ExxonMobil Corp and Chevron Corp executives held preliminary talks in early 2020 to explore the combination of the two largest U.S.-based oil producers in what would have been the largest merger of all time, according to reports of the media.
The discussions, which are no longer active, are indicative of the pressure faced by the most dominant companies in the energy sector as the COVID-19 pandemic took hold and oil prices fell.
Talks between Exxon CEO Darren Woods and Chevron CEO Mike Wirth were serious enough that legal documents were drafted on certain aspects of the merger talks, one of the sources told the Reuters news agency. The reason for the talks ended was not known, Reuters reported.
But the Wall Street Journal, citing its own unidentified sources, reported that discussions 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 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.
Shares of Exxon and Chevron died last year after a Saudi-Russian price war and the aftermath of the new coronavirus outbreak caused the value of oil in the crater. Exxon shares were the hardest hit, as investors showed concerns about the company’s long-term profitability and spending decisions.
In their talks, CEOs of Exxon and Chevron planned to achieve synergies through significant cost reductions to help overcome the recession in energy markets, a source told Reuters. By the end of 2019, Exxon employed about 75,000 people and Chevron approximately 48,000.
Following aborted negotiations with Exxon, Chevron acquired oil producer Noble Energy on a $ 5 million deal that was completed in October.
Regulatory control
A combination proposed last year would almost certainly have triggered an intense antitrust review by the U.S. Department of Justice, a process that typically takes months to complete. And that review would also have clashed with last November’s US presidential election, which would cause additional uncertainty about how long such an agreement could be scrapped.
Now, under the Biden administration, the window could be almost closed, as historically Democrats have been less sympathetic to such agreements, one source said. President Joe Biden has put climate change at the top of his agenda, promoting jobs in renewable energy versus traditional ones in the oil sector.
Recently, Biden formally revoked permission to build the Keystone XL pipeline. General Motors said last week that it would aim to stop selling gasoline- and diesel-dependent, oil-dependent vehicles by 2035.
The White House and the Justice Department did not immediately respond to Reuters’ requests for comment.
News of the failed negotiations emerged when Exxon has been pressured by some of its shareholders for its strategic direction.
Motor No. 1, a San Francisco-based investment firm, last week appointed four directors to Exxon’s board and pushes the company to better spend its cash, preserve its dividend and invest more in clean energy. Exxon is also involved in the focus of the DE Shaw hedge fund, which is pressuring the company to reduce costs and improve performance.
Exxon reported fourth-quarter results on February 2nd. Chevron last week reported a surprise fourth-quarter loss of $ 11 million as low fuel margins, acquisition costs and foreign currency effects overwhelmed the best drilling results.
Giant potential
An Exxon-Chevron combined would only be overshadowed in size by Saudi Aramco, which has a market value of about $ 1.8 trillion and has previously pushed many U.S. drillers to the financial edge by flooding the market with oil.
It could also be the largest corporate bond in history, depending on its structure. This distinction now belongs to the approximately $ 181 billion purchase of the German conglomerate Mannesmann AG by Vodafone AirTouch PLC in 2000, according to research firm Dealogic.
This 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 would reform the oil industry.
Despite the inevitable antitrust concerns, Exxon and Chevron could argue that a merger would represent the best opportunity for the United States to take on the Saudi state conglomerate and other oil producers with the world’s largest state support, he told Reuters one of the sources.
Last year’s Saudi-Russian oil price war, for example, highlighted the vulnerability of U.S. producers to foreign governments that can effectively dictate the price of crude by forcing energy companies to push back or reduce production.
[Bloomberg]
U.S. oil companies compete with each other and set their own production targets, and Washington has only limited intervention capacity.
Exxon and Chevron, with their powerful balance sheets, withstood the turmoil in the energy markets following the pandemic that forced some independent oil and gas producers to seek bank protection.
However, they also felt the pain. Demand for oil evaporated in early 2020, as governments imposed travel restrictions and home stay orders to curb the spread of the COVID-19 pandemic.
At one point, in April, the price of futures on West Texas Intermediate Crude in the United States turned negative for the first time, which meant sellers had to pay buyers to take out the merchandise. . Since then, prices have risen to $ 52 a barrel.
Exxon and Chevron have cut jobs over the past year. Exxon left the dividend flat late last year after increasing shareholder payments every year since 1982.
In an interview with the Wall Street Journal about Chevron’s earnings last Friday, Wirth, who, like Exxon’s Woods, also serves as 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 told the newspaper, referring to the mega-mergers of the 1990s and early 2000s. “Time will tell.”