Two oil giants seek refuge as one
$77 billion Exxon-Mobil merger will create the world's largest corporation, reuniting parts of Rockefeller empire.
The merger between Exxon and Mobil, creating the largest corporation on earth, underscores how much the world energy industry is changing - and how little influence oil companies now have in shaping much of it.
In an age of cheap energy prices, the industry is being forced to undergo one of the greatest consolidations since the days of John D. Rockefeller.
The result is likely to be the loss of tens of thousands of jobs in oil patches and corporate suites around the world. The consolidations may also impact the number of gas stations in local neighborhoods.
But analysts expect few changes in the prices of gasoline. At a time when so many different countries are producing crude, no one cartel - be it Arab states or corporate giants - can now control the price of oil.
"The difference now is global competition," says Chris Ellsworth, head of the Washington office of Energy Security Analysis. "Today nobody controls the world market - not even OPEC."
Indeed, with the price of oil falling to the lowest level in 12 years, companies feel they must consolidate to survive. Besides the $77-billion merger between Exxon and Mobil, which the companies were announcing Dec. 1 in New York, British Petroleum is trying to link up with Amoco. The French oil company, Total, plans to merge with the Belgian oil and chemical giant PetroFina, becoming the sixth-largest oil company in the world.
Other mergers are likely as medium-sized firms find themselves unable to compete with the giants. "The incentive in this merger [Exxon-Mobil] is to cut expenses," says John Lichtblau of the Petroleum Industry Research Foundation in New York.
Competition, in fact, will play a big role in determining the regulatory response to the giant combination. The merger must be approved by the Federal Trade Commission and the European Union. "The antitrust authorities in Europe and the US will extract some price," says Robert Litan, a fellow at the Brookings Institution in Washington.
Most analysts expect the authorities will look most closely at the downstream - refining and marketing - part of the business. It's likely that the two companies will have to divest themselves of gasoline stations and refineries. Combined, the two companies have about a 20 percent share in the US gasoline market.
"What the regulators do is put a great big map on the wall and literally stick pins in it where all the gas stations and refineries are, and then look for excess concentrations," says Mr. Litan.
But even the marketing of gasoline is changing. The oil companies are building large "superpumper" stations with up to 50 gasoline pumps at each station.
"Environmental regulations are so tough that it's driving the small stations out of business," says Marvin Zonis, a consultant in Chicago. "With profit margins so low, you need to have a high-volume business."
The consolidations may accelerate with the new merger. Federal regulators could require the new behemoth to close some service stations - especially in New York, New Jersey, and parts of the West and Southwest, where Mobil and Exxon stations are the most concentrated.
Yet, even without federal involvement, analysts say there's little danger of returning to the Rockefeller era, when his firm controlled 90 to 95 percent of the American market. "There's no way this is a throwback to the Standard Oil days," says Mr. Ellsworth. "Now production is happening all over the world."
FURTHERMORE, he says, the current wave of consolidations are streamlining the industry, which could protect consumers from price hikes if world oil prices start to jump.
For Exxon, the acquisition of Mobil gives it a first class exploration department. Mobil is currently involved in new oil discoveries in the Caspian Sea and off the west coast of Africa.
It has been adding reserves while Exxon has had trouble finding new oil supplies. The two companies combined will now control an enormous amount of crude oil production - about 2.5 million barrels a day, the third-largest in the world.
The deal will bring together two of the largest parts of John D. Rockefeller's Standard Oil trust, the monopoly split up by the government 90 years ago. According to published reports, the two companies will retain their names on their gas stations.
* Abraham McLaughlin contributed to this report.