The chief executives of ExxonMobil Corp and Chevron Corp held preliminary talks in early 2020 to explore whether the two largest oil producers in the United States would be combined in what the media said would have been the largest merger of all time.
The discussions, which are no longer active, are indicative of the pressures facing the most dominant companies in the energy sector when the COVID-19 pandemic erupted and crude oil prices plunged.
The talks between Exxon Chief Executive Darren Woods and Chevron CEO Mike Wirth were serious enough to draft legal documents pertaining to certain aspects of the merger talks, one of the sources told Reuters news agency. The reason the talks had ended could not be ascertained, Reuters reported.
But the Wall Street Journal newspaper, citing its own unidentified sources, reported that the discussions could be revived in the future.
Michael Wirth, Chairman and CEO of Chevron Corp (left), and Darren Woods, Chairman 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 caps of $ 190 billion and $ 164 billion, respectively, declined to comment, Reuters said.
Shares of Exxon and Chevron took a nosedive last year after a Saudi Russian price war, and the fallout from the new coronavirus outbreak caused the value of oil to crater. Shares of Exxon were hit the hardest as investors raised concerns about the company’s long-term profitability and spending decisions.
In their talks, Exxon and Chevron CEOs envisioned achieving synergies through significant cost savings to help weather the downturn in the energy markets, one source told Reuters. At the end of 2019, Exxon employed approximately 75,000 people and Chevron approximately 48,000.
Following the broken talks with Exxon, Chevron acquired oil maker Noble Energy in a $ 5 billion cash-and-stock deal that closed in October.
Regulatory Control
A proposed combination last year would almost certainly have prompted an intensive antitrust review by the US Department of Justice, a process that typically takes months. And such a revision may also have run up against last November’s US presidential election, creating additional uncertainty as to how soon such a deal could be approved, if at all.
Now, under Biden’s administration, the window could be nearly closed, as Democrats have historically been less sympathetic to such deals, one source said. President Joe Biden has put climate change high on his agenda, promoting jobs in renewable energy instead of traditional jobs in the oil sector.
Biden has recently formally withdrawn the permit for the construction of the Keystone XL oil pipeline. General Motors said last week it would like to stop selling gasoline and diesel vehicles, which rely on oil, by 2035.
The White House and the Justice Department did not immediately respond to requests from Reuters for comment.
News of the failed talks emerged as Exxon came under pressure from some of its shareholders over its strategic direction.
Engine No. 1, a San Francisco-based investment firm, nominated four directors to Exxon’s board of directors last week, urging the company to better spend its money, maintain its dividend, and invest more in clean energy. Exxon is also in the crosshairs of hedge fund DE Shaw, which is pressuring the company to cut costs and improve performance.
Exxon reports fourth quarter results on Feb. 2. Chevron reported a surprising loss of $ 11 million in the fourth quarter last week as low margins on fuel, acquisition costs and currency effects overwhelmed improved drilling results.
Potential giant
A combined Exxon-Chevron would only be eclipsed in size by Saudi Aramco, which has a market value of about $ 1.8 trillion and previously pushed many US drills to the financial edge by flooding the market with oil.
Depending on the structure, it could also be the largest corporate band ever. That distinction now belongs to the purchase of approximately $ 181 billion from the German conglomerate Mannesmann AG by Vodafone AirTouch PLC in 2000, according to research firm Dealogic.
Such a deal would reunite the two largest descendants of John D. Rockefeller’s Standard Oil monopoly, which was lifted by US regulators in 1911, and reshape the oil industry.
Despite inevitable antitrust concerns, Exxon and Chevron could argue that a merger would be the US’s best chance of taking it against the Saudi state-owned company and the other largest state-backed oil producers in the world, one source told Reuters.
Last year’s Saudi-Russian oil price war, for example, highlighted the vulnerability of US producers to foreign governments that can effectively dictate the price of crude oil by forcing energy companies back to increase or decrease production.
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American oil companies each compete with each other and set their own production goals, with Washington having only limited ability to intervene.
Exxon and Chevron, with their strong balance sheets, resisted the turmoil in the energy markets following the pandemic that forced some smaller independent oil and gas producers to file for bankruptcy protection.
Yet they also felt the pain. Demand for oil evaporated in early 2020 as governments imposed travel restrictions and orders to stay home to slow the spread of the COVID-19 pandemic.
At one point in April, the price of US West Texas Intermediate crude oil futures turned negative for the first time ever, meaning sellers had to pay buyers to take the commodity off their hands. Prices have since risen to around $ 52 a barrel.
Exxon and Chevron have cut jobs in the past year. Exxon left its dividend late last year just after increasing its shareholder payout every year since 1982.
In an interview with the Wall Street Journal about Chevron’s earnings last Friday, Wirth, who – like Exxon’s Woods – is also the chairman of his company, said that consolidation can make the industry more efficient. He spoke in general and not of a possible merger between Exxon and Chevron.
“As for bigger things, it’s happened before,” Wirth told the paper, referring to the mega-mergers of the 1990s and early 2000s. “Only time will tell.”