The executives of ExxonMobil Corp and Chevron Corp held preliminary talks in early 2020 to combine the two largest oil producers in the United States into the largest merger of all time, according to media reports.
The discussions, which are no longer active, are an indication of the pressure that the most dominant companies in the energy sector faced when the COVID-19 pandemic took hold and crude prices fell.
The talks between Exxon CEO Darx Woods and Chevron CEO Mike Wirth were serious enough to draw up legal documents on certain aspects of the merger talks, one of the sources told Reuters. The reason why the talks ended could not be determined, reports Reuters.
But the Wall Street Journal, citing its own unknown 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]
The Reuters sources requested anonymity because the case is confidential. Exxon and Chevron, which have market capitalizations of $ 190 billion and $ 164 billion respectively, declined to comment, Reuters said.
Exxon and Chevron’s shares caused the oil value in the crater last year after a Saudi-Russian price war and as a result of the new coronavirus outbreak. Exxon’s share was hit the hardest, as investors expressed concern about the company’s long-term profitability and spending decisions.
In their talks, Exxon and Chevron executives sought to achieve synergies through significant cost cuts to address the downturn in energy markets, one of the sources told Reuters. At the end of 2019, Exxon employed approximately 75,000 people and Chevron approximately 48,000.
Following the intermittent talks with Exxon, Chevron acquired oil producer Noble Energy in a $ 5 billion cash and inventory deal completed in October.
Regulatory investigation
A proposed combination last year would almost certainly have caused an intense antitrust review by the U.S. Department of Justice, a process that usually takes months to complete. And such a review would probably also have been pitted against the November US presidential election in November, which would have created additional uncertainty about how quickly such an agreement could be reached.
One source said the window under Biden’s government might have been completely closed, as Democrats have historically been less sympathetic to such deals. President Joe Biden has put climate change at the forefront of his agenda and promoted jobs in renewable energy, as opposed to traditional ones in the oil sector.
Biden recently formally revoked the permit to build the Keystone XL oil pipeline. General Motors said last week that it intends to stop selling petrol and oil – dependent vehicles by 2035.
The White House and the Department of Justice did not immediately respond to Reuters’ requests for comment.
The news of the unsuccessful talks came to the fore as Exxon came under pressure from some of its shareholders over its strategic direction.
Engine No. 1, an investment firm in San Francisco, last week named four executives on Exxon’s board, urging the company to spend its cash better, retain its dividend and invest more in clean energy. Exxon is also at the crossroads of hedge fund DE Shaw, which is putting the company under pressure to reduce costs and improve performance.
Exxon reports fourth quarter results on February 2nd. Chevron reported a surprising loss of $ 11 million in the fourth quarter last week as low margins on fuel, acquisition costs and foreign exchange effects overwhelmed drilling results.
Potential giant
A joint Exxon-Chevron will only be overshadowed by Saudi Aramco, which boasts a market value of about $ 1.8 billion and has previously pushed many U.S. drillers to the financial edge by flooding the market with oil.
It can also be the biggest corporate bond ever, depending on its structure. The distinction now belongs to the approximately $ 181 billion acquisition of German conglomerate Mannesmann AG by Vodafone AirTouch PLC in 2000, according to research firm Dealogic.
Such an agreement would reunite the two largest descendants of John D Rockefeller’s Standard Oil monopoly, which was broken up by U.S. regulators in 1911 and reformed the oil industry.
Despite unavoidable concerns about antitrust, Exxon and Chevron could argue that a merger would be in the best interests of the US to tackle the Saudi state-controlled conglomerate and the world’s other largest state-aided oil producers, one of the sources told Reuters .
Last year, for example, the Saudi-Russian oil price war highlighted the vulnerability of U.S. producers to foreign governments that could effectively dictate the price of crude oil by forcing energy businesses to increase or decrease their production.
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U.S. oil companies compete with each other and set their own different production goals, with Washington having only a limited ability to intervene.
Exxon and Chevron, with their powerful balance sheets, were able to withstand the turmoil in the energy markets following the pandemic that forced smaller independent oil and gas producers to protect themselves from bankruptcy.
Yet they also felt the pain. Demand for oil evaporated in early 2020 when governments introduced travel restrictions and home orders to delay the spread of the COVID-19 pandemic.
At some point in April, the price of U.S. unconditional crude futures in West Texas became negative for the first time ever, meaning sellers had to pay buyers to take the commodity out of their hands. Prices have since returned to around $ 52 a barrel.
Exxon and Chevron have cut their jobs over the past year. Exxon dropped its dividend last year after increasing its shareholder distribution 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 terms and not about a possible merger of Exxon-Chevron.
“On a larger scale, it’s happened before,” Wirth told the newspaper, referring to the mega-mergers of the 1990s and early 2000s. “Time will tell.”