BP and Mobil to notify joint venture plan

Date: 13/06/1996

By Fiona McHugh

BRITISH Petroleum and Mobil Corporation, two of the world's major oil firms, are to submit plans to form a joint venture for vetting in the next two weeks.

Notification to Competition Comissioner Karel Van Miert will be made under the Merger Regulation, which forbids the creation of dominant market positions, rather than under Article 85 of the treaty, used to weed out anti-competitive corporate behaviour.

Following preliminary talks with the merger task force, BP and Mobil said they were confident the deal would be cleared by DGIV, the Commission's competition watchdog.

“We are working very closely with the merger task force which is already studying the case. So far, we do not envisage any problems with the notification,” said Elisabeth Wild of Mobil Europe.

The planned partnership is the latest in a series of steps taken by the two companies aimed at rationalising their oil product operations in Europe. If approved by DGIV the merger will, they hope, enable them to challenge the dominance of the long-time market leaders, the Anglo-Dutch group Shell and Exxon of the US.

For Mobil and BP, this rationalisation process has been particularly dramatic. During the course of the past year, BP has decided to close two of its European refineries, while Mobil has pulled out of the Italian and Norwegian fuel markets and shut down a refinery in Germany.

But with Exxon further squeezing petrol pump prices and Shell mercilessly cutting costs, more had to be done.

The BP-Mobil deal will initially allow the two firms to compete more aggressively in more than a half a dozen countries.

The venture, which should have sales of 16 billion ecu a year, will be split in two. BP, with a 70&percent; stake, will dominate the fuel part of the business, while Mobil will have a majority stake of 51&percent; in the lubricant part.

BP's new chief executive John Browne, who has been instrumental in establishing the company's cost-cutting mission, helped close the deal. He believes firmly in the need to build on BP's strengths, while getting out of unprofitable areas of the oil business.

But, while closures and cutbacks have perhaps helped BP's profits rise in recent times, they have also reduced the firm's size, making it difficult to enlarge or even retain market share.

For Mobil, the US' second largest oil company after Exxon, the partnership offers the chance to bolster its weakening position in Europe. Returns there have long since slipped behind those on investments in regions such as East Asia. Lou Notto, Mobil's new chairman has wasted no time in proving his determination to shed assets that underperform.