COVID Crisis Could Unify World’s Largest Oil Companies
Sir Winston Churchill once admonished leaders to never let a good crisis go to waste. Wall Street banks and other large banks have been paying attention: They were shrewd enough to seize the opportunity presented by the last financial crisis to get hard-nosed government agencies to approve giant M&A deals they would otherwise have frowned upon.
The oil sector should take its cue from the banking sector and try out a little Churchillian wisdom.
Rob Cox, global correspondent for Reuters Breakingviews, seems to feel that is inevitable. He has told Reuters that the Covid-19 crisis could lead to merger mania in sectors like telecoms, auto, consumer goods, and energy.
But unlike the mid-cap energy mergers that had begun to break out before the crisis struck, Rob says tie-ups between giant producers like ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX) and BP(NYSE:BP) among others is now within the realm of possibility.
Cutting Costs
Pre-crisis notions about competition and antitrust concerns, Cox argues for Reuters, might take a backseat as economies emerge from lockdowns with governments changing tack and beginning to prioritize building industries with better operational efficiencies, lower costs, and healthier balance sheets.
Giant energy companies could use the cost-cutting gambit to justify mammoth deals that would otherwise fail to pass muster.
Under this backdrop, Exxon and Chevron might bandy together, and even throw in BP for good measure, to form the acronymous “ExChevBrit” whose combined market cap of $425 billion and reserve pool of ~70 billion barrels of oil equivalent would still pale in comparison to Saudi Aramco’s $1.6 trillion value and 270 billion Boe.
The financial crisis of 2008 that crippled the global banking sector, Cox notes, opened the way for mega-mergers such as Bank of America paying $50 billion for Merrill Lynch; Wells Fargo ponying up $15.1B to snag West Coast rival Wachovia and high-street lender Lloyds TBS coughing up £12bn for HBOS.
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