Exxon, CEO of Chevron, discussed the merger

This agreement would bring together the two largest descendants of John D. Rockefeller’s Standard Oil monopoly, which was broken by U.S. regulators in 1911, and would reform 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 likely 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, according to the two measures alone in Saudi Aramco.

But a merger of the two largest U.S. oil companies could face regulatory and antitrust challenges under the Biden administration. President Biden has said climate change is one of the biggest crises facing the country. In October, he said he would push the country towards the “transition of the oil industry.” He has not been so vocal on antitrust issues and the administration has not yet appointed the head of this division of the Justice Department.

One person familiar with the talks said the parties could have missed the opportunity to consummate the deal under former President Donald Trump, whose administration was seen as more industry-friendly.

Last year a handful of major oil and gas deals were completed, including the acquisition of Chevron by Noble Energy Inc. of $ 5 billion and the taking of ConchoPhillips for about $ 10 billion from Concho Resources Inc., but nothing close to the San Ramon, California combination. based in Chevron and Irving, in Exxon, based in Texas.

This deal would be remarkable 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 could also be the largest corporate bond in history, depending on its structure. This distinction currently belongs to the approximately $ 181 billion purchase of 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 besieged oil and gas industry, arguing that reducing costs and improving operational efficiency would help companies overcome the pandemic-induced recession and prepare for it. for an uncertain future, as many countries try to reduce their dependence on fossil fuels to combat climate change.

In an interview about Chevron’s earnings Friday, Mr. Wirth, who, like Woods, is also chairman of his company’s board, said consolidation could make the industry more efficient. He was talking in general and not about a possible Exxon-Chevron merger.

“As for things on a large scale, it happened before,” Wirth said, referring to the megafusions of the 1990s and early 2000s.

Paul Sankey, an independent analyst who hypothesized a merger of Chevron and Exxon in October, then estimated 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 $ 15 billion combined in administrative expenses and $ 10 billion in annual capital expenditures, he wrote.

Exxon was the most valuable company in the United States seven years ago, with a market value of more than $ 400 billion, almost double Chevron. But Exxon has fallen from its height after a series of strategic steps, which were further exacerbated by the pandemic. It has been overshadowed 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 New Jersey Standard Oil in 1928.

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

Exxon suffered one of its 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 reported losses of more than $ 2 billion during the first three quarters. of 2020.

Chevron has also had problems, reporting close to $ 5.5 billion on Friday in 2020. But investors have expressed more faith in Chevron because it entered the recession with a stronger balance sheet, in part because it failed its $ 33 billion bid. of dollars to buy Anadarko Petroleum Corp. before the pandemic, having been overtaken by Western Petroleum Corp.

in 2019.

Exxon has $ 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 leadership under Mr. Woods, as the company faces a rapidly changing energy industry and a growing global awareness of climate change. Some are also worried that Exxon may have to cut its sharp dividend, which costs it about $ 15 billion a year, due to its high debt levels. 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 an additional million barrels of oil and gas a day in 2025. But before the pandemic, production only increased slightly and Exxon’s financial flexibility it was diminished. In November, Exxon withdrew from the plan and said it would reduce billions of dollars of its capital investment each year through 2025 and focus on investing only in the most promising assets.

Meanwhile, the company’s problems have helped draw the attention of activist investors. One of them, Engine No. 1 LLC, has argued that the company should focus more on clean energy investments while reducing costs elsewhere to preserve its dividend. The firm on Wednesday appointed 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 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 rebuild their business as regulatory and investment pressure to reduce carbon emissions. Both have said they will invest heavily in renewable energy, a strategy their investors have so far failed to reward.

Exxon and Chevron have not invested substantially in renewable energy, but have opted to double oil and gas. Both companies have argued that the world will need large amounts of fossil fuels over the next few decades and that they can capitalize on the current underinvestment in oil production.

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