Exxon, Chevron CEOs spoke to unite

Such a treaty would reunite the two largest descendants of John D. Rockefeller ‘s General Oil monopoly, which was broken up by U.S. rulers in 1911, and reshape the oil industry.

The market value of a merged company could exceed $ 350 billion. Exxon has a market value of $ 190 billion, and Chevron has $ 164 billion. Together, they are likely to be the second largest oil company in the world with market capitalization and production, producing around 7 million barrels of oil and gas per day, based on pre-pandemic levels, the second only in both dimensions to Saudi Aramco.

But a union of the two largest American oil companies could face regulatory and trust challenges in the Biden administration. President Biden has called climate change 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 been less vocal about trust issues, and the administration has yet to appoint a head of the Justice Department in that department.

One of those familiar with the talks said the sides may have missed an opportunity to sign the agreement under former President Donald Trump, whom the administration had seen as more industry-friendly.

A handful of sizable oil and gas contracts were concluded last year, involving Chevron taking over Noble Energy Inc. and ConocoPhillips approximately $ 10 billion from Concho Resources Inc., but nothing close to the scale of merging San Ramon, Calif.- based Chevron and Irving, Texas-based Exxon.

Such a deal would significantly exceed the size of the mega-union oil in the late 1990s and early 2000s, which included the Exxon and Mobil mix and Chevron and Texaco Inc.

It could also be the largest physical connection ever, depending on the structure. That split currently relates to the purchase of about $ 181 billion 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 oil and gas-led industry, arguing that cutting costs and improving operational efficiency would help weather companies weather the downturn by disease. spread and prepare for an uncertain future as many countries try to reduce. dependence on fossil fuels to tackle climate change.

In an interview talking about Chevron’s earnings on Friday, Mr. Wirth, who also looks like Mr. Woods as chairman of his company’s board, said consolidation could make the industry more efficient. He spoke generally and not about the possible merger of Exxon-Chevron.

“As with bigger things, it’s happened before,” Mr Wirth said, referring to the megamergers of the 1990s and early 2000s. “Time will tell.”

Paul Sankey, an independent analyst who was considering a merger of Chevron and Exxon in October, estimated at the time that the company would have a market capitalization of about $ 300 billion and $ 100 billion in debt. together. A merger would allow them to cut $ 15 billion in administration costs and $ 10 billion in annual capital expenditures, he wrote.

Exxon was the most valuable company in America for seven years, with a market value of more than $ 400 billion, nearly twice that of Chevron. But Exxon has fallen from the heights after a series of strategic mishaps, exacerbated by the pandemic. It was introduced as a profit engine by technical giants like Apple Inc.

and Amazon.com Inc.

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

Shares of Exxon have fallen nearly 29% over the past year, while Chevron’s is down about 20%. Chevron briefly stopped Exxon in market capitalization in the fall.

Exxon suffered one of the worst financial performances ever in 2020. It is expected to report a fourth consecutive quarterly loss for the first time in today’s history on Tuesday and is already over has lost $ 2 billion in losses during the first three quarters of 2020.

Chevron has also struggled, reporting nearly $ 5.5 billion in 2020 losses on Friday. But investors have shown more credit in Chevron as it entered the recession with a stronger balance sheet – in part because it walked away from its $ 33 billion bid to buy Anadarko Petroleum Corp. pandemic, after being eradicated by Occidental Petroleum Corp.

in 2019.

Exxon has about $ 69 billion in debt since September, and Chevron has about $ 35 billion, according to S&P Global Market Intelligence.

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

Mr Woods embarked on an ambitious plan in 2018 to spend $ 230 billion to pump an extra million barrels of oil and gas daily by 2025. But before the epidemic broke out, production was only slightly up and Exxon’s financial flexibility has been reduced. In November, Exxon withdrew from the plan and said it would cut billions of dollars from its capital cost each year through 2025 and focus on investing in only the most promising funds.

At the same time, the company’s leeches have helped attract the attention of active investors. One of them, Engine No. 1 LLC, has said the company should focus more on investments in clean energy while cutting costs elsewhere to maintain its share. The company announced four directors on the Exxon board on Wednesday and called for it to make strategic changes to its business plan.

Exxon has also been in talks with another campaigner, DE Shaw Group, and is preparing to announce one or more new board members, additional spending cuts and investments in new technologies to help it reduce their carbon emissions.

Competitors such as BP PLC and Royal Dutch Shell PLC have embarked on bold strategies to reshape the industry as regulatory pressures and investors to reduce carbon emissions. Both have said they will invest heavily in renewable energy – a strategy that their investors have not yet mastered.

Exxon and Chevron did not invest heavily in renewables, instead opting to double down on oil and gas. Both companies have argued that the world will need a lot of fossil fuels for decades to come, and that they can take advantage of conventional underinvestment in oil production.

Write to Christopher M. Matthews at [email protected], Emily Glazer at [email protected] and Cara Lombardo at [email protected]