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Page added on January 31, 2021

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Exxon, Chevron Have Discussed A Merger

Business

Just this past Friday, we lamented that amid the marketwide meltup, one of the very few companies that actually deserves to be higher with or without the help of WSB, oil giant Exxon, simply refuses to do so, and so we begged Melvin Capital to short it (although it now appears that Gabe Plotkin is busy razing a 1930s house to build a tennis court on his Miami mansion).

That was, of course a joke, but what isn’t a joke is that the two largest US oil companies clearly believe they are undervalued because as the WSJ reported on Sunday afternoon, the CEOs of Exxon and Chevron “spoke about combining the oil giants after the pandemic shook the world last year, according to people familiar with the talks, testing the waters for what could be one of the largest corporate mergers ever.”

The discussions – which took place after the plunge in oil prices last year – between the Exxon CEO Darren Woods and Cheveron CEO Mike Wirth, “were described as preliminary and aren’t ongoing but could come back in the future” according to the WSJ sources.

And with XOM’s market cap of $190BN and Chevron’s $164BN, a combination would result in a $350BN E&P behemoth, which would be the world’s second largest oil company by market capitalization and production, producing about 7 million barrels of oil and gas a day, based on pre-pandemic levels, second only in both measures to Saudi Aramco.

Such a deal would significantly surpass in size the mega-oil-mergers of the late 1990s and early 2000s, which included the combination of Exxon and Mobil and Chevron and Texaco Inc.

It also could be the largest corporate tie-up ever, depending on its structure. That distinction currently belongs to the roughly $181 billion purchase of German conglomerate Mannesmann AG by Vodafone AirTouch PLC in 2000, according to Dealogic.

If it proceeds, a deal would also reunite the two largest descendants of John D. Rockefeller’s Standard Oil monopoly, which was broken up by U.S. regulators in 1911, and reshape the oil industry. In other words, if this deal happened, it would go a long way to making Standard Oil Great Again:

Which is also why such a merger would likely encounter regulatory and antitrust challenges under the Biden administration. President Biden has said climate change is one of the biggest crises the country faces. In October, he said he would push the country to “transition away from the oil industry” whatever that means (conventional energy is responsible for about 90% of US energy production); Still, a deal is not impossible: Biden hasn’t been as vocal about antitrust matters, and the administration has yet to nominate the Justice Department’s head of that division.

As the Journal adds, in an interview discussing Chevron’s earnings Friday, Wirth, who like his Exxon’s Woods also serves as his company’s board chairman, said that consolidation could make the industry more efficient. He was speaking generally and not about a possible Exxon-Chevron merger.

“As for larger scale things, it’s happened before,” Wirth said, referring to the 1990s and early-2000s megamergers. “Time will tell.”

It now appears that he was explicitly envisioning a merger with Exxon.

According to energy analyst Paul Sankey, who first floated the idea of a merger between Chevron and Exxon last October, a combined company would have a market capitalization of about $300 billion and $100 billion in debt. A merger would allow them to cut a combined $15 billion in administrative expenses and $10 billion in annual capital expenditures, he wrote.

As for the stock price of XOM and CVX, they certainly wouldn’t need a massive short squeeze to soar, which would be welcome news to the activists who have recently circled around Exxon.

Some investors have grown increasingly concerned about Exxon’s direction under Mr. Woods as the company faces a rapidly changing energy industry and growing global consciousness about climate change. Some are also worried that Exxon may have to cut its hefty dividend, which costs it about $15 billion annually, due to its high debt levels. Many individual investors count on the payments as a source of income.

The company’s woes have helped draw the attention of activist investors. One of them, Engine No. 1 LLC, has argued that the company should focus more on investments in clean energy while cutting costs elsewhere to preserve its dividend. The firm nominated four directors to Exxon’s board Wednesday and called for it to make strategic changes to its business plan. Last month it also emerged that Exxon had been in talks with activist hedge fund D.E. Shaw and is preparing to announce one or more new board members, additional spending cuts and investments in new technologies to help it reduce its carbon emissions.

