DE Shaw Group, and is preparing to announce one or more new board members, additional 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 remake their business as regulatory and investor pressure reduces rising carbon emissions. Both said they would invest heavily in renewable energy – a strategy their investors have so far failed to reward.

Exxon and Chevron did not invest substantially in renewable energy, instead opting to double oil and gas. Both companies argued that the world will need large quantities of fossil fuels in the coming decades and that they can take advantage of 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]