Bernstein Research thinks 2009 could be the year ExxonMobil changes the competitive landscape of the oil industry forever.
How is it likely to do this?
By buying BG and forging a joint venture with Petrobras.
Yes, Bernstein believes a combination of Exxon and Petrobras/BG makes perfect sense. Here are some snippets from the note on the potential synergies (our emphasis):
ExxonMobil is in a relatively unique position, as it might be able to change the industry structure forever and gap away from competitors in 2009. This is because it has enough financial fire power to undertake large scale acquisitions, buying up quality assets at extremely cheap prices in order to enhance the company’s future production profile. Such a scenario could be on the game-changing scale last seen with the wave of mergers in the late 1990s, when the low oil price also put a lot of oil companies under duress.
ExxonMobil is not perfect today, with larger positions desired in Brazil and West Africa, where it is the E&Ps who have done a lot of the ground work in these in vogue exploration locations. It is also the E&Ps who are most at risk from succumbing to the credit crunch and could shed assets to generate cash (Chesapeake style) or be taken out wholesale. Similarly, with Petrobras seemingly struggling for financing, while deep pocketed ExxonMobil wants a much bigger position in Brazil, this could be the ideal time for the two companies to form a joint venture.
In fact, given ExxonMobil’s desire to expand in Brazil, and with the financing problems that Petrobras seems to be facing, now could be a prime time for these two heavy weights to form some kind of Brazil Sub-Salt JV. Along the same theme, ExxonMobil probably has the fire power to acquire a company like BG, with its heavy sub-salt exposure whole-sale, although it is probably considered too expensive on a book-value basis at the moment.
Bernstein adds ExxonMobil is uniquely placed to participate in targeted M&A due to its cash position and the number of struggling E&P companies out there. If it acts accordingly the company could become unstoppable versus the other majors out to 2020.
It’s true that Exxon is cash rich and as a result uniquely placed to move on the M&A front, but as Goldman Sach’s lead energy equity analyst Arjun Murti expressed Thursday in a conference call, it’s unlikely that 2009 will be the M&A hotbed some predict. Rather he sees only those companies actively putting themselves up for sale being subject to any acquisitions.
While Petrobras does needs to pay off $3bn of maturing debt in connection to the development of its major discovery the Tupi field, it’s questionable that it’s ready to put itself up for sale. A joint venture, meanwhile, wouldn’t necessarily be as attractive to Exxonmobil on account of the financial exposure.