Too Big to Merge? Exxon and Chevron Might Think So
Earlier this week, Chevron completed its acquisition of Hess Corp. It was one of the largest deals in the oil and gas space in recent history, after Exxon’s takeover of Pioneer Natural Resources, finalized in 2024. With that out of the way, the question begs to be asked: could the two U.S. giants strike a deal to create a single, much bigger giant?
Some argue it might only be a matter of time. Reuters’ Ron Bousso, for instance, wrote in a recent article that Exxon and Chevron are already partners in a number of projects around the world and with Chevron’s takeover of Hess Corp, they have also become partners in one of the hottest oil spots in the world: Guyana.
With so many operations overlapping, Bousso, says, it would make sense if the two combined to save on costs—because the future is becoming increasingly uncertain for the oil and gas industry amid the advancing energy transition. This, however, may be a rather fanciful scenario.
First, consolidation tends to happen in turbulent times for an industry. The pandemic lockdowns of 2020 created just such times for the oil and gas industry by killing a lot of demand, crushing a lot of smaller companies, and motivating those with deeper pockets to strike some deals with the surviving ones as oil prices tanked.
Of course, the most notable deals of that period involved both Exxon and Chevron. Exxon took over Pioneer Natural Resources for $60 billion while Chevron picked Hess Corp., Exxon’s partner in Guyana, offering $53 billion for the company. A few other large deals in the last couple of years prompted those covering trends in the industry to talk about a series of megadeals—all struck after oil prices rebounded after the end of the lockdowns and soared briefly but meaningfully after Russian troops entered Ukraine in early 2022.
Since then, prices have moderated, to put it mildly. And they have stabilized, so much so that even the brief threat of a war between the United States and Iran failed to move them as high as it would have in the pre-algo trading era. Oil prices, then, could be said to have entered a likely prolonged period of stability, to which incessant predictions of peak demand growth have contributed significantly too.
The predictions of peak demand growth for oil are part of the broader energy transition narrative, most recently expressed by the secretary-general of the United Nations, who said in a speech that the transition was unstoppable and the world was past the point of no return on its way away from oil and gas and towards a fully wind-plus-solar future energy system.
The speech accompanied the publication of a report by the UN on the progress of the net-zero push. Despite some rather strong words used by Antonio Guterres in his speech, such as an accusation that the oil industry would go to certain “lengths” to stop the transition, in the real world, oil, gas, and coal continue to account for most of the primary energy we consume. Despite trillions of dollars spent on wind, solar, and other alternatives to hydrocarbons, these constitute a single-digit portion of the world’s total energy output.
So, the argument that Big Oil needs to consolidate because the transition is moving on and it is unstoppable and past the point of no return may be just a little bit dubious. Indeed, with China reaching its saturation point in oil demand, the future of that metric could look quite different from how it looked in the past two decades. Yet on a longer scale, oil demand has been growing since the discovery of oil—while growth in wind and solar capacity has been stumbling recently in key markets such as Europe. It appears that the energy marketed as cheap is not that cheap after all, or that easy to install and connect to the grid.
The oil industry, then, seems to be quite safe for the foreseeable future. This suggests that neither Exxon nor Chevron should be in any rush to grow even bigger, and that’s if we ignore the possible obstacles to such a deal that regulators could put in its hypothetical way. After all, there are anti-monopoly laws in place, and while those in charge of upholding these laws greenlit both the Exxon-Pioneer merger and the Chevron-Hess tie-up, they might think twice about greenlighting a deal between the now larger Exxon and the now larger Chevron. They might just prove too big to merge.
Yet regulatory obstacles aside, the two U.S. energy behemoths don’t seem to feel any urge right now to consolidate even further. They just closed one massive deal each, after all. Oil prices are under no immediate pressure, comfy around $70 for Brent and the mid-$60s for WTI. There’s a pro-oil administration in Washington, and the Guyana arbitration is over. There’s no rush for any further consolidation.