Unlike virtue signaling European peers BP and Shell, both of which would love to be included in some ESG basket, Exxon and Chevron have had the intellectual honesty of staying the course and haven’t invested substantially in renewables, instead choosing to double down on oil and gas. Both companies have argued that the world will need vast amounts of fossil fuels for decades to come, and that they can capitalize on current underinvestment in oil production.

They are of course right, and after the next crash, when the faddish ESG idiocy is long forgotten, shareholders will reward the two companies handsomely for having been honest in a time when every company lies.

zerohedge



11 Comments on "Exxon, Chevron Have Discussed A Merger"

  1. FuckBidetAndRepugantBitchHarris on Sun, 31st Jan 2021 9:27 pm 

    I am probably going to regret that decision for the rest of my life. I like solitude, I love being alone, I don’t like being the center of attention or in front of big crowd. I figure, we could try one meeting. After all, I don’t have to agree , to anything. I see and understand the gravity of the situation. I still have problems with
    the fact that there is nobody else in the world that can help with the current situation.

    If indeed, the US military is governing the US and not the Biden administration, I am willing to meet with them in Montreal
    if they want to. The meeting would take place inside one of the Québec provincial governmental building in Montreal. It would
    be a private meeting between me and a maximum of 3 high ranked US militaries officers.

    Working with the US military has a lot of advantages. They already have engineers and project engineers among their rank.
    So we could use them to make studies
    about the electrical networks, what kind of fuel they are using and so on. They have a good logistic system that will allows us to move cargo, food, energy and people easily. US military also have aircraft carrier that run on nuclear energy that can be used to move cargo and people, you see what I mean.

    I am not interested to meet and talked with any members of Bidet and repugnant Bitch Harris administration. These people are mentally insane, corrupt, lack morale
    integrity, are stupid, lack courage, lack imagination and lack logical skills. No meaningful things can be accomplished with
    such people.

    Look at this below to understand jump to 6:50 to see what I mean:

    https://www.youtube.com/watch?v=AZtCfBR8ZZQ

    I am getting older and we don’t have a history of longevity in my family. I have no time to lose with these fucking losers.

    If you want to meet me, contact the Canadian government and explains to them that the US military is in charge and US high ranked
    military officers would like to meet the man from Quebec.

    I will use this page https://pm.gc.ca/fr/nous-joindre/contact to contact
    Justin Trudeau. sujet: Défence Nationale. I will put in the commentaire section something about peakoil. You should be able to identify me easily, my email address has a pretty common French Canadian family name.
    I will not give you my personal name, address phone number. I will put false information in these boxes. The only thing accurate will be my email address. Make sure the spam filter is off.

    Once you received my message, you are going to reply back to me with your personal Canadian governmental email address and a phone number to reach you. So this way, I know we have a communication channel open. Your response should be short and something like this: Yes I received your message
    and read your comment about peak oil. Thank you, Justin Trudeau and a phone number, if you want. Once we have established a communication channel, you email to me only and only if US high level militaries officers want to talk with me. If I do not receive other messages from you, I will assume that Joe Bidet is the one in charge. So no others messages will never be exchanged between us.
    If I received a positive confirmation that US high ranked militaries officers wants to talk with me , we will met together (me, Legault and Trudeau ) at government of Québec
    offices in Montreal to prepare the meeting with US high ranked US militaries officers.

    None of this is negotiable. And works my way and only my way.

    I know this is bad english.

  2. Alice Friedemann on Mon, 1st Feb 2021 11:26 am 

    Walter Youngquist, author of one of the best overviews of peak everything “Geodestinies” corresponded with me, and said that we would know peak oil was here when oil companies drilled on wall street — this merger is a sign of the beginning of the end, EROI getting so low that companies need to team up

  3. Cloggie on Mon, 1st Feb 2021 11:40 am 

    A less spectacular explanation would be that the two contemplate a merger in a contracting market, due to peak oil demand, combined with a new administration that says to get serious with decarbonizing the economy, after Europe and China gave the good example first. That’s not good for the oil business.

