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Chevron texaco to purchase unocal Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=10000103&refer=us&sid=aSjgGUH8WZLkhttp://www.bloomberg.com/apps/news?pid=10000103&refer=us&sid=aSjgGUH8WZLk
ChevronTexaco to Purchase Unocal for $16.4 Billion (Update6)
April 4 (Bloomberg) -- ChevronTexaco Corp., the second- largest U.S. oil company, agreed to buy Unocal Corp. for $16.4 billion in stock and cash to increase reserves in Asia, the world's fastest-growing energy market.
The purchase, the oil industry's biggest since 2002, values Unocal at $62 a share, ChevronTexaco said in a statement today. El Segundo, California-based Unocal rose to a record $64.60 last week, up 49 percent for the year, after reports that Eni SpA of Italy and China's CNOOC Ltd. were among bidders for the company.
The Unocal purchase will add reserves in Indonesia, where ChevronTexaco is already the largest producer, and other Asian countries. Demand in the region is surging as the economies of China and India expand. Half of Unocal's reserves are in Asia.
``Unocal has got some significant reserves in locations beneficial to ChevronTexaco,'' said Douglas Ober, who manages $1.9 billion, including 625,000 ChevronTexaco shares, at Adams Express Co. in Baltimore.
ChevronTexaco said the purchase will be 75 percent stock and 25 percent cash. Unocal stockholders will get either 1.03 shares of ChevronTexaco or $65 in cash for each of their shares.
Shares of ChevronTexaco, based in San Ramon, California, fell $1.93, or 3.3 percent, to $57.38 at 12:17 p.m. in New York Stock Exchange composite trading. Unocal dropped $4.52, or 7 percent, to $59.83.
Prices Soar
Oil and natural-gas prices over the next six to seven years may dictate whether the purchase pays off for ChevronTexaco, Ober said. The company's cash holdings swelled to $10.7 billion at the end of last year as record energy prices inflated profit.
Acquiring Unocal, which was founded in 1890 as Union Oil Co. of California, will boost ChevronTexaco's daily output by 16 percent to the equivalent of 3 million barrels of oil, halting a three-year slide in production. The acquisition also will push ChevronTexaco past France's Total SA as the world's fourth- largest publicly traded oil and gas producer.
If completed, the transaction will be the biggest U.S. oil purchase since Phillips Petroleum Co. paid $25 billion for Conoco Inc. in August 2002. ChevronTexaco also will assume $1.6 billion of Unocal debt.
ChevronTexaco has been expanding exploration and production in Asia and the Gulf of Mexico as output declines from old fields in other regions.
`Fit Like a Glove'
``Unocal's assets fit into these strategies, in fact, they fit like a glove,'' ChevronTexaco Chief Executive David O'Reilly told investors today on a conference call.
Unocal has invested $5 billion in Indonesian oil and gas projects, including the offshore West Seno field. The company has agreements with the Indonesian government to produce oil and gas in the archipelago through 2028.
O'Reilly, 58, said ChevronTexaco will shed $2 billion in ``non-strategic assets'' after the Unocal purchase. He declined to identify the location of the assets to be sold. ChevronTexaco last year shed 400 of its oldest oil fields, raising $3 billion to finance exploration and refinery expansions.
O'Reilly estimated cost savings of $325 million in the first year after the acquisition closes. Two-thirds of the savings will come from trimming of overlapping operations and the rest from shedding poor-performing assets, he said.
Unocal shareholders won't have to pay taxes on the stock portion of the sale, O'Reilly said. ChevronTexaco will increase stock buybacks to boost its shares and make the agreement more attractive, he said. The deal is expected to close this year.
Unocal Chief Executive Charles R. Williamson, 56, said the ChevronTexaco bid represents ``fair value'' for his company.
Cost Per Barrel
ChevronTexaco is paying $9.37 per barrel of proved reserves from Unocal. That's 33 percent more than the company's cost of finding reserves last year, when ChevronTexaco had the highest such expense among the world's 10 biggest publicly traded oil companies. Finding costs are the amount spent to add reserves through exploration.
ChevronTexaco's oil and gas output has fallen 6.9 percent since the company was created with Chevron Corp.'s $45.8 billion takeover of Texaco Inc. in 2001. The decline came as old wells neared exhaustion and some oil and gas fields were sold to fund projects in Australia and the Gulf of Mexico.
New wells in Africa and Asia won't pump enough petroleum to stop the output decline until 2006 at the soonest, O'Reilly said during a Dec. 14 meeting with reporters in New York.
ChevronTexaco's reserves declined 6 percent in 2004 after some North American fields were sold and reservoir tests showed smaller-than-expected deposits in Africa, Asia and the Gulf of Mexico. Reserves are a measure of future profit potential.
Production Drops
ChevronTexaco produced the equivalent of 2.509 million barrels of oil a day in 2004, down from 2.523 million barrels a day in 2003.
Unocal pumped the equivalent of 410,670 barrels of oil a day last year. About 62 percent of Unocal's output is gas, compared with 28 percent at ChevronTexaco.
``The way for major integrated oil companies to grow at this point is through acquisitions,'' said Tim Ghriskey, who helps manage $650 million at Solaris Asset Management in Bedford Hills, New York.
ChevronTexaco's ``growth rate going forward is pretty crummy,'' said James Halloran, who helps manage $33 billion, including ChevronTexaco and Unocal shares, at National City Private Client Group in Cleveland. Halloran spoke in an interview before the Unocal transaction was announced.
Unocal's oil and gas reserves declined 0.3 percent in 2004 to the equivalent of 1.754 billion barrels of oil.
Lehman Brothers and Pillsbury Winthrop Shaw Pittman LLP are advising ChevronTexaco on the transaction. Morgan Stanley & Co. and Wachtell, Lipton, Rosen & Katz are advising Unocal.
Biggest U.S. Oil Company Acquisitions Since 1997
Buyer Target Price Date Completed
Exxon Corp. Mobil Corp. $85.2 bln Nov. 30, 1999
BP Plc Amoco Corp. $61.7 Dec. 31, 1998
Chevron Corp. Texaco Inc. $45.8 Oct. 9, 2001
BP Plc Atlantic Richfield $33.1 April 18, 2000
Phillips Pet. Conoco Inc. $25 Aug. 30, 2002
El Paso Corp. Coastal Corp. $22.6 Jan. 29, 2001
Last Updated: April 4, 2005 12:20 EDT
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