The Spark That Ignited an Oil Merger Explosion

On this day in economic and business history ...

On Aug. 11, 1998, BP (NYSE: BP  ) announced its intent to buy Amoco in a deal worth $48 billion. The move would vault a proposed BP Amoco into third place on global oil-company revenue rankings. The new company's combined market cap of $110 billion would also set a new record as the largest industrial merger in history, and it would also make the new London-headquartered oil supermajor Britain's largest corporation. According to news reports, the proposed BP Amoco would have 14.8 billion barrels of oil and gas equivalent reserves, with a daily production capacity of 3 million barrels.

BP's big buy set off a wave of big oil and gas tie-ups, and BP wouldn't hold onto the merger-size record for very long. Just one year later, Exxon -- which was one of two oil companies to remain larger than BP after its megamerger -- completed an $81 billion merger with Mobil to become ExxonMobil (NYSE: XOM  ) . Two years after that, Chevron (NYSE: CVX  ) combined with Texaco in a $45 billion merger to rise into fourth place on the oil-company power rankings.

In addition to the ExxonMobil and Chevron megamergers, Total entered into a $13 billion merger with Belgium's Petrofina in 1999 and a $54 billion merger with fellow French oil giant Elf Aquitaine in 2000, and ConocoPhillips (NYSE: COP  ) formed in 2002 out of a $16 billion merger. BP itself was back on the buyout trail just one year after its Amoco acquisition when it acquired Atlantic Richfield (Arco) for $27 billion. These moves shook up the Dow Jones Industrial Average (DJINDICES: ^DJI  ) as well -- between 1997 and 1999, both Texaco and Chevron were removed from the index as they lost standing in the industry. Chevron returned in 2008, several years after all the mergers had finally been worked out.

All told, turn-of-the-millennium oil megamerger mania, sparked by BP's big buy in 1998, resulted in about $285 billion worth of deals for just five huge oil companies. These major moves made merger-skeptical analysts look rather silly rather quickly. When the BP merger was announced, S&P Equity analyst Normal Rosenberg waved off the idea of other mergers between large oil companies.

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  • Report this Comment On August 11, 2013, at 11:03 PM, grahamsway wrote:

    Great and interesting post.

    It was so long ago I forgot the scope. What I remember that at the time I thought many of the US mergers were aimed at consolidating the refining & marketing business which certainly gave them the opportunity for better margins.

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