ChevronTexaco hits gusher with Unocal

CHICAGO — ChevronTexaco's deal to buy Unocal for $17 billion is proof that buying oil is cheaper than discovering it, industry analysts said yesterday.

ChevronTexaco, the nation's second-largest oil company after Exxon Mobil in terms of revenue, has had limited success in finding new oil in recent years. Analysts said its reserves — the petroleum it can count on producing in the future — were weak in comparison with those of other major players.

"In one fell swoop, they reversed that trend," said Lysle Brinker, senior vice president of oil research firm John Herold. "What Unocal brings to the table is a lot of U.S. reserves and areas in Asia where the outlook for growth is quite favorable."

The deal comes as petroleum is trading near record prices. Yesterday, the price of a barrel of oil hit a record $58.28 before closing at $57.01, down 26 cents, on the New York Mercantile Exchange.

And the retail price of gasoline jumped 6 cents last week to average $2.22 per gallon nationwide, the Energy Department reported yesterday. Prices are 43.7 cents higher than a year ago, and are highest on the West Coast, averaging $2.398 per gallon.

San Ramon, Calif.-based ChevronTexaco is offering stock and cash worth $62 a share of Unocal, though the value of the deal will move with the price of ChevronTexaco's stock. ChevronTexaco will also assume $1.6 billion of Unocal's debt.

The stock market was not terribly impressed by the deal. Unocal slid $4.75, or more than 7 percent, to $59.60. ChevronTexaco closed at $56.98, off $2.33.

"We just put out a report downgrading the stock," said Jacques Rousseau, an analyst with Friedman Billings Ramsey, who said he thinks ChevronTexaco overpaid and doubts the acquisition will do much for earnings.

ChevronTexaco Chief Executive David O'Reilly was in charge when Chevron bought Texaco in 2001 for almost $46 billion.

"Unocal is a unique independent with major assets that are an excellent fit with our existing portfolio," O'Reilly said.

The company is planning to sell assets and lay off workers, though it gave no details about the sales and job cuts.

That Unocal, the nation's ninth-largest oil company by revenue, was in play has been a given for weeks. Several companies had eyed El Segundo, Calif.-based Unocal, whose stock price, even after yesterday's drop, has risen 38 percent this year on the speculation.

The Italian oil company Eni and the state-owned China National Offshore Oil had reportedly been interested in acquiring it.

Unocal sold off its refineries and gas stations over the years to focus on exploration and development of oil and gas fields around the world.

The company has proven reserves of 675 million barrels of crude oil in the Gulf of Mexico, Asia, Africa and Latin America. Unocal also has large gas fields in Asia, strategically located to serve growing markets in China and Japan.

The much larger ChevronTexaco has proven reserves of 8.5 billion barrels of oil. It also owns or has interests in more than 21,000 gas stations.

Michael Stavy, a Chicago energy consultant, noted that the merger does nothing to increase world oil supplies or reduce prices at the pump.

"It's not increasing the amount of reserves, it's increasing the amount of reserves ChevronTexaco will have," he said.

The merger definitely does extend ChevronTexaco's already prodigious reach.

For example, it takes on a major interest in Azerbaijan oil-producing operations, broadening its status as a leading oil company in southwestern Asia. It will become the top oil and gas producer in Thailand and a larger producer in the Gulf of Mexico.

Although it is a major acquisition, the merger of ChevronTexaco and Unocal is small by recent standards.

In 1999, for example, Exxon bought Mobil for $85 billion. A year earlier, BP bought Amoco for nearly $62 billion.

Unocal and ChevronTexaco both trace their roots to Southern California.

Unocal started life in 1890 as Union Oil of California. In 1965, it acquired Pure Oil.

ChevronTexaco began as Pacific Coast Oil in 1879. It fell to John D. Rockefeller's Standard Oil in 1900 and remained a part of that company until it was freed in 1911 by trustbusters.

After that, it operated under the name Standard Oil (California) and sold products under the Chevron brand, eventually taking that name.

Gas price figure from the Energy Department provided by The Associated Press.