Oil mergers likely to spread
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November 26, 1998: 8:41 a.m. ET
Exxon-Mobil deal likely to mean more buyouts ahead, say analysts
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LONDON (CNNfn) - Reports of merger talks between giants Exxon and Mobil have sparked speculation on the next oil groups to get together.
Stocks in Europe certainly indicated the belief that more mergers lie ahead. In Paris Total (PFP) shares rose nearly 2 percent to 683 francs percent, while domestic rival Elf Aquitaine (PAQ) jumped 2 percent to 732 francs.
Giant Shell (SHEL) rose 2 percent in London, although rival British Petroleum (BP.) was little moved.
BP is seen as unable to participate in any consolidation for a while because it is still going through the process of merging with U.S. group Amoco (AN).
At the heart of all the deal activity is the collapse in the price of oil. Companies are slashing costs to remain profitable in the face of a crude price at its lowest in years. And OPEC Wednesday agreed to extend existing output limits for another six months, which only sent prices down further.
Analysts said deals in Europe were likely, but not on a grand scale. Recent speculation that Elf was casting covetous glances at Petrofina highlighted the Belgian group's precarious position as an independent player, analysts said.
Deals are far more likely in the U.S. downstream industry, according to analyst Peter Hitchens at brokerage Williams de Broe.
He said, "There are at least 20 players in that sector, whereas in Europe each country tends to have its own national operator."
Petrofina is more vulnerable because reports suggest major shareholder Albert Frere is looking to sell his stake.
Analysts said there is less interest in mergers among European players such as Spain's Repsol, Norway's Norsk Hydro and Italy's Eni because the scope for cost cutting is far less.
These companies need to consider "whether it makes sense to be competing on a global basis individually with the likes of BP/Amoco, Shell and now Exxon/Mobil," said Tony Alves, research director at brokerage Henderson Crosthwaite.
Governments could stand in the way of tie-ups among European players, caution observers.
"Governments in Europe are still concerned about national interests," according to Hitchens, "they see oil companies as important for national security."
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