When Exxon and Mobil merged last november in the largest corporate marriage ever, Texas became ground zero for Big Oil’s big consolidation. But the applause that likely would have greeted the $81 billion megadeal in decades past, when crude ruled, has been muffled by the realities of a new century. For one thing, Texas now has an Information Age economy driven by tech-related businesses. So Even Bigger Big Oil doesn’t pack the same wallop it once did in a state that also serves as home base for the nation’s largest computermaker (Dell), telecommunications company (SBC Communications), and supplier of computer chips for printers and cell phones (Texas Instruments). Furthermore, the rock-bottom oil prices of 1998 and intense international competition drove Exxon and Mobil together; they and other big oil companies concluded they had no choice but to get bigger to survive and prosper in the future. Ironically, in Exxon and Mobil’s case that meant picking up pieces of the past and putting back together fragments of Standard Oil Company—Exxon and Mobil each trace their lineage to the monopoly built by John D. Rockefeller, Sr.—which the U.S. Supreme Court broke up in 1911. That’s led some to dub the merger “Rockefeller’s Revenge.”

And revenge can be sweet. Certainly there are perks to having the world’s largest oil company call Texas home. The powerful ExxonMobil behemoth has a huge presence here: Its corporate headquarters are in Irving, the combined operation is consolidating its exploration and production company and chemical company in Houston, and it will operate 1,700 Exxon- or Mobil-branded stations across the state. The merged company is so big, in fact, that it had to hold its annual meeting in late May at the Morton H. Meyerson Symphony Center in downtown Dallas.

Not everyone is clearly benefiting, however, as the Tiger and the Winged Horse tackle the task of welding themselves into a leaner, competitively meaner animal. In some cases, it’s too early to tell what the consequences will be. Take philanthropy. In Texas, pre-merger Exxon and Mobil have each been important corporate donors; past recipients of major gifts include the Texas A&M University Foundation, the Nature Center in Baytown (where Exxon operates a huge refinery) and the Dallas Zoo, which last year opened its $4.5 million Exxon Endangered Tiger Habitat. So far, the A&M Foundation and the Dallas Zoo haven’t seen their funding levels change. Other institutions are optimistic in theory, since this is the first year the companies will make gifts as one corporation instead of two. Mobil has been a major contributor to the arts, while Exxon has concentrated on civic organizations, education, and the environment, where it’s been the nation’s single largest corporate giver (not surprising when you remember that “Valdez” often follows “Exxon” in our collective memory).

Speaking of the environment, watchdog groups are quick to point out that Exxon and Mobil, first separately and now together, oppose the “Kyoto protocol,” which would impose mandatory restrictions on the use of fossil fuels because of fears about global warming. Public Citizen, for one, warns that megamergers in the oil business ultimately will give companies more political power to lobby against tougher environmental regulations.

In the fullness of time, fallout from the creation of ExxonMobil will be evident across the board. For now, here’s how the winners and losers are stacking up.


Winner: Houston
Loser: Dallas

Even though Exxon moved its corporate offices from New York to the Dallas suburbs ten years ago, Big D has really been a Mobil town. Before the merger, the company had a high-profile presence around the city—its red neon Pegasus icon atop the Magnolia Building at Commerce and Akard streets is a landmark—and employed about 2,300 people in Dallas, the second-largest concentration of workers outside its home base of Fairfax, Virginia.

All that’s changing, though. Dallas may be able to brag that it has the headquarters of the world’s largest oil company in its back yard, but Houston has gotten the real glory in the form of thousands of jobs. When the merger was first announced, Exxon and Mobil forecast that 9,000 jobs would be cut company-wide; in December the number was jacked up to 16,000. The company is still in the process of figuring out who’s being cut and transferred and which cities will be affected, but it has been reported that about 2,000 Dallas-area jobs will be shifted to Houston, where Exxon had already employed 12,800. By contrast, only about 400 people work at ExxonMobil’s corporate offices in Irving.

But Dallas is losing more than Mobil jobs; it’s also continuing to lose its luster as an energy business center and an E&P (exploration and production) town where oil company logos once decorated the tops of skyscrapers and where a popular prime-time soap opera documenting the wheelings and dealings of ruthless oilman J. R. Ewing was set (somehow, a TV show called Houston, with Ewing Oil ensconced in a Post Oak highrise, doesn’t have quite the same cachet). On the other hand, Houston, which had its economy battered by the oil industry in the 1980’s bust, is getting its luster back. Bill Gilmer, an economist in the Houston branch of the Federal Reserve Bank of Dallas, says that oil directly and indirectly supports more than half of the city’s 2 million jobs. So-called “upstream” jobs at company headquarters and production units, where key decisions are made, account for 56,000 jobs in Houston—nearly four times more than Dallas, Gilmer estimates. “Houston has recreated its role as the energy capital not only of Texas but of the world,” says Bernard Weinstein, the director of the University of North Texas’ Center for Economic Development and Research. “It’s clear that Dallas has been the loser.”


