IN THE NEWS / Tentacles of merged energy giant span the globe from
Sable Island to Singapore
$182-billion in sales: Worldwide network of 28,000 gas stations
The Financial Post
With their anticipated merger announcement early next week, oil giants Exxon Corp.
and Mobil Corp. will create the largest energy firm in the world.
Indeed, with combined 1997 sales of $182.4-billion (all figures in U.S. dollars), the
new firm will be the world's largest company of any description, displacing General
Motors Corp. (1997 sales of $178.2-billion) from the number one spot it has held for
generations.
With an estimated market capitalization of $237.7-billion, Exxon-Mobil will be twice
the size of oilpatch rival, Royal Dutch/Shell Group ($101.3 billion). And, with
combined profits of $11.8-billion, the new entity's earnings will be more than five times
that of the total profits of Canada's top 25 oil and gas producers.
Of greater importance, though, are implications for other players in the global
oilpatch.
The surprise union of the world's second- and fourth-largest oil companies creates an
exploration juggernaut with unrivaled financial and engineering resources for bidding on
the world's few remaining untapped reserves of significant size, or "elephants," as
they're known in the industry.
That goal, and a desire to cut costs by achieving economies of scale, was the motive
behind the August announcement that British Petroleum PLC was snapping up
Chicago-based Amoco Corp. in a $55-billion deal.
On their own, Exxon, based in Irving, Tex., and Mobil, headquartered in Fairfax,
Va., are already formidable operators.
Exxon's Lee Raymond, 59, whose five-year tenure as CEO has been marked by an
emphasis on cost control, has rewarded investors with three successive years of
record profits and a three-year total return to shareholders of 120%, despite a climate
of low world oil prices. He's done that mostly by keeping operating costs at 1990
levels.
But Mr. Raymond's overtly cautious style belies an aggressive growth strategy,
evident even before rumours of the Mobil coupling began to swirl through the stock
market.
Exxon produces or explores for oil and gas in about 30 countries.
It has scored impressive recent finds in the British and Norwegian sectors of the
North Sea, and has been an early participant in developing offshore reserves in West
Africa, Indonesia and Sakhalin Island in Russia.
Among it peers in the top ranks of world oil producers, Exxon has shown an
unparalleled ability to shield itself from volatility in well-head prices, thanks to the the
stable profits of its burgeoning "downstream" assets. These include 31 refineries in 17
countries, and a retail network that sells an astonishing 65 million gallons of motor oil
to eight million customers every day. It is expanding its gas station network to
incorporate Tiger Express convenience stores from Spain to Shanghai.
Exxon's chemical company, one of the world's largest with 1997 sales of $1.4-billion,
operates a factory in Sarnia, Ont. that churns out polyethylene, a basic ingredient in
thousands of consumer and industrial products, while its refineries in Europe and Asia
are leaders in high-octane aviation fuels and diesel and racing-car fuels.
In Asia, Exxon is one of the largest private operators of electric power plants: It has a
60% stake in Hong Kong power plants that supply power to Kowloon and the New
Territories.
Together, Exxon and Mobil will operate one of the world largest retail networks, with
more than 28,400 gas stations in the U.S. alone, plus outlets operated by affiliates such
as Exxon's 70%-owned Imperial Oil Ltd., Canada's largest integrated oil company.
While less than half Exxon's size in revenues, Mobil usefully strengthens Exxon's
reserve base. While Exxon brags that for the past four years it has found new reserves
to replace those it has depleted, the replacement rate has never exceeded 120% of
current production. Mobil also brings 20 refineries worldwide, and operates a sizable
petrochemical division.
The two firms are rivals in retailing and in bidding contests for exploration plays. But
they have much in common.
They were each spun off from John D. Rockefeller's Standard Oil Trust by the U.S.
Supreme Court in a landmark 1911 antitrust decision. Since 1947, Exxon and Mobil
have been linked as partners in the Arabian American Oil Co. (Aramco), the
consortium responsible for the largest share of Middle East oil production.
Both companies are energy pioneers in Canada. Imperial Oil brought in the world's
first major postwar oil discovery, at Leduc, Alta., in 1947, and is currently expanding
its 25%-owned Syncrude heavy oil operations in Alberta -- a province whose oil
reserves exceed those of the Middle East.
Mobil Oil Canada, based in Calgary, has helped spearhead the development of oil
and gas production off the East Coast, and recently committed to spend an additional
$4-billion over the next five years in the Hibernia, Terra Nova and Sable Island
projects.
It's likely that Exxon and Mobil, with a combined workforce of 122,700, will seek
efficiencies by eliminating duplication of efforts.
Both companies operate aromatics plants in Singapore, for instance. They have each
been early investors in Vietnam; and both firms anxiously await a resolution to political
problems that have delayed construction of a pipeline to carry reserves that each firm
is licensed to produce in remote Kazakhstan and the Caspian Sea.
Similarly, both companies have learned hard lessons about the folly of diversification.
In the 1980s, Exxon shed non-core assets in computers, electrical goods and
weigh-scales, and Mobil dumped its ill-fated investments in ailing retailer Montgomery
Ward and packaging giant Container Corp.
Neither firm is a stranger to controversy, either. Exxon is still recovering from the
public relations disaster following the Exxon Valdez oil spill of 1989; and Mobil is a
major oil producer in Nigeria, which makes it a target for critics of civil-rights abuses
by the government and armed forces of that country.
That hasn't tempered Mobil's stout defence of free-enterprise principles in ads that
have been appearing on the op-ed page of The New York Times for more than two
decades.
Exxon has only recently engaged in similar tactics, vociferously opposing last
December's Kyoto accord calling for reductions in fossil fuel use.
In a more high-profile effort, Exxon has sponsored efforts to build up the worldwide
population of the tiger, its corporate mascot since 1953.
Mobil only recently revived Pegasus, its 67-year-old flying red horse symbol representing speed and power -- whose post-merger fate is uncertain.
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