Exxon-Mobil Merger

In the mid-to-late 1980s, the number of places in the world where one had opportunities
for exploration and productions were limited. In the late 1990s, there were more
opportunities so far as oil production and exploration of oil was concerned. Many
countries were opening up, such as China, Venezuela, and countries in the Middle East.
These were the sort of large-scale, capital-intensive opportunities that the merger entity
would capitalize on.

This is one of the reasons why Exxon and Mobil had merged to increase the scope of
opportunities. In 1999, Exxon and Mobil signed a $81 billion agreement to merge and
form Exxon Mobil. Not only did Exxon Mobil become the largest company in the world, it
reunited its 19th century former selves, John D. Rockefeller’s Standard Oil Company of
New Jersey (Exxon) and Standard Oil Company of New York (Mobil).

Questions for Discussion:

1. The Exxon-Mobil merger was one of the biggest industrial mergers ever. Do you see
any synergy in this merger?

2. An analyst commenting on the Exxon-Mobil merger said, “While most mergers go

wrong, this deal struck gold..…black gold.” What were the reasons behind Exxon-
Mobil’s success as a merged entity?

Reasons for merger

• Technical capabilities will complement each other’s operations

• Operating synergies

• Increased scale of economies

Synergy
The motivations for the Exxon-Mobil merger reflected the industry forces. Companies
needed a secure presence in the regions with high potential for oil/gas discoveries and
stronger position to make large investments. The benefits of the merger fell broadly in
two categories: near-term operating synergies and capital productivity improvements.
Near-term operating synergies. $2.8 billion in annual pre-tax benefits from
operating synergies (increases in production, sales and efficiency, decreases in unit
costs and combining complementary operations). Management expected to realize the
full benefits by the third year after the merger. During the first two years, the benefits
should have been partly offset by one-time costs at $2 billion for business integration.
The firms also planned to eliminate about 9,000 jobs. A year later, pre-tax annual
savings were re-assessed and increased to $3.8 billion.
Capital productivity improvements. Management also believed the combined
company could use its capital more profitably than either company on its own. These
improvements were realized due to efficiencies of scale, cost savings, and sharing of
best management practices. The businesses and assets of Exxon and Mobil were
highly complementary in key areas. In the exploration and production area, for example,
Mobil's and Exxon's respective strengths in West Africa, the Caspian region, Russia,
South America, and North America lined up well, with minimal overlap. The firms also
had a presence in natural gas, with combined sales of about 14 bcfd. And Mobil
contributed its LNG assets and experience to the venture.
There were technology synergies as well. In upstream, Exxon and Mobil owned
proprietary technologies in the areas of: deepwater and arctic operations, heavy oil,
gas-to-liquids processing, LNG, and high-strength steel. In downstream, their
proprietary technology focused on refining and chemical catalysts. Exxon’s lube base
stocks production fitted well with Mobil's leadership in lubes marketing. [29] Generally, the
Exxon-Mobil deal was a move by the dominant partner to increase its asset base by 30
percent while raising capital productivity.

Key Success Factors

For the oil and gas industry, the five main Key Success Factors (KSFs) are: Exploration
and Oil discovery, Manufacturing, Financial, Technology and Marketing& Distribution.

Identify and Selectively Capture the Highest-Quality Exploration Opportunities:

ExxonMobil’s fundamental exploration strategy is to identify, evaluate, selectively

pursue, and capture the highest-quality resource opportunities, ahead of competition.
The global organization allows us to explore diverse resource opportunities, in all
environments.
Maximize Profitability of Existing Oil and Gas Production:

ExxonMobil successfully maximizes the commercial recovery of hydrocarbons across a

reservoir’s life cycle. They focus on applying Operations Integrity Management System,
cost -effective technology, and disciplined and selective investment as key strategies in
delivering strong performance.

Invest in Projects that deliver Superior Returns:

The rigorous high-quality project management processes consistently deliver superior

project execution performance. When combined with industry-leading portfolio of more
than 130 major projects, Exxon-Mobil’s disciplined investments will continue to deliver
maximum value.

Capitalize on Growing Natural Gas and Power Markets:

ExxonMobil became well-positioned with significant gas portfolio to deliver reliable

supplies of affordable natural gas and power to help meet increasing global demand.
After merger the detailed knowledge of global energy markets allowed them to
maximize the value of their gas, natural gas liquids and power interest.

Other facts and details:

ExxonMobil today is World largest publicly traded international oil and gas company
with total assets of $334B. One of the top chemical companies in 2012 based on
chemical sales with total revenues of $482B. Tops the list as the world’s largest refiner
with 1,655,500 barrels of crude per calendar day.

ExxonMobil today has Exploration and production acreages in 36 countries, Production

operations are spread in 23 countries worldwide, and has Interests in 32 refineries in 17
countries worldwide Over 120 major development projects

Balance portfolio: Exxon’s portfolio is unmatched in quality, size, and diversity. A

broad base of highly competitive resources, assets, products, and projects within each
of Exxon’s global businesses – Upstream, Downstream, and Chemical – leads to strong
financial and operating results across changing market conditions. Operations in 47
countries around the world with 87 billion oil-equivalent barrels in our worldwide
resource base

Disciplined Investing: Exxon’s diverse resource and asset base offers a large
inventory of high-quality investment options. The company carefully evaluates these
opportunities across a range of market conditions and time horizons that often span
decades. They advance only those projects likely to provide long-term shareholder
value, and focus on the efficient use of capital to achieve superior investment returns.
28 major Upstream project start-ups between 2013 and 2017 25 percent return on
capital employed across our worldwide operations, leading the industry

High-impact technologies: ExxonMobil is an industry leader in the development and

application of new technologies that create advantage across our global businesses.
Exxon pursue high-impact technologies that unlock new energy sources, reduce the
cost of projects, improve the efficiency of operations, and increase the value of
products. $5 billion invested in research and development since 2008 World-record 7.7-
mile-long horizontal well drilled in 2012

Operational Excellence: Maximizing shareholder value requires a relentless focus on

operational excellence and effective risk management. The management systems
enable them to maintain high operational standards by providing a framework of proven
processes and best practices that are applied consistently and rigorously across
worldwide operations. 10 percent improvement in refinery energy efficiency since 2002
45 thousand net oil-equivalent barrels per day of additional production from higher
operated reliability

Global integration: The global integration of business lines and functional

organizations creates significant advantage by enabling them to maximize the value of
every molecule that they produce and rapidly deploy best practices around the globe.
The level of integration results in structural and market advantages that are difficult for
competitors to replicate. More than 90 percent of Chemical operations integrated with
Downstream or Upstream and more than 75 percent of refining capacity integrated with
Chemical or Lubes operations.