Winners: Top brass
Losers: Shareholders

For Lee Raymond And Lucio Noto —the former CEOs of Exxon and Mobil, respectively—the megamerger means megabucks. Now the chairman and the vice chairman of ExxonMobil, respectively, they received special bonuses (as did several senior vice presidents) for their efforts in completing the merger, half of which were paid in cash in December. According to the proxy statement ExxonMobil filed with the Securities and Exchange Commission, Raymond’s total bonus was $13.9 million (his regular annual bonus of $1.4 million, which he was receiving before the merger, plus a special $12.5 million merger bonus) on a base salary of more than $2.1 million. Noto’s bonus was almost $8.6 million, including a regular annual bonus of almost $1.1 million, on a base salary of $1.05 million. Those figures don’t include restricted stock awards and stock options the executives also enjoy. And while Mobil employees who lost their jobs in the merger received generous severance packages, it’s doubtful that any one of them can come close to Noto’s severance benefit if he’s terminated: $9.4 million. “If times are tough for these oil companies, maybe their boards should consider cutting back on the generous salaries and stock options paid to the CEOs of these merging corporations,” Wenonah Hauter and Charlie Higley of Public Citizen wrote in an October report titled “‘Black Gold’ Merger Mania.”

While the merger has been a financial boom for the top execs, it’s been a bust for shareholders. Raymond has said that the deal is expected to improve ExxonMobil’s profits by about $1 billion this year and about $2.5 billion by 2003 and to provide $4 billion in positive cash flow by 2003, creating “substantial long-term value for the shareholders of both companies.” But since the ExxonMobil stock began jointly trading under the ticker symbol of XOM on December 1 of last year, it has fallen far short of Wall Street’s expectations and the overall market’s performance. In February it hit a low of about $70, then rebounded past $80 in April when the company reported a record $3.5 billion first-quarter profit—more than double that of the first quarter of 1999. Still, that’s below the more than $87 price at which Exxon stock was trading this time last year. “So far, shareholders are absolutely losers in this,” says Fadel Gheit, an oil industry analyst at Fahnestock and Company in New York. “It’s a big disappointment.”

The merger, however, isn’t the only reason; other oil stocks have been in the tank too. Another problem is that investors in search of high returns have been sinking their money into technology rather than oil. “ExxonMobil is no longer in competition with BP Amoco,” Gheit says. “It’s in competition with General Electric and Microsoft and Cisco Systems or wherever the best returns are found.” Analysts say the share price may rebound further this year since rising oil prices are expected to boost oil company profits, but that may be small comfort for ExxonMobil shareholders, who haven’t had anything like the big payday that the company’s top executives have.

Employee relations

Losers: Gay and lesbians

Gay and lesbian activists considered Mobil among the most progressive of oil companies. Two years ago, Mobil began offering same-sex and opposite-sex domestic-partner benefits to its employees and had a non-discriminatory clause in place to protect gay and lesbian employees from discrimination and harassment. But when Mobil and Exxon merged, the company said it would honor existing domestic-partner benefit plans of Mobil employees but wouldn’t extend them to newly hired workers or to employees on Exxon’s payroll. And Exxon’s non-discrimination policy does not specifically cite sexual orientation in its language, although the company says it bars discrimination for any reason, including sexual orientation. In January protesters picketed Exxon’s operations in downtown Houston and cut up their Exxon and Mobil credit cards. Clarence Bagby, a Houstonian who sits on the board of the National Gay and Lesbian Task Force, notes that Chevron, Shell, and BP Amoco all offer domestic-partner benefits. “Instead of moving forward, Exxon moved backward,” Bagby says. “They’re behind the times.”


Winner: Big Oil
Potential losers: Gasoline retailers and consumers

The oil glut and the collapse of crude oil prices in 1998 gave Big Oil enormous incentives to consolidate. By joining forces, companies could cut overhead costs, enjoy economies of scale, and boost their financial and political power with Congress and the foreign countries where they drill for oil—hence, megamergers like ExxonMobil and BP Amoco (which is still growing, having recently acquired the Atlantic Richfield Company). This year, though, the price for crude oil finally rose; in March it topped $30 a barrel for the first time in almost a decade. And prices at the pump, while falling, are still way above what they were a year ago.

Who’s to blame? Some energy experts cite OPEC as the cause of pricing peaks and valleys. Others say ExxonMobil isn’t so powerful that it can move prices, but competition from other convenience stores and gas stations can. “That’s where the real impact is: where gas is sold at a break-even price,” says Allen Mesch, the director of the Maguire Energy Institute at Dallas’ Southern Methodist University. “The real driving force at the pump is not the major branded station. It’s market competition.” Still others insist the merger may indeed have had a hand in it. Public Citizen points out that the ExxonMobil marriage created a company with the nation’s largest retail gasoline market share, thus threatening competition. Before regulators approved the merger, the company had to agree to sell some of its interests in service stations and supply contracts so that Exxon or Mobil stations wouldn’t have too much market dominance in certain areas. In Texas, for example, it sold Mobil’s 49 percent interest in 318 stations to Tetco of San Antonio and Mobil’s interest in 7 Dallas-area service stations and 3 outlets in Fort Worth to Dallas-based 7-Eleven. The combined company still has a significant marketing presence, however, with 1,500 Exxon stations and 200 Mobil stations.

Where analysts see a clearer potential for the merger to affect competition and pricing is in refining and pipeline ownership, which is concentrated in a few big hands. There’s no question that the merger created a superpower in refining. Exxon already ran a huge petrochemical and chemical refinery in Baytown, while Mobil’s refinery in Beaumont was the fifth largest in the United States. Public Citizen estimates that the ExxonMobil merger gives the combined company 11.5 percent of oil-refining capacity nationally and a whopping 18 percent share along the Gulf Coast.

And if the ExxonMobil merger has taught us one thing, it’s that in the oil business, size does make a difference—the difference between a gusher and a dry hole.