Chevron merger talks discounted

Seen as sideshow to exxon loss

Wall Street analysts on Monday gave little credence to the possibility of an exxon-chevron mega merger, as news of talks last year between the two largest u.s. oil companies leaked ahead of exxon’s results that are expected to show the company posting its first-ever annual loss.

Shares in exxon were down slightly in afternoon trading in New york, while Chevron was up 1.1 per cent, despite a rising overall market and weekend gains in global crude prices.

“At the depths of the market last year ... a cost-cutting-focused merger of the two companies may have made sense and also scale matters in this industry so it would have created by far the largest integrated oil company,” said Anish Kapadia, director of energy at London-based Palissy Advisors.

However, anti-trust concerns and the new u.s. administration’s stance on big mergers make it unlikely that a deal resurfaces, Kapadia said, adding that buying smaller, hard-hit oil companies gives exxon and Chevron more value.

As oil producers in europe adapt to investors’ push for a shift into renewables, it is also possible that Chevron or exxon could buy the oil-producing business of a european major in the coming years, Kapadia said.

exxon’s year-end results scheduled for Tuesday are expected to be marred by a charge of up to us$20 billion on the value of its natural gas properties.

The collapse in oil prices last April briefly pushed crude into negative territory and created a survival crisis for large parts of the u.s. industry.

“Given the precipitous drop (last year)... it is not surprising that XOM and CVX had a discussion about merging,” said Mark Stoeckle, CEO of baltimore-based Adams Funds.

“The sharp snapback in prices likely cooled both companies. There would no doubt be significant cost synergies to be had, but the antitrust issues in a biden administration would probably be too much to overcome.”

The chief executives of exxon Mobil Corp. and Chevron Corp. spoke last year about combining the two largest u.s. oil companies.

dow Jones reported on the weekend that Chevron’s Mike Wirth and exxon’s darren Woods spoke as the COVID-19 outbreak hurt oil and gas demand, adding financial strain to both companies. The talks were described as preliminary and aren’t ongoing, the news services said, citing people familiar with the talks, adding that the discussions could be brought back in the future.

Combining the firms would create a giant with a market capitalization of more than us$350 billion at current valuations, and with more revenue than Saudi Aramco.