SLICK DEAL?

December 1, 1998
	Exxon and Mobil merged today to form the largest private oil company in the world. They are two of the biggest pieces of what was John D. Rockefeller's Standard Oil in 1911.

Nov. 26, 1998: The Justice Department investigates Visa and Mastercard. Nov. 24, 1998: AOL and Netscape merge Nov. 12, 1998: Federal prosecutors claim Microsoft has engaged in monopolistic business practices. May 26, 1998: Is the recent wave of mergers good for America? May 11, 1998: SBC and Ameritech join forces. May 7, 1998: Daimler Benz acquires Chrysler. April 13, 1998: A look at a series of big bank mergers.     Exxon Mobile	PHIL PONCE: The announcement creating the largest oil company in the world came this afternoon. LEE RAYMOND, Chairman Exxon Corp.: The merged company's larger resources, financial, technological, and human, will increase our ability to participate in more of the new opportunities in the global, oil, and chemical business. As many of you know, I have never been in favor of bigness for bigness' sake alone, but there are clearly benefits to having this broader resource base. PHIL PONCE: The merger reunites the biggest pieces of John D. Rockefeller's Standard Oil monopoly. Standard Oil was created in 1870. And within a decade, it controlled 90 percent of all oil produced in the United States. But the federal government brought suit against it under the Sherman Anti-Trust Act, and in 1911, the Supreme Court broke up Standard Oil into 33 companies. Eight of those retained the "Standard Oil" moniker. After a series of name changes, Standard Oil of New York eventually became Mobil in 1966. And, by 1972, what was once Standard Oil of New Jersey had evolved into Exxon. Today, Exxon is headquartered in Irving, Texas and employs 80,000 people around the world. Its market value: 176 billion dollars. Mobil, based in Fairfax, Virginia, has 42,700 employees. It's worth 61 billion dollars. If the merger's approved by regulators, only Saudi Arabia and Iran would produce more oil. The marriage would be the latest in the rapidly consolidating oil industry, which has been hurt by high production costs and weak oil prices. Prices for a barrel of crude oil are at the lowest in 12 years. Just this summer, British Petroleum announced it would expand its U.S. presence by acquiring AMOCO. And today in Europe two other companies said they would tie the knot. Total SA of France and Petrofina SA of Belgium will join forces to the tune of $9.5 billion. It's all part of a changing landscape that the head of Mobil says can't be ignored. LUCIO A. NOTO, Chairman Mobil Corp.: Today we've seen the international majors make some rather bold moves. Shell and Texaco joined in the U.S. downstream business. BP and AMOCO joined on a corporate basis. Other companies, like the Venezuelans, the Saudis, who are large producers in their own right and have much bigger reserve bases than any private companies, are moving downstream. They're doing interesting things; they're becoming more competitive; they're becoming more of a force. National companies, like Eni French, taking steps to be more efficient, more international, and that's why we're here. We're here because we're trying to respond to these changes and we're also here to try to take advantage of opportunities from our shareholders. PHIL PONCE: The new company will keep both brand names and be known as Exxon-Mobil Corporation.
	Rock-bottom prices.
