An interesting piece on the XON/MOB merger. Seems as though the new company is shedding "non-core" assets to become THE E&P powerhouse. Doin the Dijur shuffle? Anybody see a trend here? This seems like a fairly strong repudiation of the Upstream/Downstream oil company as a conglomerate philosophy. Just wondering what the inplications are for OS companies and Mid sized E&P's are. Comments?
quote.bloomberg.com
Bloomberg Energy
Mon, 29 Nov 1999, 9:19pm EST
11/29 15:55 Exxon Mobil to Be Exploration Force After Selling Gas Stations, Refinery
By Terence Flanagan
Exxon Mobil to Be Exploration Force After Sales (Update1)
(Updates shares in 11th paragraph.)
Irving, Texas, Nov. 29 (Bloomberg) -- Exxon Corp. and Mobil
Corp., the two biggest U.S. oil companies, likely won't mind
selling 2,400 gasoline stations and a California oil refinery to
win U.S. regulatory approval of their merger, analysts say.
The companies expect oil and natural-gas production to drive
profit in the 21st century as energy demand grows in India, China
and other developing nations. At the same time, ample refining
capacity worldwide means fuel-selling margins will remain thin.
``They're selling assets in the worst-returning business in
the oil sector,' said Tyler Dann, an analyst at Banc of America
Securities in Houston. Refining usually lags exploration and
chemical-making, he said.
Combined, Exxon and Mobil have averaged $800 million a year
in U.S. refining and fuel-selling profit since 1994, about 18
percent of their annual earnings, said Fadel Gheit, research
director at Fahnestock & Co. Selling the operations in the
Northeast, California and Texas would cut profit about $200
million a year, Gheit said.
``We're talking less than 10 percent of the potential
benefits of the merger,' Gheit said. The companies say the
combination will save $2.8 billion a year.
The U.S. Federal Trade Commission is expected to rule on the
merger this week, people familiar with the investigation said.
Exxon had expected the antitrust review to be completed at mid-
year, then pushed its target to late September.
The divestiture package is likely to face a court challenge
by gasoline dealers in the Northeast, who want the opportunity to
buy stations they lease from Mobil or Exxon. The dealers say that
right is guaranteed by the Petroleum Marketing Protection Act.
``We are prepared to go to court' if dealers aren't given a
``first right of refusal' to purchase the stations, said Roy
Littlefield, director of the Service Station Dealers of America
and Allied Trades.
The FTC is expected to require that the new company, to be
called Exxon Mobil Corp., offer the stations' buyers the chance
to license the popular Exxon or Mobil brands.
Shareholders and the European Union have approved the
transaction, now valued at about $86.8 billion in stock and
assumed debt. Exxon won EU approval in September by agreeing to
sell lubricants and gas-storage operations and Mobil's stakes in
two fuel-sales alliances.
Exxon shares rose 1 1/2 to 79 1/2 in late trading, while
Mobil rose 1 9/16 to 104 1/2 on a day when most other oil shares
fell.
`Major-League Player'
Combined, Exxon and Mobil have a market value of about $272
billion. With 1998 sales of $171 billion, Exxon Mobil will rank
second on the Fortune 500 list to General Motors Corp.; Exxon now
stands at No. 4 and Mobil is 12th.
The two companies generated $8.07 billion in net income last
year, more than 2 1/2 times as much as their five largest U.S.
rivals combined.
Many analysts say size will be a clear advantage in
competing for huge overseas exploration projects, where oil
wealth will be concentrated in coming decades.
``There may be fewer opportunities, but those few will
really count,' Gheit said. ``Exxon Mobil will be a major-league
player and there will be very little room for farm teams.'
Exxon, already the world's largest publicly owned oil
company, wants to complete the acquisition so it can start
working toward its savings targets.
BP Amoco Plc reached cost-cutting goals faster than expected
since it was formed in December by British Petroleum Co.'s
purchase of Amoco Corp. for $62 billion. Exxon Mobil likely will
do the same, said Dann, who estimates the potential savings at $4
billion to $5 billion a year.
``It will be an extremely large, well-financed, and well-run
company,' Dann said. He reiterated his ``buy' ratings on Exxon
and Mobil shares today.
Exploration
The new company will have more oil and gas reserves than any
investor-owned rival, according to Petroleum Intelligence Weekly.
It will rank behind state-owned oil companies of Saudi Arabia and
10 other nations.
Last year, Exxon and Mobil had combined oil reserves of 10.6
billion barrels, according to Petroleum Intelligence Weekly, more
than a billion more than BP Amoco or Royal Dutch/Shell Group. The
two companies' gas reserves stood at 58.6 trillion cubic feet.
``Oil and gas is going to be the basic, fundamental fuel
that moves economic growth,' Mobil Chief Executive Lucio Noto
told shareholders in May.
Exxon and Mobil likely will give up about 5 percent of their
worldwide service stations. Companies interested in buying them
include Sunoco Inc., Getty Petroleum Marketing Inc., Tosco Corp.,
Amerada Hess Corp., Crown Central Petroleum Corp., Irving Oil of
Canada and Chevron Corp., Littlefield said.
The new company's exploration and production operations,
meanwhile, will be virtually untouched. By buying Mobil, Exxon
will add projects in Canada, Nigeria, and central Asia to its
fields in Europe and North America.
Exxon also will get Mobil's brand name and fuel-selling
savvy. Mobil, analysts say, has excelled in boosting market share
in recent years.
``Years from now people are going to say, `You know, Exxon
got Mobil for cheap',' said John Segner, portfolio manager for
Invesco Strategic Energy Fund, a Mobil shareholder.
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