Chevron, NGC plan to form gas megamarketer

Chevron Corp. and NGC Corp., Houston, have kicked off merger talks aimed at forming North America's largest gas and natural gas liquids marketer.

The deal under discussion would combine all of NGC's operations with most of Chevron's Houston gas business unit and all of Chevron's Warren Petroleum Co. subsidiary, Tulsa, except Warren's Venice, La., processing complex.

NGC and Chevron officials envision merging Warren and Chevron's gas business unit with NGC's midstream and energy marketing operations. NGC Chairman and Chief Executive Officer C.L. Watson would serve as chairman of the merged company, which would retain the NGC name.

After the merger

NGC following the merger would market almost all of Chevron's North American gas, NGL, and electrical power. NGC also would manage energy and feedstock supplies-in the form of gas, NGL, and electricity-for Chevron's refineries, chemical plants, and other facilities in North America.

The reformed NGC's gas division would operate under the Natural Gas Clearinghouse name, while combined NGL assets would operate as Warren Petroleum. NGC currently operates its NGL assets as Trident NGL Inc.

In return for contributing assets to the deal, Chevron would receive $300 million in cash and notes, as well as 45.8 million shares in a combination of common and participating preferred stock. Based on NGC's closing stock price Jan. 22 on the New York Stock Exchange, independent estimates place the value of the proposed transaction as high as $740 million.

Chevron also would be well represented on the new venture's board, management, and operating staff.

Officials of both companies said they expect to wrap up definitive merger agreements by Mar. 31, expiration date of the proposal's exclusive negotiating period. Completion of the proposed deal is expected by June 1.

Following the merger, Chevron and NGC's two biggest shareholders-British Gas and NOVA-each would own from 23.6% to 25% of NGC common stock.

Biggest gas marketer

Top executives of NGC and Chevron said the proposed merger would create a stronger, more dynamic NGC, better positioned in an integrated North American energy marketplace.

NGC would become North America's largest gas marketer, with sales amounting to more than 10 bcfd. NGC currently markets about 7 bcfd of gas in North America through operating units and affiliates.

The merged company also would be the continent's largest NGL processor and marketer, with NGL production of 140,000 b/d and sales of 470,000 b/d.

"The merger also puts us in position to become the largest electric power marketer in North America," Watson said.

In addition to enabling NGC to lower unit costs and creating new opportunities because of its greater size, expanded scope, and consolidated operations, Watson said, the merger would expand NGC's "ability to offer a one-stop energy commodity and service resource that provides natural gas, gas liquids, electricity, and crude oil to our customers."

Ken Derr, Chevron chairman and chief executive officer, said the proposed deal offers his company a chance to change the strategic goals of its midsteam operations, historically considered service and support functions.

"By merging these operations with NGC's, we are repositioning our natural gas marketing and liquids activities into an important growth oriented business," Derr said. "In addition, we will expand our international opportunities and give Chevron an enhanced stake in the developing U.S. electric power market."

Watson and Derr acknowledged that the proposed deal causes personal concerns and uncertainties for their employees. They pledged to address employees' misgivings as quickly as possible.

NGC and Chevron said they will not update the status of negotiations until definitive agreements are concluded or the exclusivity period expires.

Conclusion of the deal is subject to several conditions.

Apart from the merger, Chevron and NGC expect to form two joint ventures. In one, NGC would be responsible for marketing energy products produced at Chevron's Venice processing complex and managing related commercial aspects. In the other, NGC Canadian affiliate Novagas Clearinghouse Ltd. would be responsible for combined marketing and commercial activities in Canada.