	JIM LEHRER: Three views of the merger now. Daniel Yergin is chairman of Cambridge Energy Research Associates, an international consulting firm, his Pulitzer Prize winning book is The Prize: The Epic Quest for Oil, Money, and Power. Ron Chernow is author of several books on economic history, including the recent Titan: The Life of John D. Rockefeller. Christopher Flavin is senior vice president at the Worldwatch Institute, an environmental research organization; he's author of Power Surge: The Guide to the Coming Energy Revolution. Daniel Yergin, first, why is this a good deal for Exxon? DANIEL YERGIN, Cambridge Energy Research Associates: Well, for Exxon and for Mobil what it does, is it gives them a bigger scale. They can take on these big long-term projects, and it's a next stage really in terms of being able to continue to cut costs in what is a very competitive and tough business environment. JIM LEHRER: So it's equally good for both companies getting together? DANIEL YERGIN: Yes. I mean, it gives them - it makes them more effective competitors, and, of course, this occurs at a time when oil prices are very low - they're lower than they were before the 1973 oil crisis, and so that's put a lot of pressure on the entire industry. JIM LEHRER: So it now becomes the largest oil company in the world. What does that mean? DANIEL YERGIN: Well, it's the largest privately-owned one. It's owned by shareholders. There all those state companies that are bigger. But this means that just about in any part of the world they're able to be competitive at the forefront, and it means an ability particular to shoulder these multi-billion dollar, twenty-year projects, like in the Caspian Sea or involving natural gas in Southeast Asia, where you really - if you want to play those games - you have to be able to be resilient, whether oil prices are $10 or $20. JIM LEHRER: And they couldn't have done that as individual companies? DANIEL YERGIN: Well, they could. But I think their conclusion is that they can do it more effectively by combining resources. Mobil is very strong and liquefied natural gas, that is, gas that's cooled and transported. Exxon is strong and pipeline gas - gas on land - and so they bring together and they have, in a sense, the whole set of skills.
	A mature industry
	JIM LEHRER: Okay. Ron Chernow, help us on the history here. As Phil said in the setup, Standard Oil, both of these companies were originally part of the original Standard Oil; now two of them are getting back together. Different timing, different history, both times, correct? RON CHERNOW, Economic Historian: Right. You know, when the Supreme Court broke up the Standard Oil trust in 1911, it was broken up into 34 companies, but they were companies in very unequal size. The two biggest pieces were Standard Oil of New Jersey - today Exxon and Standard Oil of New York - today Mobil. Those two pieces were so large that they constituted 52 percent of the trust. So we actually have seen recreated the bulk of the old Standard Oil trust. But I hasten to say, Jim, with much, much less power. JIM LEHRER: Why? RON CHERNOW: Well, at the peak of its power, Standard Oil not only owned 35 percent of all the oil wells but it refined, transported, and marketed nearly 90 percent of all the oil in the United States. From figures I've seen this Exxon/Mobil combination, as colossal as it is, will market somewhere between maybe 25 percent of oil in the United States and refine 15 percent. DANIEL YERGIN: I think the number's lower. It's like about 13 or 14 percent. RON CHERNOW: Well, still compared - it makes the point even more - compared to the power of the old Standard Oil trust this is really - I hate to say small potatoes - it's not - but Standard Oil really owned the industry lock, stock, and barrel. JIM LEHRER: Yes. Now, your reading of history on this, Ron Chernow, was this inevitable, do you think, that they would get back together? RON CHERNOW: Well, I think that there are two lessons of what happened today. One is capital counts, that back in the days of John D. Rockefeller, in the early 1900s, oil was being discovered in places like Texas, Oklahoma, Illinois, California, oil was being discovered today in places that are geographically remote and politically hazardous, which means that the more capital you have, the more political connections you have, the greater your chances of survival. I think that the other lesson is that the market rules. When John D. Rockefeller created Standard Oil and took over 90 percent of the oil refineries, it was really with the notion that he could exercise some control over prices. I think that the merger today is essentially an acknowledgement by Exxon and Mobil that they can't control prices and as a result, the only way that they can maintain profitability is by ruthlessly cutting costs. JIM LEHRER: Now, Mr. Flavin, is it correct to say that the oil industry for the first time in history is no longer a growth industry? CHRISTOPHER FLAVIN, Worldwatch Institute: Well, it's still growing, but it's growing very slowly. It's a mature - I would argue - aging industry at this point. There are a lot of energy sectors that are growing much more rapidly. We have new technologies coming on. We have fuel cells, solar cells, wind turbines, some of these industries are growing at double-digit rates, 15 percent per year, 25 percent per year. The oil industry is only growing at 1.4 percent per year in the last decade. So I think you're seeing the consolidation of these giants as we approach the all-time peak in world oil production and then the decline. The 20th century has clearly been the age of oil. There are new technologies, though, that are coming online that are likely to be, in effect, the personal computers, the Microsofts of the new century. JIM LEHRER: And the - the lowering of the price, this is driving the price down. What we've been talking about is what's also driving these consolidations, right? That's the only way these folks can make money? CHRISTOPHER FLAVIN: Well, that's happening right now. As soon as the other technologies expand, you do have downward pressure on prices. I think we'll continue to see a rollercoaster in prices in the future, but the key thing to look for is technology. And it's true that oil-related technology is improving but not at the speed that the silicon chips, for example, that turn sunlight into electricity, are improving. There's a whole new range of 21st century energy technologies that are just coming online now. They're likely to be real competitors for oil as the next century begins. kind of risky investments are you talking about?
