Exxon, Chevron CEOs Discussed Merger

Director

Exxon Mobil Corporation.

XOM -2.65%.

Chevron Corp.

CLC -4.29%.

talked about the collapse of the oil giants after a pandemic shook the world last year. According to people familiar with the discussions, they were trying to test what could become one of the biggest corporate mergers of all time.

CEO of Chevron

Mike Wirth.

and CEO of Exxon

Darren Woods.

discussed the merger in response to the emergence of a new corona virus that has reduced demand for oil and gas and placed a heavy financial burden on both companies, according to the audience. The talks were described as preliminary and not ongoing, but could resume in the future, he said.

Such an agreement would bring together the two greatest descendants

John D. Rockefeller

The standard oil monopoly, which was broken by American regulators in 1911 and changed the face of the oil industry.

The market value of the combined company could exceed $350 billion. Exxon has a market value of $190 billion and Chevron has a market value of $164 billion. Together, they are likely to form the world’s second-largest oil company in terms of market capitalization and production, producing about 7 million barrels of oil and gas per day, based on pre-pandemic levels, after Saudi Aramco.

But the merger of the two largest US oil companies could face regulatory and antitrust problems under the Biden administration. President Biden said climate change is one of the biggest crises facing the country. In October, he said he would have the country separated from the oil industry. He has not been so outspoken on antitrust issues, and the government has not yet appointed an official to this section of the Justice Department.

A person familiar with the negotiations said the parties may have missed an opportunity to bring the deal under the former president.

Donald Trump,

whose administration was considered more favourable to the industry.

Last year saw the completion of several significant oil and gas transactions, including Chevron’s acquisition of Noble Energy Inc.

ConocoPhillips

COP -2.63% COP -2.63

About $10 billion was absorbed by Concho Resources Inc. but nothing comparable to the merger of Chevron in San Ramon, California and Exxon in Irving, Texas.

Exxon, Chevron CEOs Discussed Merger

Darren Woods, CEO of Exxon Mobil Corp. at an industry conference in 2018.

Photo:

Andrew Harrer/Bloomberg News

Such a deal would go far beyond the oil mega-mergers of the late 1990s and early 2000s, including the combination of Exxon and Mobil and Chevron and Texaco Inc.

Moreover, depending on its structure, it could be the largest corporate link in history. According to Dealogic, the price is now part of the purchase of Vodafone AirTouch PLC by German conglomerate Mannesmann AG in 2000 for about $181 billion.

Many investors, analysts and energy sector executives have called for consolidation in the embattled oil and gas industry. They say cost savings and more efficient operations will help companies cope with the pandemic slowdown and prepare for an uncertain future as many countries seek to reduce their reliance on fossil fuels to combat climate change.

In an interview Friday about Chevron’s results, Wirth, who like Woods is president of his company, said consolidation can make the industry more efficient. He spoke in general terms, not about a possible merger between Exxon and Chevron.

As for more important things, this has happened before, Wirth said, referring to the mega-bigays of the 1990s and early 2000s. Time will tell.

Paul Sanky,

An independent analyst who proposed a merger between Chevron and Exxon in October estimated that the combined company would have a market capitalization of about $300 billion and $100 billion in debt at that time. The merger would allow them to reduce total administrative costs by $15 billion and capital spending by $10 billion a year, he writes.

Seven years ago, Exxon was the largest company in America, 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 mistakes exacerbated by the pandemic. It has been used as a profit machine by technology giants such as

Apple Inc.

AAPL -3.74%.

Amazon.com Inc,

AMZN -0.97%.

in recent years and last year was excluded from the Dow Jones Industrial Average for the first time since New Jersey Standard Oil’s inclusion in 1928.

Its market capitalization today represents about a quarter of that of the electric car manufacturer.

Tesla Inc..,

which has a market value of about $752 billion.

Exxon shares have fallen nearly 29% in the past year, while Chevron shares have fallen about 20%. Chevron briefly outperformed Exxon in terms of market capitalization in the fall.

In 2020, Exxon experienced one of the worst financial performances in its history. The company is expected to report its fourth consecutive quarterly loss on Tuesday, the first in modern history, and has already suffered more than $2 billion in losses in the first three quarters of 2020.

The abundance of fossil fuels, combined with the development of wind and solar technologies, has driven down energy prices worldwide. WSJ explains how it all happened at the same time. Photographic illustration: Carlos Waters/WSJ

Chevron also fought back, announcing Friday a loss of nearly $5.5 billion for 2020. But investors have more confidence in Chevron because the company entered the recession with a stronger balance sheet – in part because it withdrew its $33 billion bid to buy Anadarko Petroleum Corp. before the

Occidental Petroleum Corp.

OXI -4.25

в 2019.

According to S&P Global Market Intelligence, Exxon had debt of about $69 billion in September, while Chevron had debt of 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. There are also concerns that Exxon will have to cut its huge dividend, which costs the company about $15 billion a year, because of its high debt load. Many private investors rely on distributions as a source of income.

In 2018, Mr. Woods embarked on an ambitious $230 billion plan for the United States. The company has set a goal of producing an additional one million barrels of oil and gas per day by 2025. But before the pandemic, production rose only slightly and Exxon’s financial flexibility declined. In November, Exxon scaled back, saying it would withdraw billions of dollars annually from capital spending through 2025 and focus on the most promising assets.

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Meanwhile, the company’s problems have helped it attract the attention of militant investors. One of them, Engine No. 1 LLC, argued that the company should focus more on clean energy investments while reducing costs elsewhere to maintain its dividend. On Wednesday, the company appointed four directors to Exxon’s board and called for strategic changes to the company’s business plan. Exxon is also in talks with another activist, the D.E. Shaw Group, and is preparing to announce one or more new board members, further spending cuts and investments in new technologies to help the company reduce its carbon emissions.

Competitors such as.

BP -2.80

PLC and

Royal Dutch Corps

RDS.A -3.53%.

PLC has embarked on bold strategies to transform its business at a time of increasing regulatory pressure and investment to reduce carbon emissions. Both said they would invest heavily in renewable energy, a strategy that has so far failed to reward their investors.

Exxon and Chevron have not invested much in renewable energy, choosing instead to double their oil and gas production. Both companies argue that the world will need huge amounts of fossil fuels in the coming decades and that they can benefit from the current underinvestment in oil production.

Write to Christopher M. Matthews at [email protected], Emily Glaser at [email protected] and Kara Lombardo at [email protected].