With the Exxon-Mobil deal official, other big oil companies are now in a mating game. 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. –in the first place. Exxon and Mobil’s $75.3-billion merger gave the combined company a dominant presence in U.S. and world oil markets that is sure to draw antitrust scrutiny. Exxon Mobil is America’s largest oil company and antitrust issues are being raised because of its refining capacity and share of the U.S. gasoline market.
This does not 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. 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 are likely to consider buying smaller rivals because most of their peers are now spoken for, namely Exxon, Mobil and Amoco. Yet it is also possible that some of those smaller rivals might pair up to bolster their positions. Either way, the consolidation is having 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.
The true immediate costs for Shell Oil Company are untabulated. The company lost 60% of its production in the Gulf in the following weeks after hurricane Katrina. The Shell Company suffered intangible losses of employee moral and high turnover. Its tangible losses are not limited to losses in refining capacity, downed transporting pipelines, and downstream revenue from retail stores sales. However ...
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. The merger turmoil means it is 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. 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 is 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.
Peltz, James F.; Exxon-Mobil Deal Has Other Firms Assessing Options; Business Week, October 1999