Pennzoil Co., Houston, will exchange 48% of its $2.2 billion investment in Chevron Corp. for a chunk of Chevron's U.S. producing leases.
The trade is to involve a tax free exchange of 15.75 million Chevron Corp. shares held by Pennzoil for all the stock of Chevron PBC Inc., a Chevron unit owning Gulf of Mexico, Gulf Coast, Permian basin, and other U.S. oil and gas producing leases.
Sixty percent of the acquired reserves are in the Gulf of Mexico and Gulf Coast where Pennzoil's operations are concentrated, and 60% of the acquired reserves consist of natural gas, mirroring Pennzoil's reserve ratios.
PENNZOIL'S BENEFITS
Pennzoil said the trade will produce a strong cash flow, virtually double its current oil production with high quality crude, increase gas production by 75%, increase its reserves by more than 85%, and add 414,000 undeveloped acres, mostly in gas prone areas.
Chevron said the leases involved in the exchange produce about 33,000 b/d of oil and natural gas liquids and 310 MMcfd of natural gas, net of royalties.
Pennzoil estimates the pretax cash flow from the acquired leases will be more than four times its current dividend income received on the Chevron Corp. shares being exchanged. Pennzoil currently receives dividend income of $52 million ear on those shares.
The acquired leases include fields with proved reserves estimated by Pennzoil to be in excess of 240 million bbl of oil equivalent as of last July 1, of which 86% is developed, plus significant additional probable and possible reserves.
In arriving at its reserve estimates, Pennzoil took into account recent regulatory actions, new drilling, and other performance adjustments affecting the properties during 1992. On this basis, the cost is about $4.60/bbl of proved oil and equivalent gas reserves.
The operations being acquired include 414,000 undeveloped acres, of which more than 250,000 acres are in the Gulf of Mexico, along with gathering systems, geophysical data, and other assets used in the operations.
AFTER THE EXCHANGE
After the stock exchange, Pennzoil will continue to own 17,194,100 shares of Chevron Corp. common, or 5.3% of the outstanding shares. At Chevron's current dividend rate, Pennzoil figures to earn about $57 million/year on this remaining investment in Chevron common stock.
Chevron has no plans to reissue the shares it is to receive in the exchange, so the number of Chevron shares outstanding will be reduced by about 4.6% to about 325 million.
The transaction is expected to close in the fourth quarter after review by the Federal Trade Commission, with terms effective last July 1.
Chevron expects the trade to result in a profit of about $375 million in the fourth quarter.
Many of the approximately 340 Chevron employees involved in the operation of the fields will be needed by Pennzoil following the exchange.
CHEVRON'S SIDE
"This is another significant step toward making us a top competitor in the U.S. upstream business," said Ray Galvin, president of Chevron U.S.A. Production Co.
"We have reduced operating expenses this year to date by more than $1/bbl, we have already disposed of more than 200 fields in small sales packages and trades, and our reorganization and the relocation of our headquarters to Houston were effective Sept. 1.
"The reorganization, coupled with property dispositions, will result in our having some 5,900 employees when the Pennzoil trade closes, compared with 8,100 in our company at the beginning of 1992."
Chevron is retaining oil and gas fields representing about 92% of its U.S. proved reserves and 90% of its U.S. net production.
Chevron figures the value received in the trade at more than $5.35/bbl of proved oil and equivalent gas reserves.
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