When Exxon Corp. and Mobil Corp. finally merge (assuming federal regulators eventually consent to the deal) and their $135 billion in combined assets are split up, the Washington area will keep the low-growth, slow-growth end of the business.

The headquarters of Exxon Mobil Corp. will be in Irving, Tex., just outside of Dallas, where Exxon now is based. The two other major parts of the oil business -- exploration and production, and chemicals -- will be centered there, too.

Meanwhile, Mobil's current headquarters in Fairfax County, where it has reigned as the corporate jewel of Northern Virginia, will become the center of the new company's "downstream" refining and marketing operations, as previously announced. By and large, that is the tail end of the oil industry, the part where profit is generally thinnest and growth the weakest, energy analysts say.

What this division of labor will mean to 2,000 current Mobil employees in Fairfax, and to the Washington region, isn't clear. Who will stay and who will go after the combination of the companies hasn't been disclosed.

The Fairfax facility still will be a major corporate presence, clearly. Although federal regulators have blocked the merger while they pressure the companies to sell off refinery facilities and service stations, the combined downstream businesses of Exxon Mobil figure to be substantial. At the time the companies announced their proposed merger last Dec. 1, the two had 7 percent of the world's refining capacity, 11 percent of petroleum product sales and 13 percent of lubricant sales.

But it's not the hot end of the business.

With downstream profits being squeezed in recent years, major integrated oil companies have shed refineries and other facilities, sometimes spinning them off as separate joint ventures, as Shell Oil Co. and Texaco Inc. have done and as British Petroleum PLC and Mobil did in Europe. Other times, companies have swapped retail assets to concentrate on regions where they were strong. In both cases the goal has been to reduce costs.

Although Mobil is drawing more profit from each dollar of product sales than it did several years ago, its earnings from marketing and refining declined to $611 million in the first six months of 1999, a drop of $108 million from the first six months of 1998.

Net earnings from exploration and production, on the other hand, increased by $107 million, to $732 million. Part of the reason for those performances, of course, is that crude oil prices were rebounding from uncommonly low levels during the year before, making production more profitable as the price rose, and refining -- which has to buy the crude -- less so.

In its 1998 annual report, Mobil spoke of a promising future with abundant investment opportunities for "upstream" exploration and production operations. Not so for marketing and refining, which will continue to face competitive market pressures and volatile earnings shifts, it said.

The refining industry, particularly in the United States, is in the midst of a huge transition, with many of the major integrated oil companies selling off refineries to new players -- independent companies such as Tosco Corp. and Valero Energy Corp. In 1998, 40 U.S. refineries changed hands, compared with the seven sold in 1995 and 1996 combined. "It's a tough business," said Robin West of Petroleum Finance Corp., a D.C.-based research and consulting firm.

"The refining business has been a pretty doggy business for the last four or five years," said Claiborne Deming, chief executive of Murphy Oil Co., a refining and wholesale marketing company headquartered in El Dorado, Ark., which has been opening low-cost service stations at stores owned by Wal-Mart Stores Inc. The problem, Deming and others said, is too much refinery capacity.

"It hasn't been a portion of the industry where you want to go if you're interested in a lot of growth," said Bob Slaughter, general counsel for the National Petroleum Refiners Association. "It's a very competitive market in which you've got to scratch for your profitability. If you're in an organization with considerable financial resources, you want to deploy them in the most effective way in terms of making a profit."

In fact, John Browne, chairman of BP Amoco PLC, announced in July that his company plans to reduce its refining capacity by about a third in the expectation that worldwide refining capacity will continue to grow faster than demand.

Independent companies have been able to make a go of refining by buying assets at discounted prices and, in some cases, by renegotiating union contracts to reduce costs, industry analysts say. Tosco, which refines 909,000 barrels of oil a day, is now larger than Mobil, which refines 705,000 barrels a day, according to the refiners' trade association. It's also among the companies mentioned as a possible buyer of some of Exxon and Mobil assets, which the Federal Trade Commission is expected to require them to sell as a condition of merger approval.

In marketing, the other downstream part of the business, huge changes are also afoot. Gasoline sales have become a smaller and smaller part of the business, as service stations have been redesigned to be convenience stores as well.

"The key measure becomes sales per square foot," Petroleum Finance's West said. "There are companies that make more money on non-petroleum products sold than petroleum products."

More traditional service stations are also facing competition from retailers such as Wal-Mart that are incorporating gasoline sales into their mix of products.

Murphy Oil's Deming said the high volume of the gasoline kiosks at Wal-Marts and the lower capital cost of building them means his company "probably can swallow lower margins than most people." In Europe, oil companies have found their prices undercut by "hyper-markets" that use gasoline as a loss leader to bring in shoppers.

Although gasoline prices have been climbing in recent months, during 1998 they were at the lowest point in decades, adjusted for inflation, noted Adam Sieminski, an industry analyst at Deutsche Banc Alex. Brown. "At the retail end, everyone's doing somewhat better because the margins on candy bars are somewhat better than the margins on gasoline," he said.

Despite traditionally low returns, discussions between Exxon and Mobil and the Federal Trade Commission apparently have stalled over the FTC's insistence that the companies divest significant refining and marketing assets, sources have said.

That might seem an odd sticking point, given the industry's downstream cutbacks. But analysts said the dispute is over which assets would be sold: The oil companies and the regulators have different ideas about that.

The FTC is said to be seeking divestiture of Exxon and Mobil service stations in the Northeast where the two companies have a sizable presence and where they presumably would be happy to retain their clout and market share, according to industry analysts. The same goes for refineries: The FTC is said to have focused on the two states where Exxon and Mobil each have them -- Texas and California.

"The companies would probably like to see as much concentration as possible, both from a cost and market share point of view," Sieminski said. "The FTC would probably like to see them spread out as much as possible."

The Money Flow

Mobil's earnings from marketing and refining fell in the first half of this year compared with the same period in 1998.

Mobil earnings or losses, in millions first six months of each year

Exploration and production

`98 $625

`99 $732

Marketing and refining

`98 $719

`99 $611

Chemicals

`98 $125

`99 $30

Corporate and other

`98 -$122

`99 -$160

SOURCE: Mobil