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A year of merger mania for the majors?

HOUSTON CHRONICLE

By Loren Steffy

January 06, 2009

Will they call it Exxon Mob-ell? Record oil prices in recent years has left some of the world’s largest oil companies, most notably Exxon Mobil, bloated with cash. Now, the sudden drop in prices during the past six months has created a lot of bargains.

That’s causing some analysts to forecast mergers among the majors, similar to what happened in the late 1990s, when BP bought Amoco, Chevron snapped up Texaco, Conoco nabbed Phillips and Exxon acquired Mobil.

As I’ve written before, while Exxon’s earnings have set records, its worldwide production has declined.  So Exxon is sitting on a huge pile of cash, it needs access to new reserves and now assets are available at bargain prices.

That’s prompting speculation that it might buy Royal Dutch Shell. Exxon could, as CNN points out, offer a 60 percent premium, in cash, for every Shell share, taking out its second largest competitor in the process.

Of course, it would be far easier for Exxon to buy smaller independents, such as XTO, Chesapeake or the industry’s perennial producer-in-waiting Anadarko. Or it may simply buy properties and avoid merger issues completely.

Even so, the mere speculation of an Exxon-Shell pairing is giving rise to talk of how the European Union would respond. Perhaps BP will dust off its interest in acquiring Shell.

The benefits of consolidation have become compelling, as analysts like to say. All of which means that thiscould be another year of mega mergers. Unlike most mergers, the oil industry parings of a decade ago have been, for the most part, good for shareholders.

Will we see another round? Do major mergers make sense? Would the benefits outweigh the drawbacks such as regulatory hurdles?

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