Exxon, Chevron CEOs discussed the merger

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.

The market value of a combined company could exceed $ 350 billion. Exxon has a market value of $ 190 billion, while Chevron’s is $ 164 billion. Together they would likely make up the world’s second largest oil company by market capitalization and production, producing about 7 million barrels of oil and gas per day, based on pre-pandemic levels, second only in both measures after Saudi Aramco.

But a merger of the two largest US oil companies could face regulatory and antitrust challenges under the Biden administration. President Biden has said that climate change is one of the greatest crises the country is facing. In October, he said he would push the country to “move away from the oil industry.” He has not been so outspoken on antitrust issues and the government has yet to appoint the head of that division of the Justice Department.

One of those familiar with the talks said the parties may have missed an opportunity to close the deal under former President Donald Trump, whose administration was seen as being kinder to the industry.

Last year, a handful of sizeable oil and gas deals were completed, including Chevron’s $ 5 billion acquisition of Noble Energy Inc. and ConocoPhillips’ roughly $ 10 billion acquisition of Concho Resources Inc., but nothing comes close to the scale of the San Ramon, California, combine. Chevron and Irving, Exxon from Texas.

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

Depending on the structure, it could also be the largest corporate band ever. That distinction currently belongs to the purchase of about $ 181 billion from the German conglomerate Mannesmann AG by Vodafone AirTouch Plc in 2000, Dealogic said.

Many investors, analysts and energy executives have called for consolidation in the beleaguered oil and gas industry, arguing that cost cutting and operational efficiency improvements would help businesses weather the pandemic downturn and prepare for an uncertain future as many countries are trying to reduce their reliance on fossil fuels to combat climate change.

In an interview about Chevron’s earnings on Friday, Mr. Wirth, who like Mr. Woods also serves as his company’s board chairman, which consolidation could 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,” said Mr. Wirth, referring to the megamergers of the 1990s and early 2000s. “Only time will tell.”

Paul Sankey, an independent analyst who proposed a merger of Chevron and Exxon in October, estimated at the time 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 collectively $ 15 billion in administrative expenses and $ 10 billion in annual capital expenditures, he wrote.

Seven years ago, Exxon was America’s most valuable company, with a market value of more than $ 400 billion, nearly double that of Chevron. But Exxon has fallen from its heights following a series of strategic missteps exacerbated by the pandemic. It has been overshadowed as a profit engine by tech giants such as Apple Inc.

and Amazon.com Inc.

in recent years and was removed from the Dow Jones Industrial Average for the first time since it was added as the Standard Oil of New Jersey in 1928 last year.

Shares of Exxon are down nearly 29% in the past year, while Chevron’s are down about 20%. Chevron briefly topped Exxon by market cap in the fall.

Exxon endured one of the worst financial performances ever in 2020. It is expected to lose a fourth straight quarter on Tuesday for the first time in modern history, having already suffered more than $ 2 billion in losses in the first three quarters of 2020.

Chevron has also struggled, reporting nearly $ 5.5 billion in losses on Friday in 2020. But investors have expressed more confidence in Chevron as it entered the downturn with a stronger balance sheet – in part because it failed in its $ 33 billion bid to sell Anadarko Petroleum Corp. before the pandemic, after it was outbid by Occidental Petroleum. Corp.

in 2019.

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

Some investors are increasingly concerned about Exxon’s leadership under Mr. Woods as the company faces a rapidly changing energy industry and growing global awareness of climate change. Some are also concerned that Exxon may need to cut its hefty dividend, costing about $ 15 billion annually due to its high debt burden. Many individual investors rely on the distributions as a source of income.

Woods began in 2018 with an ambitious plan to spend $ 230 billion to pump an additional one million barrels of oil and gas per day by 2025. But before the pandemic, production had increased only slightly and Exxon’s financial flexibility had diminished. In November, Exxon pulled out of the plan, saying it would save billions of dollars each year through 2025 on its capital expenditures and focus on investing in only the most promising assets.

Meanwhile, the company’s woes have caught 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 cutting costs to maintain its dividends. The company appointed four directors to Exxon’s board of directors on Wednesday, calling on it to make strategic changes to its business plan.

Exxon is also in talks with another activist, DE Shaw Group, and is preparing to announce one or more new board members, additional spending cuts and investment in new technologies to reduce carbon emissions.

Rivals such as BP PLC and Royal Dutch Shell PLC have embarked on bold strategies to reshape their businesses as regulatory and investor pressure to reduce carbon emissions builds. 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 renewables, but have chosen to double down on oil and gas. Both companies have argued that the world will need massive amounts 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]