Saturday, November 28, 1998

Exxon-Mobil would be No. 1 oil company, but won't squeeze pump prices

By ERIC R. QUINONES

Associated Press

NEW YORK -- If Exxon and Mobil merge to form the world's biggest oil company, don't expect higher prices at the pump.

Even a combination of the nation's two biggest oil and gas companies wouldn't have the power to reverse slumping prices caused by a worldwide oil glut. But while drivers may not be affected, an Exxon-Mobil marriage could leave as many as 20,000 employees out of work as the companies seek to slash costs, according to one analyst.

Exxon Corp. and Mobil Corp. announced Friday that they are in merger talks, confirming reports that surfaced this week. At a price near Mobil's current value of $67 billion, it would be the richest merger ever.

A combined Exxon-Mobil would vault past Royal Dutch-Shell Group of Cos. as the world's biggest energy company, with 47,000 gas stations and operations in more than 100 countries. It also would surpass General Motors Corp. as the largest U.S. company of any kind, with combined revenue of $203 billion last year.

"The last thing either party would have considered is the effect on the consumer, but as it happens it's pretty benign," said Alan Marshall, an energy analyst with Robert Fleming Securities in London.

Oil prices are hovering near 12-year lows, hammered by a plentiful global supply and an Asian economic crisis that has crippled demand from that region. The Energy Department predicts that prices will remain depressed well into the next decade.

Even as the industry's biggest player, a combined Exxon-Mobil would only account for 4 percent of world oil production capacity, according to George Gaspar, an analyst with Robert W. Baird & Co. in Milwaukee.

In their short joint statement, Mobil and Exxon said they could not guarantee a deal would be reached and declined further comment. The talks are driven by a desire to boost profits by reducing expenses in a time of slumping oil markets.

Analysts predict thousands of layoffs from the companies' overlapping operations. Marshall projected cuts of up to 20,000 -- about 16 percent of the companies' combined work force.

Most of the cuts would come in the United States, followed by Asia, he said.

The merger would intensify consolidation in the energy industry that has quickened since British Petroleum announced its surprising $49 billion takeover of Amoco Corp. in August. Oil stocks jumped Friday on confirmation of the Exxon-Mobil talks and anticipation of even more deals.

Mobil stock rose $7.62-1/2, or by nearly 10 percent, to close Friday at $86 a share as the second most actively traded issue on the New York Stock Exchange. Exxon shares climbed $1.68-3/4, or by more than 2 percent, to $74.37-1/2 on the NYSE, the fourth most active.

Chevron Corp., Texaco Inc., Unocal Corp. and Atlantic Richfield Co. are among the major players likely to find merger partners, said Gaspar.

Exxon, based in Irving, Texas, ranks only behind Royal Dutch-Shell among the world's oil companies. Mobil, based Fairfax, Va., is the second-largest U.S. oil and gas group after Exxon and the fourth-largest in the world.

The companies are children of Standard Oil Trust, John D. Rockefeller's oil monopoly that was broken up by the government in 1911. Exxon is the former Standard Oil of New Jersey, while Mobil was once Standard Oil of New York.

But a reunion of the two does not necessarily pose significant antitrust concerns, said Robert A. Burka, a partner at Washington office law firm Foley & Lardner and a former official in the Federal Trade Commission's bureau of competition.

"The merged entity will have nothing like the market power or the ability to injure consumers that its predecessor did," Burka said.