Will 100 yrs of ruthless rivalry end with ExxonMobil buying Shell?

By John Donovan

2009 kicked off with a forecast in BusinessWeek that because of the meltdown in oil prices and the resulting financial pressures, “two or more mergers” are likely among the oil giants.

The BusinessWeek article predicted: “Royal Dutch Shell will buy BP“. (2 January 2009)

Their article ignited speculation of a reshuffle in the ranks of the supermajors, with the possibility that ExxonMobil may buy the Royal Dutch Shell Group to acquire its oil and gas reserves.

New York Daily News: Analysts think ExxonMobil will buy Royal Dutch Shell (5 January 2009)

Blogger News Network: How will Shell respond to the threat of an ExxonMobil takeover? (5 January 2009)

CNNMoney.com: Waiting for the tiger to pounce (5 January 2009)

Houston Chronicle: A year of merger mania for the majors? (6 January 2009)

FT Article: Conditions ripe for a reshuffle of energy sector pack (6 January 2009)

Wall Street Journal: Feeling Flush, Exxon Fuels Speculation Deal Is on Tap: Shell spokesman declined to comment: 12 January 2009

Dow Jones Newswires: Exxon-Mobil Has Mega Cash and Capital Ideas: 12 January 2009

BNET ENERGY: Exxon Goes Shopping?: 12 January 2009

27/7 WALLst: Will Big Oil Go Shopping: 16 January 2009

The Observer: Mergers in pipeline as oil industry’s fairytale era ends: 18 Jan 2009

Independent (Uganda): Exxon to acquire Shell?: 22 Jan 2009

New York Times: Analyst Sees Energy M&A Heating Up: 22 Jan 2009

Seeking Alpha: Speculation on Exxon Acquisition of Royal Dutch Shell growing: 25 Jan 2009

The CNNMoney.com article correctly pointed out that Standard Oil and Royal Dutch Shell have been arch-rivals since the early days of the oil business. It would therefore be a remarkable development for ExxonMobil to merge with Royal Dutch Shell, its principle global competitor for over a hundred years.

The military tone of articles published 90 years ago in the New York Times provide insight into the depth of intense rivalry between the oil giants which sometimes descended into open warfare.

The opening salvo was fired in an article published on 16 January 1928 under the dramatic headline:

“N.Y. STANDARD OIL DECLARES WAR UPON DUTCH SHELL GROUP“.

The military tone continued in the sub-headlines:

“FIGHT TO FINISH LOOMS”;

“Conflict already on in India and Is Expected to spread to Other World Markets”;

New York Standard Oil (NY SO) was one of the “baby standards” which emerged from the breakup by US regulators of the original Standard Oil Company under anti-monopoly legislation. New York Standard Oil later became Mobil Oil Corporation, which eventually merged with Exxon (Standard Oil of New Jersey), resulting in the ExxonMobil Corporation, the worlds largest company by revenue.

The opening paragraph of the New York Times article said:

The Standard Oil Company of New York broke a long silence in the controversy over the purchase of Russian oil products by issuing yesterday what amounts to an open declaration of war against the powerful Royal Dutch-Shell group of Europe.

Basically NY SO accused Royal Dutch-Shell Group of seeking a monopoly of Russia’s oil products and engaging in price-cutting tactics in India. The article said that Sir Henri Deterding, Managing Director of Royal Dutch Shell, had accused NY SO of purchasing “stolen oil” and had announced his intentions “of invading the markets which have been more or less controlled by Standard of New York”.

According to the same news report, Burmah Oil Company (subsequently swallowed by BP) and Standard Oil of New Jersey, (now known as Exxon in the USA and Esso elsewhere), were both supporting Royal Dutch Shell’s position. Walter C. Teagle, President of Standard Oil New Jersey, was said to be adopting a peacemaker role.

The military tone was also apparent in an uncompromising statement issued the following day by Royal Dutch-Shell saying it would “carry its fight against the Standard Oil Company of New York to any country in which that company attempts to dispose of Russian oil”. A New York Times article published on 18 January 1928 under the headline “ROYAL DUTCH READY TO BATTLE STANDARD” commented on the statement:

“In language as emphatic as that in which the Standard of New York set forth its position in the Russian oil controversy, the Royal Dutch announced its intention to continue the competitive struggle that has started in the oil markets of India and which threatens to spread elsewhere.”

The statement repeated the allegation made by Sir Henri Deterding that NY SO was “trafficking in stolen goods”.

The NY Times article included an Associated Press report that the price-cutting war between SO NY and Royal Dutch-Shell “will continue without quarter…”

Just a few weeks later peace moves were underway by interests not directly involved in the Royal Dutch – SO NY fight.

By July 1928 the New York Times was reporting “STANDARD ENDS WAR WITH SHELL OIL“.  SO NY and Royal Dutch Shell had agreed to bury their differences in relation to Russian oil products. On 8 July an article quoted the remarks made by Viscount Bearsted, Managing Director of the Shell Transport and Trading Company at the annual general meeting in London in which he acknowledged that the “Russian question” had “given rise to many heated arguments which led to further misunderstandings“.

By 14 July, focus had turned to a plan by American interests for an international oil conference to “prevent further overproduction”. Representatives from Royal Dutch and the Anglo-Persian Oil Company (owned by the British government and later to become BP) were invited to attend the setting up of an oil cartel similar to OPEC. The publicly stated objective was an international accord on oil conservation.  The end of the war between SO NY and Royal Dutch-Shell removed a block to the cartel plan.

By August of 1928 the war between SO NY and Royal Dutch Shell was over without either protagonist emerging as a clear winner.

The conflict had ended in a draw. 

It would be ironic if the various parties jockeying for position in the 1928 Russian oil products war ended up some 90 years later, all rolled into one mega oil company of American, Dutch, Anglo origin, facing a larger and equally ruthless Russian government owned and run competitor: Gazprom.

Personally, I would not be surprised if Saudi Aramco ends up buying Shell. As I have previously pointed out, it is already Shell’s business partner in many major markets around the world. Shell and Aramco jointly own Motiva Enterprises, an American company operating nearly 7,700 Shell-branded gasoline stations and three U.S. refineries. Motiva also has an ownership interest in 41 U.S. refined product storage terminals. Former Royal Dutch Shell Group Chairman, Sir Mark Moody-Stuart is a director of Saudi Aramco. Royal Dutch Shell is also closely associated with the Saudi Royal family: 

Shell, Saudi Arabia, Arms-for-Oil, Corruption, & Radioactive Contamination: 5 December 2008

ARTICLE ENDS

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