Chevron CEO Exxon discusses merger

Such an agreement would reunite the two largest descendants of John D. Rockefeller’s Standard Oil monopoly, which was broken up in 1911 by American regulators, and reform the oil industry.

A combined company’s market value could amount to $ 350 billion. Exxon has a market value of $ 190 billion, while Chevron has $ 164 billion. Together, they would probably form the second largest oil company in the world in terms of market capitalization and production, producing about 7 million barrels of oil and gas per day, based on pre-pandemic levels, only second in both measures against Saudi Aramco .

But a merger of the two largest U.S. oil companies could pose regulatory and antitrust challenges under the Biden government. President Biden said climate change was one of the biggest crises facing the country. In October, he said he would push the country to ‘move away from the oil industry’. He has not yet commented on antitrust matters, and the government has not yet appointed the head of the justice department.

One of the people familiar with the talks said the parties may have missed an opportunity to execute the deal under former President Donald Trump, whose government is seen as more friendly to the industry.

A handful of significant oil and gas trades were completed last year, including Chevron’s $ 5 billion takeover of Noble Energy Inc. and ConocoPhillips’ $ 10 billion acquisition of Concho Resources Inc., but nothing close to the scope of the San Ramon, California combination. based on Chevron and Irving, Texas-based Exxon.

Such an agreement would be notable in the oil industry, which includes the mega-oil mergers of the late 1990s and early 2000s, which include the combination of Exxon and Mobil and Chevron and Texaco Inc.

It can also be the biggest corporate bond ever, depending on its structure. The distinction now belongs to the $ 181 billion acquisition of 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 beleagured oil and gas industry, arguing that cutting costs and improving operating efficiency will help businesses resist and prevent the slump caused by pandemics. preparing for an uncertain future as many countries try to combat their dependence on fossil fuels for climate change.

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

“As far as things are concerned on a larger scale, this has happened before,” he said. Wirth said, referring to the megamergers from the 1990s and early 2000s. “Time will tell.”

Paul Sankey, an independent analyst who predicted a merger of Chevron and Exxon in October, estimated at the time that the joint venture would have a market capitalization of about $ 300 billion and $ 100 billion in debt. A merger will enable them to cut $ 15 billion in administrative expenses and $ 10 billion in annual capital expenditure, he wrote.

Exxon was America’s most valuable company seven years ago, with a market value of more than $ 400 billion, almost double Chevron. But Exxon fell from its height after a series of strategic mistakes exacerbated by the pandemic. It’s eclipsed as a profit motive by technology giants like Apple Inc.

and Amazon.com Inc.

the past few years and was removed from the Dow Jones industrial average for the first time last year since it was added as Standard Oil of New Jersey in 1928.

Exxon’s shares have fallen by almost 29% in the past year, while Chevron has fallen by about 20%. Chevron was briefly above Exxon’s 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 on Tuesday for the first time in modern history, yielding more than $ 2 billion in losses in the first three quarters of 2020.

Chevron also struggled, losing nearly $ 5.5 billion by 2020. But investors have expressed more confidence in Chevron as it entered the downturn with a stronger balance sheet – in part because it failed to meet its $ 33 billion bid for Anadarko Petroleum Corp. before the pandemic for sale, failed because it was offered by Occidental Petroleum. Corp.

in 2019.

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

Some investors are becoming increasingly concerned about Exxon’s leadership under Mr. Woods, as the company has a rapidly changing energy industry and growing global awareness of climate change. Some are also worried that Exxon may have to cut its solid dividend, which costs about $ 15 billion annually, due to high debt levels. Many individual investors count on the payments as a source of income.

Mr. Woods began an ambitious plan in 2018 to spend $ 2 billion to pump another million barrels of oil and gas per day by 2025. But before the pandemic, production was only slightly higher and Exxon’s financial flexibility was reduced. In November, Exxon withdrew from the plan, saying it would cut billions of dollars of its capital expenditure annually by 2025, focusing on investing only in the most promising assets.

Meanwhile, the misery of the company has helped to attract the attention of activist investors. One of them, Engine No. 1 LLC, argued that the company should focus more on investments in clean energy, while reducing costs elsewhere to maintain its dividend. The firm on Wednesday named four executives on Exxon’s board and asked it to make strategic changes to its business plan.

Exxon was also in 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 reduce carbon emissions.

Competitors such as BP PLC and Royal Dutch Shell PLC have embarked on bold strategies to rebuild their business as regulatory and investor pressures to reduce carbon emissions. Both said they would invest heavily in renewable energy – a strategy that has so far not rewarded their investors.

Exxon and Chevron did not invest much in renewable energy, but rather oil and gas. Both companies have argued that the world still needs many decades of fossil fuels, and that they could benefit from 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]