On Monday, the Financial Times (UK) reported that ChevronTexaco had entered into long-anticipated discussions with Unocal about a takeover.[1] -- "Unocal's position in Asia, and particularly Azerbaijan" is "viewed as the main prize for potential suitors," FT reported. -- Royal Dutch/Shell and BP are also reported to be interested, but they are said to be wary of dipleasing China, which is looking for energy sources itself and whose China National Offshore Oil Corporation (CNOOC) is said also to be considering a bid for Unocal. -- An increasing number of observers believe that we have now entered the era of "peak oil," and oil companies' scramble for increasingly scarce reserves is a related development. -- Since T. Boone Pickens inaugurated shareholders’ value-fueled acquisitions of oil companies in the mid-1980s, acquiring the reserves of other companies has often seemed a more reliable approach to the problem of reserves than oil exploration. -- An earlier Mar. 4 FT article gives an idea both of the difficulties facing oil companies and the magnitude of the economic stakes involved.[2] -- See also a Feb. 2 New York Times article entitled Hints of Oil Industry Mergers to Come....
1.
Industries
Energy & mining
CHEVRON STARTST TAKEOVER TALKS WITH UNOCAL
By James Politi (New York) and Doug Cameron (Houston)
Financial Times (UK)
March 7, 2005
http://news.ft.com/cms/s/f3ffeafa-8ead-11d9-8aae-00000e2511c8.html (subscribers only)
ChevronTexaco, the U.S. oil major, has entered discussions to take over Unocal, the California-based "independent" oil and gas company worth $16bn in market capitalization.
For a number of months, Chevron and other international oil groups, including China National Offshore Oil Corporation (CNOOC), have been considering bids for Unocal, long labelled a takeover target in the energy industry.
But in recent days, Chevron's interest has gathered pace, leading it and Unocal to actively engage in merger talks, according to people familiar with the matter.
Although negotiations could still fall apart, a transaction was possible within a matter of weeks, they said.
Chevron's fresh position as a front-runner to buy Unocal could spur other suitors, such as CNOOC, Royal Dutch/Shell, BP, or others, to make last-ditch counter-offers. Unocal is considered to be particularly attractive because of its international assets.
The presence of CNOOC among the bidders for Unocal has made the auction uncomfortable for a number of the suitors, which have had to balance any desire to mount an offer with the need not to upset the Chinese government.
Chevron's move suggests the group run by Dave O'Reilly is less worried than others about competing for Unocal with CNOOC, and potentially damaging its standing in Beijing.
Because of its soaring demand for energy, China is emerging as an increasingly important customer and place to do business for many international oil companies.
Chevron has $9bn in cash and the fit of Unocal's assets with its existing production profile is viewed positively by analysts.
While Chevron has one of best long-term development profiles in the industry, Unocal would also fill a gap in its reserves profile, following a 6 per cent dip in production last year.
Unocal's position in Asia, and particularly Azerbaijan where fields are operated by BP, is viewed as the main prize for potential suitors.
While the company was long seen as an industry laggard, long-term projects are due to come on stream soon.
Chevron and Unocal already overlap in the Gulf of Mexico, Thailand and Indonesia.
2.
CHEVRON UNVEILS DROP IN RESERVES
By Doug Cameron
Financial Times (UK)
March 4, 2005
http://news.ft.com/cms/s/ec5c2924-8c52-11d9-a895-00000e2511c8.html (subscribers only)
HOUSTON -- ChevronTexaco yesterday revealed that its proved reserve replacement ratio fell to 18 per cent in 2004, lower than oil industry peers but ahead of analysts' forecasts.
The second-largest U.S. energy group had been expected to report a figure as low as zero using strict US regulatory requirements. This would have meant that it replaced none of last year's production, which was 5 per cent below the level in 2003.
Chevron said the 2004 report was not indicative of future trends and would have climbed to 49 per cent, excluding the impact of its extensive asset sale program. Total oil-equivalent reserves fell 6 per cent to 11.25bn barrels.
The company yesterday pointed to the potential of its $19bn capital expenditure plans. However, while analysts view its development program as one of the strongest and most diverse in the sector, concerns have been raised about the longer time taken to sanction projects and start production.
Dave O'Reilly, chairman and chief executive, has defended the decision-making process, citing the additional time taken to evaluate projects as companies move into more challenging areas of the world, notably deep-water areas that were beyond technologies employed a decade ago.
Chevron's current developments are expected to boost production by 650,000 barrels a day by 2009, but the search for earlier additions has seen the company and other super-majors linked to potential acquisitions, such as smaller U.S. rival Unocal.
The performance contrasts with the 83 per cent reported by larger rival ExxonMobil in 2004 and the 206 per cent at ConocoPhillips, which was boosted by its new investment in Russia's Lukoil. BP replaced 89 per cent of its production last year while Royal Dutch/ Shell substituted 30-40 per cent.
Chevron said U.S .accounting rules requiring it to use year-end pricing to calculate reserves reduced its reported assets by 14 percentage points.
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