    Feverish explanations like “declining EROI” are what we in the Netherlands call a broodje aap (roll ape), meaning BS.

  4. Duncan Idaho on Mon, 1st Feb 2021 2:43 pm 

    Hint:
    Global peak production of oil (C+C) happened in November of 2018.
    It is disappearing in the rear view mirror.

  5. makati1 on Mon, 1st Feb 2021 5:44 pm 

    Amerikan/Western insanity: No mask, one mask, two masks, three masks, no mask. How long will the dumbed down serfs put up with this insanity and Dr Ant Fucker who probably never had a medical practice or clients other than the government whores? If there are no major riots soon, I give up hope for a decent future for them or their children. Sigh!

    And by “major riots” I mean many millions in the streets and the take-down of the congressional whores who are supporting this insanity.

  6. Duncan Idaho on Mon, 1st Feb 2021 7:12 pm 

    “At least three Capitol rioters have agreed to be charged by an information instead of a grand jury indictment, suggesting they plan to take plea deals.”

    Repugs are cowards and have little moral depth.

    This should be fun!

  7. Duncan Idaho on Mon, 1st Feb 2021 7:16 pm 

    Defense for Trump:

    https://images.dailykos.com/images/912860/story_image/020121.TrumpLegalteam.jpg?1612209205

  8. Cloggie on Tue, 2nd Feb 2021 1:24 am 

    Doubts are creeping in with our peak-oil guru James Howard Kunstler about his vision regarding the alleged upcoming “world made by hand”:

    https://kunstler.com/clusterfuck-nation/the-game-is-on/

    The latter quality is greatly reinforced by the powerful wish to transition from a fossil fuel economy to an alt-energy economy of solar cells and wind turbines — a wish that probably won’t come true.

    America is an engineering wasteland and needed enslaved Nazi engineers to kick US butt onto the moon, giving the US an undeserved status as a technological giant.

    https://i.pinimg.com/originals/39/73/5b/39735b2e33205eaf32927511bac02a61.jpg

    Kunstler, who has a prejudice confirming diamond trader as a father and his education, according to his wiki-page…

    In 1966, Kunstler graduated from New York City’s High School of Music & Art, and attended the State University of New York at Brockport, where he majored in theater.

    …”perfectly” qualifies him to spray unfounded opinions around regarding a serious branch of sport named physics.

    In America anything goes… until the dollar reserve currency free lunch evaporates, and we’re back at the cattle business.

    Apparently Kunstler, who is anything but dumb, experienced a moment of self-reflection. Perhaps he will follow that other peak-oil guru, Richard Heinberg and simply embrace renewable energy as the next big thing:

    https://www.amazon.nl/Our-Renewable-Future-Hundred-Percent/dp/1610917790

    “Our Renewable Future: Laying the Path for One Hundred Percent Clean Energy”

    As long as fusion won’t work, there is no alternative for “alternative energy”, a misnomer if there ever was one.

  9. Duncan Idaho on Tue, 2nd Feb 2021 6:21 pm 

    Why Are Republican Presidents So Bad for the Economy?
    (G.D.P., jobs and other indicators have all risen faster under Democrats for nearly the past century.)

    https://pbs.twimg.com/card_img/1356546266944204801/thYyCNqk?format=png&name=small

    Stupid? Greedy?

  10. Duncan Idaho on Tue, 2nd Feb 2021 7:26 pm 

    “One of the rioters who stormed the Capitol on Jan. 6 is asking a federal court to let her leave the country so she can make the most of a Mexican vacation she booked prior to the insurrection. In a court filing on Monday, Jenny Cudd’s attorneys said their client ”planned and prepaid for a weekend retreat with her employees” in Riviera Maya, Mexico, later this month and would like to attend. Cudd, the owner of a Midland, Texas, flower shop, told the court that the trip is “a work-related bonding retreat for employees and their spouses.”

    ( You mean a white woman who attempted to overthrow our legitimate government and disenfranchise millions of Black, Latino, and LGBTQ voters, might not get to fly to Mexico for her company retreat? What’s happened to this country? We used to take care of our clueless, entitled white people!)

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