	A clearer image of the future.
	JIM LEHRER: What's your reading of Mobil and Exxon as two companies that are involved in future energy sources beyond oil? CHRISTOPHER FLAVIN: Well, it's sort of interesting. I would argue that these are two of the companies that have played the poorest hands in terms of the new technologies. They both took a try at solar technologies and then pulled out within the last ten to fifteen years; whereas, some of the other oil companies, particularly the British companies, Royal Dutch Shell and British Petroleum, are investing very heavily today in the new technologies and I think seem to have a clearer vision of a future, which is going to be a broader energy market of which oil is only a small part. JIM LEHRER: Dan Yergin, how do you see that energy future with oil and all the other things that Mr. Flavin just mentioned? DANIEL YERGIN: I think there are still billions of people in the world who are waiting for their first automobile, and it'll probably be powered by petroleum. They certainly lack innovation across-the-board, which including actually a lot of innovation involving natural gas, which is a very rapidly growing area, but when I look at the oil industry, he talked about computers, I see an industry, itself, that's being transformed by computers, that is able to apply computer technology in almost a 21st century way to do things deep under the seabed that were inconceivable and could not be justified in terms of cost a decade ago. So, see this industry changing, but I also think that it's a more competitive field - deregulation around the world, privatization around the world, all of those things mean a constant, relentless pressure and competition from new and existing and modernized technologies. JIM LEHRER: Ron Chernow, when you look - you're a historian, but when you look ahead, how do you see this, the energy future in the broadest sense? RON CHERNOW: Well, you know, it's interesting, Jim, in spite of all the talk about the shift from the industrial age to the information age, if there is suddenly a boycott of oil in the sort that we experienced in the 1970's, the American economy would be no less paralyzed than it was then. So it's not as if the industrial age stops and then the information age suddenly starts. It's really one flowing into another, and oil really in many ways has a more pervasive presence today than it did in 1911. When the Standard Oil trust was broken up in 1911, General Motors had just been formed in 1908. Henry Ford had just rolled out his first Model T three years before. So it was broken up really before the big auto boom and so were very dependent on oil.
	A painful transition.
	DANIEL YERGIN: And if I could say, as Ron's book really demonstrates, John D. Rockefeller made his fortune selling illumination, lighting oil, not gasoline. That was really a product after his time. JIM LEHRER: Yes. Mr. Flavin, you don't dispute the fact that we're going to have oil for a while? CHRISTOPHER FLAVIN: No. It's going to be a long and probably somewhat painful transition, but I think that we're really in a situation that's very similar to where we were in the late 19th century, the period that Ron Chernow has written about so well. We see the new technologies emerging in niche markets, as oil emerged initially as a way of life. JIM LEHRER: Such as? Such as? CHRISTOPHER FLAVIN: We see, for example, photovoltaic solar cells being widely used in developing countries. Millions of people are getting their lights that way. You see telecommunications companies using the technology. There are niches today, but they are allowing the industry to have R&D, to have new markets, to expand and invest and to be ready to go after the mainstream energy markets in the future. JIM LEHRER: Let's go back to the specifics of Exxon and Mobil for a moment and the cultures, the culprit cultures. There's a lot of talk of that today in the wire stories, Mr. Flavin, as well as in the news conference, that the two chairmen had. Do you see that as a problem, these two companies mixing? CHRISTOPHER FLAVIN: I think it could be a challenge. I mean, one is more aggressive in terms of Mobil, Exxon, it tends to be a more conservative company. I think the other interesting thing to look at is the transatlantic division now. You see very pro-environmental statements being made by these big British companies, the giants - British Petroleum and Shell - that accept the science on global climate change that are ready to get on with the process of investing in alternatives, whereas, you find both Exxon and Mobil investing very