Exxon-Chevron merger bid not to impact Chevron Bangladesh

ExxonMobil and Chevron held preliminary talks in early 2020 to explore a merger which, a senior Petrobangla official said, would not have much of an impact on Chevron's Bangladesh chapter.

The discussions between the chief executives of the companies are no longer ongoing but would have led to the biggest merger of all time, Reuters reported on Monday. 

Requesting anonymity, the Petrobangla official – who has direct knowledge of the production sharing contract under which Chevron operates in Bangladesh – told The Business Standard that the impacts on regional businesses, generally, are not high as mergers and profit sharing take place between parent companies.

Md Harun-Or-Rashid, director (finance) of Petrobangla, told The Business Standard that the impact on Chevron's Bangladesh stake would depend on the merger's terms and conditions.

No comment on the matter was available from Chevron Bangladesh and ExxonMobil currently does not operate in Bangladesh. 

At present, Chevron is the largest international oil company in Bangladesh that produces gas from local fields. It now operates three gas fields in Sylhet, supplying over 55% of the total use of natural gas in the country to Petrobangla.

In 2005, Chevron got the ownership of blocks 12, 13 and 14 in the Bibiyana, Jalalabad and Moulvibazar fields after its merger with Unocal Corporation.

At present, Chevron is producing 1,555 million cubic feet of gas per day (mmcfd) in Bangladesh whereas the three state-owned gas companies are producing only 820 mmcfd.

Talks were serious enough

Quoting a source, the Reuters report said the talks between Exxon Chief Executive Darren Woods and Chevron CEO Mike Wirth were serious enough for legal documents involving certain aspects of the merger discussions to be drafted.

The reason why the talks ended has not been learned. The sources requested anonymity because the matter is confidential.

Exxon and Chevron, which have market capitalisations of $190 billion and $164 billion respectively, declined to comment.

Shares of Exxon and Chevron nosedived last year after a Saudi-Russian price war and fallout from the novel coronavirus outbreak caused the value of oil to crater.

Exxon's stock was hit the hardest as investors raised concerns about the company's long-term profitability and spending decisions.

In their talks, the CEOs of the two companies envisioned achieving synergies through massive cost cuts to help weather the downturn in energy markets, one of the sources said.

At the end of 2019, Exxon employed about 75,000 people, and Chevron roughly 48,000.

Following the aborted talks, Chevron went on to acquire oil producer Noble Energy in a $5 billion cash-and-stock deal that was completed in October last year.

A proposed combination last year would almost certainly have triggered an intense antitrust review by the US Justice Department, a process that typically takes months to complete.

Such a review would also potentially have run up against last November's US presidential elections, raising additional uncertainty about how soon such a deal might be cleared, if at all.

Now, under the Biden administration, the window might be all but closed as Democrats historically have been less sympathetic to such deals, one of the sources said.

Biden has put climate change at the forefront of his agenda, promoting jobs in renewable energy as opposed to traditional ones in the oil sector. He recently formally revoked the permit to build the Keystone XL oil pipeline.

General Motors last week said it would aim to stop selling vehicles powered by gasoline and diesel, which rely on oil, by 2035.

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

News of the unsuccessful talks emerged as Exxon has come under pressure from some of its shareholders over its strategic direction.