Watching Government: Gems from Noto's recollections

May 13, 2013
Lucio Noto supplied interesting details as he reminisced Apr. 29 about the merger that created ExxonMobil Corp. in 1999. He also made some remarkable observations about the oil and gas business—and governments, both domestic and foreign—today.

Lucio Noto supplied interesting details as he reminisced Apr. 29 about the merger that created ExxonMobil Corp. in 1999. He also made some remarkable observations about the oil and gas business—and governments, both domestic and foreign—today.

"I suspect there will be more mergers and acquisitions in this industry," the former Mobil Corp. chairman told an audience at Johns Hopkins University's School for Advance International Studies. "We will need to develop oil and gas resources for the next 25 years. The amount of energy the world needs will be 35-40% more than it uses now. If I were the US administration, I'd be looking for a way to turn [fossil energy] into acceptable liquid fuels instead of [concentrating on] wind or solar power."

Noto said marketing and refining joint ventures between multinational oil companies in the mid-to-late '90s led a few chief executives to wonder about full mergers. He and then-Exxon Corp. Chief Executive Lee Raymond had briefly discussed this when BP PLC bought Amoco in 1998. Then their talks grew serious.

The biggest surprise after they announced Exxon's planned acquisition of Mobil the following Dec. 1 was how much time they spent to satisfy US Federal Trade Commission requirements, Noto recalled. He said this worked in the companies' favor as they completed the combination's final details.

Eye on midstream

Asked about today's merger-and-acquisition climate, Noto replied, "I happen to think the midstream is a very interesting place to be. I'd like to see companies in the midstream doing more. If an upstream company wants to get involved, it shouldn't try to build a pipeline. It should try to get together with a midstream company."

He expects transportation bottlenecks to be a challenge. "The products export debate will be interesting. It could have more telling consequences in the short term. Gasoline prices are badly depressed now, which is discouraging investments," Noto said.

Asked about matching refining with growing US crude production, he said a failure to construct refineries is the actual problem.

Many existing plants were built piecemeal, with capacity incrementally added over 40-50 years so that liquids at high temperatures and pressures travel comparatively long distances, Noto said. Middle Eastern export refineries "where everything is close together" are much more efficient and economical, he observed.

New US refinery proposals face intense local opposition and difficult financing economics, Noto conceded. He hopes the intense Keystone XL crude oil pipeline debate leads to plants being built closer to production, with products shipped to heavily populated markets. "If you look at product prices near refineries in the inland US, they're lower than elsewhere," he said.