Monday, August 8, 2022

Exxon and Chevron CEOs reportedly discuss mega-merger last year

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The general managers of Exxon Mobil Corp. and Chevron Corp. spoke last year about the merger of the two largest US oil companies, Dow Jones reported, citing people familiar with the talks.

Chevron’s Mike Wirth and Exxon’s Darren Woods spoke out as the Covid-19 epidemic hurt demand for oil and gas, adding financial pressure on both companies, Dow Jones said. The talks have been described as preliminary and are not ongoing, news services said, adding that the talks may be brought back in the future.

The consolidation of companies would be the biggest deal the energy industry has ever seen. This would create a giant with a market cap of over $ 350 billion at current valuations, and with more revenue than Saudi Aramco. Exxon and Chevron have huge oil and gas production assets both in the United States and around the world, significant refining and chemicals operations, and immediately recognizable retail brands.

However, the size and complexity of a potential merger would make such an endeavor daunting. Both companies trace their lineage back to powerful Standard Oil, the monopoly oil producer led by John D. Rockefeller, which was dismantled by the US government. Antitrust authorities around the world should assess the position of the merged Exxon and Chevron in the upstream and downstream sectors.

Exxon and Chevron declined to comment on the Dow Jones report.

Still, the benefits of a deal in today’s environment are obvious. The 2020 oil crash has been sobering for the industry, forcing it to make aggressive spending cuts. Exxon and Chevron were not immune. As the wave of US takeovers in the shale area showed late last year, investors have cautiously greeted consolidation as a way to cut costs.

This is one of the reasons a merger between the two U.S. oil giants makes sense, wrote industry analyst Paul Sankey of Sankey Research in an October note to clients.

“Chevron for ExxonMobil is a great idea,” he said. “It would really be a bottom of the cycle, a countercyclical move of the kind that the stock market is more or less demanding.”

Energy companies have been among the worst performers on the S&P 500 Index over the past year. Exxon fell 30%, while Chevron fell 23%, versus the benchmark’s 13% gain.

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