The major oil companies are very different companies today than they were at the time of the Arab Oil Embargo. Following the nationalization of crude-producing assets and the subsequent rise of state-owned oil companies to run and enhance those assets, major oil companies shrank. In 1972, had mergers occurred between BP and Amoco and Exxon and Mobil, the two resulting organizations would have controlled almost 28 percent of world production. Today the combined production of these four organizations accounts for less than 7 percent of production. Exxon and Mobil account for less than 4 percent.

If Exxon and Mobil combine, EIA data show several regions of large overlap. In refining, there is duplication in both the West Coast (PADD 5) and the Gulf Coast (PADD 3), although the size of the overlap on the West Coast is comparable to Equilon’s (Texaco-Shell joint venture) share of capacity in PADD 5. Gasoline markets show the greatest overlaps in the Northeast. The issue of competition in these matters falls under the purview of the FTC, and sometimes involves the Antitrust Division of the Department of Justice.

The last impact of these mergers to which EIA can speak is job losses. The merger partners in the BP-Amoco and Exxon-Mobil combinations have announced cutbacks of 6,000 and 9,000 employees respectively worldwide. The 15,000-employee job loss represents about 1 percent of all employment in the U.S. petroleum sector. The cutbacks will likely affect some local areas more than others, as headquarters functions and other areas are shutdown, moved or reduced. Specifics are not known at this time.

I wish to thank the Committee for the opportunity to testify today on impacts of the proposed merger between Exxon and Mobil. As Administrator for the Energy Information Administration (EIA), which is an independent analytical and statistical agency within the Department of Energy, I will focus on the business environment leading up to the BP-Amoco and Exxon-Mobil merger announcements and highlight several areas where large overlap of operations occur.

Exxon and Mobil were two of the seven largest companies that were spun off from the Standard Oil Company breakup by the Supreme Court in 1911. The seven companies are known today as Exxon, ARCO, Conoco, Amoco, Mobil, Chevron, and BP America.

Prior to the Arab Oil Embargo in 1973, mergers between British Petroleum and Amoco and between Exxon and Mobil would have been unthinkable due to the sheer sizes of these entities in the global market (Figure 1). In the upstream or exploration and production business segment, Exxon ranked first in world production, supplying almost 11 percent of the world’s crude oil. Mobil ranked seventh and produced about 5 percent of the world’s oil supply. Had BP-Amoco and Exxon-Mobil merged in 1972, the two resulting organizations would have controlled almost 28 percent of world oil production.

Up until the early 1970's, virtually all non-communist areas in the world had been open to U.S. major oil companies. But in the late 1960’s and early 1970’s, many of the major oil companies’ producing assets abroad were nationalized, and state-owned oil companies were formed to carry on the production. Private oil companies not only lost assets, but also access to some of the world's lowest-cost producing areas. North America and Europe are high-cost regions in which to explore and produce.

In 1997, state-owned or national oil companies represented the world’s top 6 producers. Exxon ranked number 7 with 2.4 percent of the world’s production (1.6 million barrels per day), and Mobil was down to number 18, producing only 1.4 percent (0.9 million barrels per day) of the world’s supply (Table 1). The combined production of both Exxon and Mobil (2.5 million barrels per day) is only slightly more than Mobil's crude oil production was alone in 1972 (2.3 million barrels per day).

Exxon and Mobil combined share of world oil reserves is much smaller than their share of production, since a very large share of the world’s reserves lie outside of the private sector in the Middle East. In 1997, the two companies accounted for 1 percent of world reserves (10.7 billion barrels), down from about 2.6 percent in 1973. Their U.S. share of reserves in 1997 was just under 12 percent of total.

Strongly limited access to low-cost foreign areas continued until the time around the oil price collapse in 1986, when some countries again began to open to private investment. The new opportunities in these foreign areas have attracted oil company interest. Between the oil price drop in 1986 through 1997, more than 40 percent of the growth in exploration and development expenditures of the major oil companies has been in countries outside of North America and Europe. In spite of the majors refocusing in these foreign areas, over three-quarters of the majors' current oil and gas production is from relatively high-cost United States, Canadian, and North Sea properties.

