By Martha M. Hamilton
Washington Post Staff Writer
Friday, March 12, 1999; Page E01

The concept was "big."

In fact, it was so big it was inescapable.

Exxon Corp. Chairman Lee R. Raymond and Mobil Corp. Chairman Lucio A. Noto hope to combine their businesses into the largest U.S.-based company of any type and the largest nongovernment oil company in the world.

So when they appeared before a House Commerce Committee panel yesterday to testify about the $81 billion deal, the issue of size loomed large.

"Big isn't necessarily bad, in the sense it allows you to do the kind of things you need to do on a worldwide basis," Raymond said.

"Ours is a great business, as long as you're number one or number two," said Noto, whose company is now only the fifth-largest nongovernment oil company in the world. But he added: "We never put this together because we wanted to be the biggest. It was because we wanted to be the most efficient."

The hearings dwelt in part on how much the world of oil has changed in the past two decades, redefining what it takes to be big in the business. In 1972, just before the Arab oil embargo sent prices through the ceiling, state-owned oil companies accounted for just 6 percent of worldwide crude production. Exxon accounted for 11 percent and Mobil 5 percent.

Today, state-owned companies -- which include Saudi Aramco, Mexico's Pemex and Venezuela's Petroleos de Venezuela -- account for 52 percent of worldwide production; Exxon accounts for 2 percent, and Mobil accounts for 1 percent.

"Twenty years ago companies like Exxon and Mobil represented 'big oil,' " said Rep. Edward J. Markey (D-Mass.), who described himself as "a liberal Democrat from Massachusetts." Now, he said, "Exxon and Mobil are small fish in a big pond."

Markey raised concerns, nonetheless, about potential concentration in smaller markets such as retailing, wholesaling, transportation and refining. Federal regulators said Wednesday that these were also issues they will study closely in deciding whether to oppose the merger.

But that said, Markey added: "I do not oppose the merger of Exxon and Mobil."

William Baer, director of the FTC's bureau of competition, assured the subcommittee Wednesday that the FTC will take a close look at how the proposed merger will affect competition in the Northeast, the Gulf Coast and California. He also assured them that the agency will look closely at whether the merger gives the combined entity too much power in certain sectors of the industry such as transportation, refining, wholesaling or retailing.

Energy Information Administrator Jay Hakes testified Wednesday that the two companies have the biggest overlap in gas stations in the Northeast, where they control more than 15 percent of the branded retail gasoline stations.

Last year, the FTC approved the merger of British Petroleum PLC and Amoco Corp. but required BP Amoco to sell a substantial number of service stations and storage terminals.

Baer noted that, in addition to the recent BP-Amoco merger, Shell Oil Co., Texaco Inc. and Star Enterprises have combined to create the largest refining and marketing company in the United States.

The proposed merger must win approval from shareholders as well as regulators. Both companies have scheduled shareholder meetings for May 27 in Dallas. Raymond said yesterday that the shareholders probably would act before the regulators.

Raymond and Noto said that changes in the oil industry and the need to reduce costs in the face of low prices were two factors in the merger. In addition to the growth of state-owned oil companies, the changes include the emergence of low-cost independent refiners and marketers in U.S. markets.

Noto said that Mobil had already cut $4 billion from its costs but that future savings would be hard to achieve in the absence of a merger. "Now we're getting down to muscle and not fat," he said.

It wasn't a hard-hitting hearing.

At one point, Rep. Joe Barton (R-Tex.), the energy and power subcommittee's chairman, asked whether the merger might not result in more money being made available for exploration and production in the United States. Well, actually, said Noto, the combined company might be able to achieve the same amount of exploration and production for less money.

"I'm trying to help you. I'm trying to give a reason why it's in the national interest of the U.S. to support this merger," Barton said. cHe then prompted, "It's a good thing for the American motorist if an American-owned company has more money to explore and find oil."

Yes, said Noto. "It is a good thing."

Market Share

If combined, Exxon's 8,500 retail gasoline outlets and Mobil's 7,436 make up 8.7 percent of the 182,596 outlets nationwide. Closer to home, the breakdowns are:

Percentage of gasoline outlets

D.C.

Exxon, Mobil

35.1%

All others

64.9%

Maryland

Exxon, Mobil

20%

All others

80%

Virginia

Exxon, Mobil

14%

All others

86%

Of 114 gasoline outlets in the District, 34 are Exxon and 6 are Mobil.

Of 2,175 gasoline outlets in Maryland, 289 are Exxon and 146 are Mobil.

Of 6,000 gasoline outlets in Virginia, 645 are Exxon and 192 are Mobil.

SOURCE: Department of Energy

Slipping Share

While U.S. companies -- with Exxon and Mobil in the lead -- produced nearly half of all crude oil in 1972, their share has been significantly eclipsed by state-owned oil companies, such as Saudi Aramco, which now account for almost half.

1972

National oil companies

(Saudi Aramco, Pemex and others) 6%

Other 45%

U.S. companies 49%

Exxon 11%

Mobil 5%

Amoco 2%

Other major U.S. companies 31%

1997

National oil companies (Saudi Aramco, Pemex and

and others) 52%

U.S. companies 11%

Exxon 2%

Mobil 1%

Amoco 1%

Other major U.S. companies 7%

Other 37%

SOURCE: Energy Information Administration