ChevronTexaco said yesterday that it had agreed to buy Unocal, a large independent American oil company, for $16.8 billion, in a move that expands its global reach and could ignite a wave of takeovers of midtier producers.þþThe transaction, for cash and stock, is the industry's largest in three years, and it gives ChevronTexaco many undeveloped reserves in Azerbaijan, Indonesia and the Gulf of Mexico at a time when oil companies are having trouble finding new prospects. It also ends months of speculation over the future of Unocal.þþGiant oil companies are flush with cash because of record crude prices, but short of fresh opportunities to develop fields. That has led some companies, like BP in Russia, to seek growth through acquisitions rather than through exploration.þþWith talks extending late into Sunday night, ChevronTexaco beat Eni of Italy and China's state-owned oil company, C.N.O.O.C., after Unocal put itself up for sale in an auction earlier this year. The takeover interest in Unocal, based in El Segundo, Calif., had helped push its stock price up by nearly 50 percent since the beginning of the year.þþChevronTexaco, the second-largest American oil company after Exxon Mobil, will pay $4.4 billion in cash and issue 210 million shares for Unocal, valuing the company at $62 a share, which is only slightly lower than its closing price on Friday. It will also assume $1.6 billion of Unocal debt.þþAfter the announcement, shares of both companies dropped. Shares of ChevronTexaco fell $2.33, to $56.98. Shares of Unocal fell $4.75, to $59.60, a signal that some investors may think that ChevronTexaco overpaid.þþCrude oil has been trading at its highest levels, sending the Standard & Poor's 500 Energy index of the top American oil companies up 46 percent over the last year. Still, yesterday's deal could spark a round of buying, according to Peter Roberts, the head of the global gas and oil team at Jones Day, a law firm in London. ÿOther companies may feel they have to buy something as well,ÿ he said. ÿThe problem is you can spark bidding wars.ÿþþEven though the market value of target companies are near their record highs, that is matched by record profits and cash on hand at big oil companies. þþWith crude oil averaging $41 a barrel in 2004, the world's top 10 oil companies made more than $100 billion in profit last year. The boom is expected to grow this year. Oil futures on the New York Mercantile Exchange set a new record yesterday, rising above $58 a barrel for the first time, before falling back 26 cents to close at $57.01. þþÿThese companies have tons of cash but no outlet for their money, so clearly there is pressure,ÿ said J. Robinson West, the chairman of PFC Energy, an energy consultant based in Washington. ÿBut the Unocal portfolio is different than any of the other independents.ÿ þþPotential candidates for a takeover by one of the oil giants might include Marathon Oil, Devon Energy, Anadarko Petroleum or Occidental Petroleum in the United States; EnCana in Canada; BG Group in Britain; Repsol in Spain; and even Eni itself in Italy, according to analysts.þþDuring a conference call with analysts, David J. O'Reilly, chief of ChevronTexaco, dismissed suggestions that he was making an acquisition at the top of the market. ÿWe're not buying today's crude price but a company with prospects,ÿ he said.þþThe acquisition will give ChevronTexaco access to Unocal's strong oil and gas assets in Asia, one of the fastest-growing energy markets, and will increase its holdings of natural gas, which accounts for about two-thirds of Unocal's business.þþAmong them are liquefied natural gas plants in Indonesia, where ChevronTexaco is already the leading producer; gas developments in Thailand; oil fields in the Gulf of Mexico; and large assets in the Caspian Sea, where ChevronTexaco is a strong player, including a position in the planned Baku-Tbilisi-Ceyhan oil pipeline and a stake in Azerbaijan's national oil company.þþÿI think the combination makes sense strategically in terms of assets,ÿ Charles R. Williamson, Unocal's chairman and chief executive, said in a conference call with analysts, ÿbut also in terms of the resources that we would need to develop these large fields.ÿþþIt is the largest transaction for Mr. O'Reilly since 2001, when he oversaw the $45.8 billion purchase of Texaco. He has been chief executive since 2000. þþÿThis is a unique company,ÿ Mr. O'Reilly, 58, said about Unocal in an interview. ÿIt's an independent with supermajor assets.ÿþþInterest in Unocal was sparked in early January when C.N.O.O.C., the China National Offshore Oil Corporation, first expressed its intention to acquire the California company. That forced the hand of other companies to pre-empt the Chinese producer. But in the end, neither C.N.O.O.C. nor Eni made a bid.þþAccording to one executive involved in the negotiations, C.N.O.O.C. managers disagreed about the merits of buying a big publicly traded company and decided to drop out of the running before Sunday night's countdown.þþAfter discussions Sunday evening with Unocal bankers, Eni executives opted not to enter a formal bid for the company because they thought the price was too high, according to a second executive involved with those negotiations. þþThe acquisition will help ChevronTexaco reverse a three-year decline in production that was caused in part by the sale of mature assets tied to the merger with Texaco. Last year, the company's reserves also fell 6 percent.þþChevronTexaco, which is also based in California, in San Ramon near San Francisco, expects the takeover to grow its proven reserves by 15 percent, to 13 billion barrels of oil equivalent, and to increase its oil and gas production to 3 million barrels a day, up from about 2.5 million barrels a day in 2004.þþChevronTexaco had expected its production to start growing again this year, independent of an acquisition. Adding the growth prospects of the newly combined companies and excluding any asset sales, Mr. O'Reilly said he expected his merged company to grow by 6 percent a year between 2005 and 2009.þþÿThis is not substituting but augmenting our production-growth profile,ÿ Mr. O'Reilly said. ÿThis fits squarely in our key strategic objectives.ÿþþThe acquisition will also propel ChevronTexaco up one notch in rank, past Total of France, as the world's fourth-largest publicly traded oil company in terms of total oil and gas production, behind Exxon Mobil, BP and Shell.þþL. Bruce Lanni, an oil industry analyst with A. G. Edwards & Sons, said the acquisition made strategic sense for ChevronTexaco. ÿThey did not have as large as an asset base in Asia or the deepwater Gulf of Mexico as their direct competitors,ÿ he said. ÿThis puts them in a far more competitive position.ÿþþUnocal, once known for its 76 brand, refocused its attention on exploration and production in recent years, particularly in North America and Asia, after selling its marketing and refining businesses in the United States in the late 1990's. þþThe company, founded in 1890 as the Union Oil Company of California, had long been considered a candidate for a takeover, after a string of disappointing announcements about its production growth. The company also courted controversy in recent years, doing business in Myanmar, formerly known as Burma, a country accused of abusing human rights. It also tried to build a pipeline in Afghanistan during the time of the Taliban.þþThe transaction is still subject to the approval of Unocal's shareholders and regulatory approval. ChevronTexaco said that after the deal was completed it planned to sell assets worth $2 billion and expected pretax annual savings of $325 million.þþLehman Brothers advised ChevronTexaco and Morgan Stanley acted as Unocal's adviser. Pillsbury Winthrop Shaw Pittman and Wachtell Lipton Rosen and Katz acted as legal advisers, respectively, to ChevronTexaco and Unocal. þþþ
Source: NY Times
