Exxon Mobil Corporation’s (NYSE:XOM) CEO Rex Tillerson had recently said that Exxon Mobil had financial powers which are not there with its competitors. He also mentioned that the company may look into a prospect if it was exciting. The Royal Dutch Shell’s agreed £47 billion deal to acquire BG Group might just be the deal.
The chance of ExxonMobil gate crashing the deal by competing with Shell for BG is could be possible. There is also a chance that Exxon might look for buying another entity similar to BG.
Exxon has been a rumoured bidder for BG for a long time and the current chain of events might just make it bid. Both Exxon and Shell will find it easier to increase production by deal making rather than drilling. Exxon’s output was 4.3 million barrels per day in 2001 and was at 4 million bpd last year.
BG has some interesting and lucrative positions in few of the most sought after long term prospects. These include oil in deep water off Brazil and gas of the coast of Tanzania. The projects will require huge financial and technical capabilities which Exxon has. By buying BG, Exxon would also be building its position in export of natural gas from the U.S. where it currently lags behind.
Exxon Mobil Corporation’s (NYSE:XOM) is also not in the same pressure as Shell to do a deal. In the last three years, Exxon has replaced oil and gas production in proved reserves by 101%. The same figure for Shell stands at 76%.
BG might not be the perfect fit for Exxon, however according to Paul Sankey of Wolfe Research others like Continental Resources, Devon Energy and Anadarko might fit the bill for Exxon.
The Shell-BG deal is expected to prompt others to make similar deals. The fluctuations in oil market make it hard to make deals, however deals such as Shell-BG are big enough so as to function as benchmarks against whom other deals can be tested.