heavily, effectively scientific disinformation, trying to slow down the whole climate negotiating process. I think it'll be interesting to watch the battle of the majors, in effect, over the environmental future. JIM LEHRER: Mr. Chernow, how do you see the differences in culture between Exxon and Mobil and problems they might have in getting this thing together? RON CHERNOW: Well, it's very interesting. When I read about Exxon, the culture is cautious, it's disciplined, it's secretive. It sounds remarkably like Standard Oil under John D. Rockefeller, and Exxon is the successor company in a legal sense to the old Standard Oil trust. Mobil with its chairman seems to be more of a free wheeling and aggressive outfit. I think this is going to be very difficult to combine these two large companies. The former Exxon chairman once made the statement that managing Exxon is like training an elephant to dance. Well, if that was true, running Exxon/Mobil might be like training a hippopotamus to dance. This is a gigantic company, 120,000 people, it will be a great managerial feat to keep this country - this company vital and aggressive. JIM LEHRER: Daniel Yergin, how do you see that? DANIEL YERGIN: Well, I think that - first of all - I think that we're going to see a lot more oil used in the world in the future, which is one of the reasons for this merger, along with the others, in order to do these big projects that the world will need if people want to have access to transportation and so forth. I think on the cultures, clearly they have different cultures than I think in any merger. It's a big challenge to put the deal together, and it's an equally large challenge to meld the cultures together. And although their distant roots were, of course, out of Standard Oil, they are very different - different companies.
	Melding the cultures together.
	JIM LEHRER: Well, Dan Yergin, the assumption is being made today that with all the problems this thing will work, this will be successful. Do you see anything, based on your experience and research through the years, writing your books and other things that would make you think otherwise? DANIEL YERGIN: I think a lot of thought has obviously gone into this. These issues are very much on the mind of the oil industry in this low-price environment. So I think - you know - these are determined companies, and I think they're going to be determined to pull it together. It'll take a couple of years to meld the cultures together. JIM LEHRER: Mr. Flavin, do you see anything to make you think this thing may not work? CHRISTOPHER FLAVIN: Well, I wouldn't want to put any guarantees out here. I mean, a lot of big companies have made big mistakes. I think Dan is right, that inevitably a lot of thought has gone into this, but the larger the merger, the bigger the risk, the energy markets are changing very quickly, and if I were a stockholder, I'd watch this very, very carefully. JIM LEHRER: Ron Chernow, on the antitrust area, are there any red flags there do you think that might hold this thing up? Do you see any problems along the way? Is there going to, in fact, be an Exxon-Mobil Corporation someday? RON CHERNOW: Well, you know, it's interesting that for 87 years after the breakup of Standard Oil there was a political taboo to any of the former Standard Oil companies being reunited. It's remarkable - not only do we have the Exxon/Mobil merger, but the AMOCO/BP really reunites the old Standard Oil of Indiana AMOCO with BP America, which was Standard Oil of Ohio, so we actually have had in one year, after an 87-year hiatus, two major mergers involving the Standard Oil companies. I think that the ghost of John D. Rockefeller in Standard Oil will hover over this deal, and I think that as a result, it will receive especially intensive antitrust scrutiny, and I'm sure there will be divestitures in certain areas of the country, maybe gas stations in the Northeast, or refineries in Texas or Louisiana, where the Federal Trade Commission will demand as a precondition of the merger that Exxon-Mobil divest certain operations. JIM LEHRER: But you think eventually it will go through. RON CHERNOW: I think it will because I gather from news reports that the FTC is about to approve the BP/AMOCO, and I think it'll be very difficult once they've approved BP/AMOCO, and of course there's Royal Dutch Shell now with its Texaco joint venture in the United States, I think it'll be very difficult for them to single out Exxon/Mobil for punishment. But I think they will take their pound of flesh. JIM LEHRER: All right. Gentlemen, thank you all three very much.