Plunging Petroleum Prices Prompt
Mobil-Exxon Merger Talk
04:45 p.m Nov 28, 1998 Eastern
By Andrew Kelly
HOUSTON (Reuters) - Merger talks between Exxon
Corp. and Mobil Corp. are the clearest sign yet that
the lowest world oil prices since the early 1970s are
shaking up the entire industry, analysts said over the
weekend.
Friday the two largest U.S. oil firms curtly
acknowledged that they were discussing a ''possible
combination transaction.'' If it happens, the new
company will surpass Royal Dutch/Shell to become
the world's biggest oil company.
Although they said a deal was by no means certain,
their joint statement gave oil shares a shot in the arm
by reigniting speculation about a wholesale
consolidation of the industry.
Standard & Poor's international oil index rose 4.4
percent to 1532.51 Friday, with Mobil's stock gaining
9.1 percent to $85.50 and Exxon's rising 2.8 percent
to $74.375.
A merger between Exxon and Mobil would be the
second deal between two of the industry's biggest
players this year after British Petroleum Plc and
Amoco Corp got the ball rolling by announcing plans
to merge in August.
Analysts say the catalyst -- the lowest oil prices in real
terms for 25 years -- and the goal -- massive cost
savings -- were the same in both cases.
''The objective is to bring down the costs, become
more efficient and become an even bigger
powerhouse,'' said Cyrus Tahmassebi, president of
Energy Trends Inc.
As key oil producing countries, smarting from low oil
prices, woo the foreign companies they sent packing
during a wave of nationalizations in the 1970s,
Tahmassebi said negotiating power would be
concentrated in the hands of the biggest companies.
Furthermore, much of the world's undeveloped oil
and gas fields lie in hostile offshore areas, requiring
major financial muscle to unlock them and bring the
hydrocarbons to market.
''The changes are so huge that even companies like
Exxon have to accept that the rules of the game are
changing,'' said Tahmassebi.
Some analysts said Exxon and Mobil seemed less
complementary than BP and Amoco, possibly making
it harder to obtain benefits by bringing the two
companies together.
''With Exxon and Mobil there's a lot more overlap,''
said Joe Pratt, a specialist on the history of the oil
industry at the University of Houston.
The companies have given no firm word on when a
deal might be announced but some media reports
have said word could come in the coming week.
Although a merger would bring together two of the
world's biggest oil companies, analysts expect
trustbusters on both sides of the Atlantic will ultimately
approve it.
However, the two companies might have to dispose
of some ''downstream'' refining and marketing assets
in the U.S. Northeast and in Europe to appease
competition authorities.
Ironically an Exxon-Mobil merger would reunite two
of the companies created when the U.S. Supreme
Court broke up John D. Rockefeller's domineering
Standard Oil Trust in 1911.
Unlike Standard Oil, which once controlled 90
percent of U.S. refining, analysts do not believe
Exxon and Mobil could jointly exert monopoly pricing
power in today's competitive markets.
Once seen as powerful and arrogant corporate giants
that could impose their will on sovereign nations, oil
companies are currently regarded with something
more akin to pity.
Many analysts are not expecting much of a revival in
world oil prices which at $11 to $12 a barrel today
are over 30 percent lower than their levels of a year
ago.
A meeting of the Organization of Petroleum Exporting
Countries (OPEC) in Vienna last week postponed
any action on joint production curbs until next March.
And there are few hopes for an early revival of energy
demand in Asia, where much of the growth in world
oil consumption was concentrated before the region
sank into economic crisis.
Copyright 1998 Reuters Limited |
