Chevron, Texaco merger to boost convergence, electric power

Chevron Corp.'s 26% stake in energy merchant Dynegy Inc. and Texaco Inc.'s gasification expertise will boost the combined ChevronTexaco Corp.'s options in the 'fast-growing gas and power convergence business,' Dave O'Reilly, Chevron chairman and chairman of the proposed combined company, said during a press conference Monday.


Kate Thomas
OGJ Online

Chevron Corp.'s 26% stake in energy merchant Dynegy Inc. and Texaco Inc.'s gasification expertise will boost the combined ChevronTexaco Corp.'s options in the "fast-growing gas and power convergence business," Dave O'Reilly, Chevron chairman and chairman of the proposed combined company, said during a press conference Monday.

Chevron, the No. 3 US oil company, Monday said it agreed to buy No. 2 Texaco in a stock swap worth about $35 billion, in a deal that would create the world's fourth-biggest oil company.

Under the agreement, Chevron will swap 0.77 of a share for each outstanding share of Texaco, the companies said. That would value White Plains, NY-based Texaco at $64.87/share, or 18% above its closing price Friday.

In late morning trading Texaco was up 1 9/16 at 56 11/16, Chevron was down 4 1/2 at 79 3/4, and Dynegy was up 1 3/4 at 49 7/8.

Convergence between the gas and power industry is expected to play a significant role in the combined operations of the companies, O'Reilly indicated. Texaco has equity interests in 47 power projects totaling 3,500 Mw of power operating or under construction, and through its stake in Houston-based Dynegy, Chevron has indirect interests in 13,860 gross megawatts of power.

The combined company's global refining and marketing business will be able to leverage its brand presence into upstream, downstream gas and power value chains, O'Reilly said.

Prior to the announcement, Texaco had been identifying new opportunities to leverage strengths in natural gas, power generation, and gasification technology, the process of converting low-value materials such as refinery residue into clean synthesis gas. Current Texaco Chairman Peter Bijur will become vice chairman of the combined company with responsibility for the downstream power and chemicals operations.

Together, on a 1999 pro forma basis, the companies would have produced worldwide 4.5 bcf/day of net natural gas, 3 bcf/day of net liquids production, and natural gas sales of 9 bcf/day. Texaco operates more than 1,500 miles of pipeline, 50 interconnects, and 8 bcf of storage.

The combined company will also be well positioned to pursue development of environmentally smart advanced technologies such as fuel cells, photovoltaics, advanced batteries, and hydrogen storage, O'Reilly said.

During a webcast conference with analysts, O'Reilly said he does not foresee any potential conflict between the electric power interests of Texaco and Chevron. He noted that Dynegy is mostly concentrated in the US market, while Texaco's electric power projects are based outside the US.

As for the future, especially with respect to Chevron's interest in Dynegy, O'Reilly said he didn't want to "speculate" about what will happen going forward, except to say options are available.

"We are happy with Dynegy's performance," he said. "Dynegy is a publicly traded company."

Separately, Dynegy said Monday it is launching Dynegydirect, an internet-based, commission-free business-to-business portal and trading site for energy and communications commodities. Through Dynegydirect, customers will have self-service access to Dynegy's bid and offer prices across US power, natural gas, and natural gas liquids products. UK power and natural gas, as well as coal, emission allowances, weather derivatives, international natural gas liquids, and bandwidth will be offered in the coming months, Dynegy said.

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