Participation by the majors in world refining has also changed over the years, but to a lesser extent than exploration and production. Many more national oil companies own refining capacity now than 25 years ago. Today, 9 out of the largest 20 refiners are state-owned companies. In the United States, the major oil companies have been shifting out of refining, and in 1997 they accounted for less than 60 percent of capacity as independent refiners and foreign producing countries have grown in importance. Mobil and Exxon have also participated in this shift. In 1993, Exxon sold its Bayway, New Jersey, refinery to Tosco; in 1997, Mobil sold a 50 percent interest in its Chalmette, Louisiana, refinery to the Venezuelan state-owned company, PDVSA; and in 1998, Mobil sold its Paulsboro, New Jersey, refinery to Valero. In 1997, Exxon and Mobil together controlled almost 12 percent of U.S. refining capacity, and just under 9 percent of U.S. branded retail stations.

Many U.S. major oil companies were already cutting costs and rationalizing after deregulation in 1981, but after the oil price drop in 1986, companies engaged in further cost cutting in an attempt to improve performance. Figure 2 shows evidence of the cost reductions in the steady loss of personnel from the major oil companies alone through the 1980's and 1990's. The majors dropped about 60 percent of their employees worldwide between 1980 and 1997. Although the decline seemed to have slowed in 1997, the low oil prices in 1998 may accelerate the descent again. The announced cutbacks resulting from both the Exxon-Mobil and BP-Amoco mergers amount to 15,000 people (9,000 from the Exxon-Mobil merger), which represents about 3 percent of the worldwide employees of the majors and about 1 percent of total oil industry employment in the United States.

The low prices since 1986 and pressure to improve performance have resulted in application of new technologies that have reduced costs both to produce oil and to add new reserves. In the downstream we have seen closure of many small inefficient refineries and a trend toward increasing volume throughput of gasoline stations to gain economies of scale. Refineries have changed hands, with the majors selling U.S. refineries to growing independent refiners as companies re-position themselves for growth in the future. We also have seen a number of joint ventures formed between U.S. refiners and producing countries that can provide the U.S. partner with additional financial resources and crude oil supply agreements. More recently, a wave of mergers, acquisitions, and alliances began, even before the most recent price decline.

EIA data can provide information on areas in U.S. refining and marketing in which Exxon and Mobil overlap, but EIA does not make determinations about the competitive implications of these overlaps. Competitive issues arising from major oil company acquisitions are largely the responsibility of the Federal Trade Commission (FTC), and sometimes involve the Antitrust Division of the Department of Justice. EIA data may suggest where the FTC reviews are likely to be concentrating.

Table 2 shows that the U.S. areas in which Exxon and Mobil overlap in refining are on the West Coast (PADD 5) and the Gulf Coast (PADD 3). Gulf Coast refineries are the major supply sources for markets east of the Rocky Mountains. These refineries processed 56 percent of the crude oil used in PADDs 1 through 4 in 1997. While Exxon and Mobil account for less than 12 percent of U.S. capacity, they control 18 percent of the Gulf Coast capacity. This 18-percent share is comparable to the combined BP-Amoco share of refining capacity in the Midwest (PADD 2).

Exxon and Mobil are also strong players on the West Coast (PADD 5). The Exxon Benicia refinery serves the Northern California area, and the Mobil Torrance refinery serves the Los Angeles area. The refinery outputs may not pose a problem since refineries in northern and southern California tend to serve different regions. Furthermore, Equilon, the joint venture between Shell and Texaco, has about as much capacity in PADD 5 (250 thousand barrels per calendar day) as do Exxon and Mobil combined. We have no data on local domestic crude purchasing issues.

Gasoline is the most visible petroleum product to consumers and is the focus of many concerns over the impacts of mergers. Figure 3 shows that Mobil and Exxon have the largest overlap in marketing areas in the Northeast. This figure is based on branded retail station counts, but it is consistent with the regional concentration of EIA volume sales data as well.

This concludes my testimony before the Subcommittee. I would be glad to answer any questions at this time.

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