Nippon Oil, Nippon Mining to merge Oct. 2009 amid slumping oil demand+

TOKYO, Dec. 4 Kyodo -
Nippon Oil Corp., the largest oil distributor in Japan, and Nippon Mining
Holdings Inc., the country's sixth-largest distributor, said Thursday they will
merge their businesses in October 2009 in a move that will create the world's
eighth-largest oil company in terms of group sales.

The deal comes at a time when oil companies are struggling to combat sharp
falls in crude oil prices and dwindling demand for petroleum due to the global
economic recession.
The two plan to establish a holding company to supervise the operating
companies that will be set up in several business sectors including petroleum,
oil, natural gas and metals.
Nippon Oil President Shinji Nishio said that within three years of integration
the two firms expect to save at least 60 billion yen annually in petroleum
refinery and sales costs, and eventually expect to post more than 100 billion
yen a year on synergy effects.
Nishio also said the integrated company will aim to cut crude refining capacity
by 400,000 barrels per day within two years of the merger.
''By carrying out drastic cost-cutting and streamlining efforts, we will build
a strong business structure that can overcome global competition,'' Nishio said
at a press conference in Tokyo.
The integrated company, with business ranging from oil development and refining
to gas station operations, would have annual sales of more than 13 trillion yen
when the two companies' projections for the current business year are combined.
That will make it the world's No. 8 oil company and one of Japan's top-ranking
corporations, around the same size as Toyota Motor Corp. and Mitsubishi Corp.
The merger between the two Tokyo-based oil companies will mark the first major
realignment in the oil industry since 1999, when Mitsubishi Oil Co. merged with
Nippon Oil Co.
The government reacted positively to the deal with Japan's industry minister
expressing hope that it will allow the resource-starved country to secure a
stable energy supply.
''Our country's energy industry having more strength is very important also in
light of energy security,'' Economy, Trade and Industry Minister Toshihiro
Nikai said in a statement. ''We would like to welcome this kind of
initiative.''
Analysts said the latest move will trigger wider industry realignments as oil
companies scramble to strengthen their business bases amid rapidly
deteriorating economic conditions worldwide.
Hidetoshi Shioda, senior energy analyst at Mizuho Securities Co., said the move
toward a merger should have come earlier considering sagging demand and the
worldwide economic recession.
''For quite some time, it has been difficult for (oil companies) to increase
their competitiveness and profitability without the pursuit of mergers and
realignment with peer companies in the same industry,'' Shioda said.
Nippon Mining President Mitsunori Takahagi also said, ''The domestic petroleum
business is on a structurally declining trend so I felt a very strong sense of
danger that our profitability level would drop if we just stood by.''
In October, Nippon Oil cut its net profit outlook for the current business year
until March 2009 by over 97 percent, while Nippon Mining slashed its net profit
forecast by 75 percent from its earlier projection due to sliding prices for
petroleum products.
Crude oil futures in New York surged to an all-time high of around $147 per
barrel in July but have since plummeted to around $46 due to the global
economic downturn.
''In the long term, aggregate energy demand will increase so there will still
be sufficient demand for petroleum,'' Nippon Oil's Nishio said.
''We will boost our fund-raising capability by becoming a larger group and
thereby weather this (global recession and financial crisis),'' he said.
Earlier in October, Nippon Oil merged with its smaller peer Kyushu Oil Co. to
expand exports of petroleum products to other Asian countries amid shrinking
oil demand in Japan.
The name of the new company, its top management, the integration ratio and
other details will be decided through further negotiations between the two
companies. The companies said they will also examine boosting investments in
oilfield development and research into alternative energy resources.
Through its affiliates, the integrated firm is expected to undertake
development and smelting of precious and rare metals as well as to make
products from such metals.
The two companies operate a total of around 13,000 gas stations across Japan,
more than double the number of stations operated by the current No. 2, the
Exxon Mobile Corp. group, as well as 10 refining facilities.
The merged company will seek to consolidate unprofitable gas stations and
refining facilities, the two companies said.
Both Nippon Oil, which runs Eneos gas stations, and Nippon Mining, which
operates Jomo gas stations, are listed on the First Section of the Tokyo Stock
Exchange.
At market close on Thursday, Nippon Oil was up 11 yen, or over 3 percent, at
331 yen, while Nippon Mining Holdings was 29 yen higher, or over 11 percent, at
285 yen.
Nippon Oil posted a consolidated net profit of 148.3 billion yen in the 2007
business year through this March on sales of 7.52 trillion yen. Nippon Mining
posted a net profit of 99.3 billion yen on sales of 4.34 trillion yen for the
same year.