It fuelled speculation among City analysts over further rationalisation in the industry. One questioned whether US operators such as Chevron and Texaco, which have a relatively small position in Europe, might pull out altogether.
The venture will include refineries, pipelines, tankage and terminals as well as a network of 9,000 petrol stations across Europe. It pools almost all the BP and Mobil oil operations apart from the act of pumping it out of the ground. More than 2,000 of the petrol stations are in the UK, making this the biggest network ahead of Esso and Shell. Britain is also home to BP's Grangemouth refinery in Fife and to Mobil's Coryton refinery in Essex.
By joining forces, BP and Mobil will boast a 12 per cent share of the fuels market and will become the leader in lubricants with an 18 per cent market share. The company will shoot to the top of the league in some key European countries including France where individually they might languish in fifth or sixth place. BP shares rose 101/2p,to close at 5391/2p.
Joint ventures will be formed in each of the countries concerned including all EU states, Switzerland, Turkey, Cyprus, all of Eastern Europe and Russia West of the Urals. Of the $5bn of assets to be poured into the venture, $3.4bn will come from BP and $1.6bn from Mobil.
John Browne, BP's chief executive, said: ''This is a project that could only have been undertaken by BP and Mobil. The European downstream operations of our two companies are uniquely complementary. Bringing them together will produce efficiences through sharing costs, elimination duplication and and achieving major economies of scale." He said that the marriage, which puts them in the "top tier" of European refining and marketing, will result in joint annual pre-tax savings of $400m to $500m within three years.
Lou Noto, chairman and chief executive of Mobil, said: ''This is a venture which was not invented in the boardroom but at the working level. John and I agree that we will not nit-pick. We will not be reduced to silly games between the partners and we will not let egos get in the way." Mr Noto added that he believes the savings could go beyond those envisaged at present and stressed that the alliance should be viewed "as a platform for growth".
Sir David Simon, BP chairman, denied that there would be any problem combining the different company styles.
It is not yet clear where exactly the job losses will fall but they are expected to be among the combined non-service station workforce of 17,500. BP has a total world-wide workforce of 56,000 and Mobil 50,000.
BP will operate and have a 70 per cent interest in the fuels partnership which will run activities ranging from refining and manufacturing to petrol station forecourts, all of which will be branded in BP green and carry the joint venture mark, to include Mobil's logo. Mobil will operate and take a 51 per cent interest in the lubricants arm.
The far-reaching nature of the partnership underlines the downstream problems in the oil industry which show no signs of receding. The over- capacity and squeeze on margins in refining are legend and all the oil majors have warned that the problem will continue as new plants continue to be built in regions such as the Far East.
As recently as last month BP said it would sell or close three big refineries in Europe and the US. John Browne, chief executive, said then that BP would retain only those plants that were among the top 25 per cent most efficient in a given region.
Mobil closed a refinery in January last year and Shell recently suggested that it may be forced to cut its European capacity by up to one third. The move by BP and Mobil is likely to increase pressure on Shell, which is perceived as being too slow in taking firm action to resolve the capacity problem.
Both BP and Mobil pointed out that they have already taken the action they believe is needed to balance their refining portfolio. Mr Noto said: ''Let me say clearly that this partnership is not based on despair or desperation. It is based on opportunity. Both companies have taken significant strides to be more profitable. But the fact is we are not satisfied."
There has been little respite for the oil majors on the forecourt, with petrol price wars raging throughout the UK. The battle is expected to spread to the rest of Europe where the hypermarkets are already entrenched and taking substantial market share from traditional outlets. In mid-January Shell and Esso shook the retail market by cutting prices, underlining the growing backlash by the big oil companies against cut-throat pricing at the supermarket - now accounting for about one quarter of the market in the UK.
Analysts welcome the headline savings figure but they will be seeking answers on the effect of the alliance on longer term profitability. With the precarious state of the downstream markets and uncertainty over how far and deep the industry's rationalisation may go, the view is that this could be anybody's guess.
The big players in Europe
Country BP/Mobil Shell Exxon
UK 2,108 2,068 2,109
Western Germany 1,396 1,611 1,524
Eastern Germany 65 117 103
France 1,059 1,401 1,183
Belgium 190 440 374
Netherlands 673 755 340
Portugal 329 262 27
Spain 493 214 0
Austria 513 483 308
Turkey 805 640 0
Source:Wood McKenzie, 1994
Note: Figures do not include stations of Aral, in which Mobil holds a stake.Reuse content