TWO AMERICAN giants, spooked by a crisis that has roiled oil markets, fall into each other’s arms. The tie-up strings back together bits of Standard Oil—broken up in 1911 in the world’s most famous trustbusting exercise. The year was 1999, and Exxon had just completed an $81bn merger with Mobil. Might history repeat itself in 2021? The world of corporate dealmaking is abuzz following reports that last year the bosses of ExxonMobil and Chevron discussed combining the two firms, clobbered by covid-19 along with the rest of their industry. The talks are off, apparently. But they could be rekindled. The resulting crude-pumping colossus could produce enough to meet over 7% of global oil demand.
This time, though, the deal would not be a show of strength, especially for ExxonMobil. The company was under strain before the pandemic. Despite a $261bn capital-spending splurge between 2010 and 2019, its oil production was flat. Its net debt has ballooned from small change to $63bn, in part to maintain its sacrosanct dividend, which costs it $15bn annually. The company, which had a market capitalisation of $410bn ten years ago—and in 2013 was the world’s most valuable listed firm—is worth less than half that now. In a symbolic blow, last August it was ejected from the Dow Jones Industrial Average, after 92 years in the index.
Adding injury to insult, on February 2nd ExxonMobil reported that a decade of gushing profits—which averaged $26bn a year between 2010 and 2019—had come to an end. The firm booked its first-ever annual net loss, of a staggering $22bn. Much of that was a one-off write-down of natural-gas assets. ExxonMobil is not the only oil firm suffering; Britain’s BP also announced an annual loss this week. Darren Woods, ExxonMobil’s chief executive, gamely argued that the firm was “in the best possible position” to bounce back. As rivals have talked about a new future of renewable-energy investment, Mr Woods has been frank about doubling down on hydrocarbons. His firm’s strategic mantra is that demand for fossil fuels will remain high for decades as consumers in emerging markets buy more cars, air-conditioning units and aeroplane tickets.
Shareholders are no longer so sure. Those concerned about greenery are angered by ExxonMobil’s continued carbon-cuddling. Those who care more about greenbacks are irked by its capital indiscipline. Right now, both are pushing in the same direction.
D.E. Shaw, a big hedge fund, is urging ExxonMobil to spend more wisely. The company’s return on capital employed in exploration and production fell from an average of over 30% in 2001-10 to 6% in 2015-19. The fund has urged Mr Woods to be more like Michael Wirth, his opposite number at Chevron, who has focused more on value and less on volume. More eye-catchingly, Engine No.1, a newish fund with a stake of just 0.02%, is trying to green-shame Mr Woods with a mantra as straightforward as ExxonMobil’s: if the company…
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