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Exxon, Chevron CEOs mentioned merger in early 2020-sources By Reuters

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© Reuters. FILE PHOTO – A combination of file photos shows the logos of five of the largest publicly traded oil companies BP, Chevron, Exxon, Mobil Royal Dutch Shell and Total

By Mike Spector

(Reuters) – The directors of ExxonMobil (NYSE 🙂 Corp and Chevron Corp (NYSE 🙂 held preliminary talks in early 2020 to investigate the merger of the two largest U.S. oil producers in what would have been the largest merger of all time, according to those familiar with the matter.

The discussions, which are no longer active, show the pressures that dominant companies in the energy sector faced when the COVID-19 pandemic hit and crude oil prices fell.

The talks between Exxon CEO Darren Woods and Chevron CEO Mike Wirth were serious enough to create legal documents covering certain aspects of the merger discussions, one of the sources said. The reason the talks ended could not be learned.

The sources asked for anonymity as the matter is confidential. Exxon and Chevron, with market caps of $ 190 billion and $ 164 billion, respectively, declined to comment.

Exxon and Chevron stocks fell last year after a Saudi-Russian price war and the aftermath of the novel coronavirus outbreak drove the value of oil down the crater. Exxon stock was the hardest hit as investors expressed concerns about the company’s long-term profitability and purchase decisions.

In their talks, Exxon and Chevron CEOs wanted synergies through massive cost reductions to weather the downturn in energy markets, one of the sources said. At the end of 2019, Exxon employed around 75,000 people and Chevron around 48,000.

After the broken off talks with Exxon, Chevron took over the oil producer Noble energy (NASDAQ 🙂 in a $ 5 billion cash and stock deal that closed in October.

A proposed combination last year would almost certainly have sparked an intense antitrust review by the US Department of Justice that typically takes months. And such a review might also have run into the U.S. presidential election last November, adding additional uncertainty about when such a deal, if at all, could be closed.

Now, under the Biden administration, the window could be as good as closed as Democrats historically have been less comfortable with such deals, one of the sources said. President Joe Biden has put climate change at the forefront of his agenda and encouraged renewable jobs versus traditional oil jobs.

Biden recently officially revoked permission to build the Keystone XL oil pipeline. General Motors (NYSE 🙂 announced last week that it would cease sales of petrol and diesel-powered vehicles by 2035.

The White House and Justice Department did not immediately respond to requests for comment.

News of the unsuccessful talks came when Exxon was being pressured by some shareholders for its strategic direction.

Engine No. 1, a San Francisco-based investment firm, appointed four directors to Exxon’s board of directors last week, urging the company to spend its money better, receive its dividend, and invest more in clean energy. Exxon is also in the crosshairs of the DE Shaw hedge fund, which is pressuring the company to cut costs and improve performance.

Exxon reports fourth quarter results on February 2nd. Chevron last week reported a surprising $ 11 million loss in the fourth quarter as low margins on fuel, cost and foreign currency effects overwhelmed improved drill results.

COMBINED GIANT

A combined Exxon chevron would only be eclipsed in size Saudi Aramco (SE :), which has a market value of around $ 1.8 trillion and has previously marginalized many US drillers by flooding the market with oil.

Despite inevitable antitrust concerns, the companies could argue that a merger would represent the best chance for the U.S. to compete against the Saudi state conglomerate and the other largest state-backed oil producers in the world, one of the sources said.

The Saudi-Russian oil price war last year, for example, underscored the vulnerability of US producers to foreign governments, which can effectively dictate the price of crude oil by forcing energy companies to increase or decrease production.

US oil companies compete with each other and set different production targets, with limited Washington intervention.

Exxon and Chevron, with their strong balance sheets, withstood the turmoil in the energy markets following the pandemic that forced some smaller independent oil and gas producers to file for bankruptcy protection.

But they also felt the pain. Demand for oil dwindled in early 2020 as governments imposed travel restrictions and stay-at-home orders to help slow the spread of the COVID-19 pandemic.

At one point in April, US West Texas Intermediate (WTI) crude oil futures went negative for the first time, meaning sellers must pay buyers to take the commodity out of their hands. Prices have since recovered to around $ 52 a barrel.

Exxon and Chevron both cut jobs last year. Exxon left its dividend unchanged late last year after increasing its shareholder payout every year since 1982.

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