Exploring Oil Patch for Partners
Choose your partner.
With the Exxon-Mobil deal official, other big oil companies are now in a mating game, industry observers said Tuesday. The companies are mulling their own mergers to keep pace with this new mega-rival, and to survive the near-collapse of world oil prices that spawned the marriages of Exxon and Mobil--and British Petroleum and Amoco Corp. earlier this year--in the first place.
That doesn’t mean a merger wave will automatically roll through the industry; mergers routinely collapse over issues of price, management egos and other factors. But every oil company is at least going over its options now that Exxon and Mobil--the two biggest players in the U.S. oil industry--are joining to create an awesome competitor.
“If they [Exxon and Mobil] can pull it off, then it will force others to do the same thing,” said Harry Quarls, a senior partner in Dallas for the consulting firm Booz Allen & Hamilton Inc.
To be sure, other possible pairings in the oil patch are just speculation for now, and the companies themselves aren’t commenting. But attention is shifting to the likes of Texaco, headquartered in White Plains, N.Y., and San Francisco-based Chevron Corp.--the nation’s third- and fourth-largest oil companies, respectively--as potential buyers.
They’re likely to consider buying smaller rivals “because most of their peers are now spoken for,” namely Exxon, Mobil and Amoco, said Norman Rosenberg, oil analyst at Standard & Poor’s Corp.
Yet it’s also possible that some of those smaller rivals might pair up to bolster their positions.
Either way, the consolidation could have a major impact on the three oil companies headquartered in Southern California: Atlantic Richfield Co. (Arco) and Occidental Petroleum Corp., both based in Los Angeles, and El Segundo-based Unocal Corp.
Arco, a leading force in Southern California gasoline sales but a relatively small player worldwide, has been rumored to be a takeover target for months.
But analyst Rosenberg cautioned that “things are so crazy now that it’s hard to say who’s going to be in the buyers’ column and the sellers’ column.” He noted, for instance, that he and others long thought Mobil would end up a buyer--not bought out itself.
The merger turmoil means it’s nail-biting time for tens of thousands of oil company employees in California and worldwide. A key purpose of these mergers is to slash overlapping operating costs so that the companies can keep growing profits--even with oil at historic low prices. That means huge layoffs.
Exxon executives said Tuesday that about 9,000 of the combined 123,000 Exxon-Mobil jobs would be eliminated.
Meanwhile, oil stocks generally fell on Tuesday despite the prospect of more takeovers. Exxon dropped $3.38 a share to $71.63; Mobil lost $2.25 to $83.75; Texaco slipped 88 cents to $56.81; and Chevron fell $1.69 to $81.94. Arco bucked the trend, rising 63 cents a share to $67.13.
Big Oil is just now going through a massive consolidation that’s already taken place in many other industries, including aerospace, banking, pharmaceuticals, retailing and financial services.
The trigger, of course, is the plunge in oil and gasoline prices to levels not seen in decades. That drop has dug deeply into the companies’ profitability, making it harder for them to compete for new exploration and production projects around the globe.
But antitrust scrutiny of oil mergers--in light of oil’s incalculable importance to the world economy--will be considerable, one reason why it’s hard to speculate on which oil companies might eventually join forces.
Another problem is whether the two companies can efficiently mesh “upstream” operations, which involve exploring for and producing oil, with “downstream” operations, or the refining and selling of oil products.
Regardless, companies are likely to seek viable partners first and worry about the details later, because the Exxon-Mobil deal could so accelerate Big Oil’s merger trend that potential partners might not be available for long, said S&P;’s Rosenberg.
“The clock is definitely ticking now,” he said.
Staff writers Nancy Rivera Brooks and Debora Vrana contributed to this report.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Striking Oil
Exxon and Mobil’s $75.3-billion proposed merger would give the combined company a dominant presence in U.S. and world oil markets that is sure to draw antitrust scrutiny.
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Exxon Mobil would be America’s largest oil company ...
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1997 assets, Rank Company in billions 1 Exxon Mobil* $139.7 2 Amoco/BP* 43.5 3 Chevron 35.5 4 Shell Oil 29.6 5 Texaco 29.6 6 Atlantic Richfield 25.3 7 Enron 23.4 8 Conoco 17.5 9 Occidental Petroleum 15.3 10 Phillips Petroleum 13.9
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Note: Amoco/BP’s assets include the assets of BP’s U.S. subsidiary. Shell is the U.S. subsidiary of Royal Dutch/Shell Group.
... and antitrust issues would be raised because of its refining capacity and share of the U.S. gasoline market.
Refining Capacity
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Worldwide refining capacity, millions Rank Company of barrels per day 1 Exxon Mobil* 6.57 2 Royal Dutch/Shell 3.79 3 Amoco/BP* 2.97 4 Sinopec 2.87 5 Petroleos de Venezuela 2.44 6 Saudi Aramco 1.97 7 Chevron 1.66 8 Petrobras 1.54 9 Texaco 1.53 10 Total/Petrofina* 1.53
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* Merger has yet to be approved by regulators.
U.S. Gasoline Market
Shell/Texaco: 14.5%
Exxon/Mobil: 13.5%
Amoco/BP: 10.5%
Other: 61.5%
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Sources: Bloomberg News, Energy Intelligence Group, Lucio A. Noto, Oil & Gas Journal, wire reports
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Researched by JENNIFER OLDHAM / Los Angeles Times
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IT’S OFFICIAL
Exxon and Mobil agreed to merge in a record $75.3-billion deal. A1
* EUROPEAN DEAL
French oil giant Total is buying a Belgian refiner for $11.8 billion. C4
