Exxon-Mobil faces Europe monopoly questions

If Exxon Corp. and Mobil Corp. merge as planned, the combined companies will have the largest upstream portfolio in Europe and may face downstream monopoly questions from European authorities.

This is the view of Wood Mackenzie Consultants Ltd., Edinburgh, which said the combined reserves base of Exxon and Mobil in Europe amounts to more than 8.7 billion boe.

Gas dominance

The analyst said gas would dominate the Exxon-Mobil reserves mix in Europe, with 31% oil and 69% gas. Exxon would account for 80% of the combined reserves, of which 37% are in the Netherlands, 28% in the U.K., 21% in Norway, and 13% in Germany.

"Europe as a region is second only in importance to the U.S. to both Exxon and Mobil," said Wood Mackenzie. "Exxon is largely present in Europe via joint ventures with Royal Dutch/Shell, a relationship that has its origins in deals struck after the second world war and has resulted in the NAM, BEB, and Shell Expro 50-50 joint ventures in the Netherlands, Germany, and the U.K., respectively."

The analyst ranked the Shell/Exxon JVs in the top two in their respective countries by most measures, while Mobil's European position complements Exxon's with significant overlap only in Germany.

"Directly or indirectly," said Wood Mackenzie, "the combined company would completely dominate the German upstream gas business, controlling about 90% of reserves.

"Exxon's interests in Germany are held though its BEB JV with Shell, which dominates German gas production. Mobil's upstream interests in Germany are, again, gas-biased.

"Both companies have extensive interests in gas infrastructure-both in pipelines and storage-and wholly-owned marketing operations. Exxon also has substantial direct and indirect interests in the giants of German gas marketing: Ruhrgas and Thyssengas."

One question facing Exxon-Mobil is whether or not the German authorities will think Exxon-Mobil would be too dominant in gas production.

Refining-marketing concerns

There are potential refining and marketing monopoly problems in a number of European countries as well.

Wood Mackenzie said questions to be resolved are whether the Exxon-Mobil merger will result in a major portfolio rationalization in Europe, and whether the merger will affect Exxon's upstream JV with Shell and Mobil's refining and marketing alliance with British Petroleum Co. plc.

"As the merger nears completion," said Wood Mackenzie, "and the competition issues with the various authorities are resolved, the opportunities for other upstream and downstream players, which could emerge from this unprecedented merger, will become clearer."