Historical M&A deal: Chevron and Exxon Mobil

Historical M&A deal: Chevron and Exxon Mobil

Although the likelihood is not high, the merger of Exxon Mobil and Chevron is still highly anticipated by the oil and gas business experts. Because once they succeed, Standard Oil might return one day.

Record reduction of oil prices

2020 is an unforgettable year for oil and gas companies. At the beginning of the year, oil prices fell to a historic low due to the crisis of the Covid-19 pandemic. This leads to the bankruptcy of many oil companies such as Chesapeake, Whitings, etc. Sometimes, even WTI oil future deals were sold at a negative price.

Production cuts of many OPEC countries are ineffective. Oil prices remain low for many months causing huge losses to oil and gas companies worldwide. With such circumstances, many large companies wish to conduct M&A deals to cut costs and reshape the game in the oil and gas industry. The most notable M&A deal is of Chevron and Exxon Mobil, two of the largest companies in the industry.

Chevron & Exxon Mobil

Chevron and Exxon Mobil are two giant companies in the oil and gas industry in the US as well as in the world. In the past, they were separated from the beloved son of Rockefeller – Standard Oil.

The merger of Chevron and ExxonMobil. Picture: doanhnghieptiepthi

In 1911, because of the Sherman antitrust act of 1892, the oil giant Standard Oil was forced to split into 34 companies. Their subsidiaries operated independently and did not interfere with each other’s interests. Chevron was formerly known as Standard Oil California while Exxon Mobil was formed by the merging of Standard Oil New Jersey and Standard Oil New York.

Among the seven organizations who dominated the oil and gas market from the mid-40s to the late 70s of the last century, Exxon Mobil and Chevron took up to 5 parts. If Exxon is created by Exxon and Mobil, then Chevron is a combination of Texaco, Gulf Oil, and Chevron itself in the past. Each giant oil organization is already a powerful force in the industry and when combined, they show even more superiority to the competitors.

The impact of Covid-19 pandemic

The results of those mergers are two of the world’s top revenue and capitalization companies. However, the Covid-19 pandemic has had great impacts on the oil industry. Governments of different countries put restrictions on movement not only domestically but also internationally. As a result, demand for oil and gas as well as oil plummeted up to 30% due to the forced shutdown of popular means of transport such as airplanes. 

This caused the price of the commodity to dive. Although many resolutions have been offered, such as countries with the largest oil and gas production in the world committed to cut production, the outcome is not optimistic. Besides the Covid – 19 pandemic, the fact that car manufacturers promote the production of electric cars, such as the Tesla company of Elon Musk, also makes the future of the two giants somewhat shaken.

The M&A deal that created history

As a result, at the end of 2020, Chevron posted a loss of up to 5.5 billion USD compared with a profit of 2.5 billion USD at the same period time last year. The company’s revenue fell 35.4% year-on-year, reaching only 94.7 billion USD with a third consecutive quarter of decline. Exxon Mobil even suffered worse business results with a loss of 22.4 billion USD, the first time since Exxon and Mobil went home together. The company’s revenue also decreased by 31.5%, reaching only 181.5 billion USD. These highly disappointing business results pushed their share prices down, climaxing in mid-March when Chevron’s shares fell from 112 USD to just over 55 USD. Exxon Mobil was also not doing any better when its shares plunged more than half to just 34 USD at this time.

Therefore, these two giants have considered a merger aimed at cutting costs and restructuring business operations. Up to now, the market capitalization of Exxon and Chevron is 190 billion USD and 164 billion USD, respectively. This means the merger will create a business with a market capitalization of about 350 billion USD. The merged company will become the world’s second-largest oil company by market capitalization and output, second only to Saudi Arabia’s state oil producer Aramco. It would also be the largest merger in the oil industry since Exxon and Mobil merged in 1998.

However, the merger is likely to face many barriers, especially antitrust as well as environmental problems. Both Chevron and Exxon Mobil were major members of the Standard Oil conglomerate and were five of the seven giants of the oil market. Their merger was like bringing back the “ghost” of Standard Oil and would probably cornering the oil market in America. Consequently, there will be a lot of organizations as well as US lawmakers opposing this merger. Besides, with the new President Biden very interested in environmental issues as well as his goal to transition away from the oil industry, the merger of these two giants will affect the process he sets to. Therefore, with a president who has vowed to bring America back to the Paris agreement on climate change like Biden, he certainly won’t stand out.

ASL LAW is M&A law firm in Vietnam. If you need any inquiry, please contact us.

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