ChevronTexaco on Monday announced an $18,2-billion deal to buy American rival Unocal, a move to cash in on the growing thirst for energy that has sent crude oil prices to record levels.
The agreement is expected to be the first in a wave of takeovers in the sector as energy companies post record profits and seek to boost their oil and gas reserves.
ChevronTexaco, the second-largest energy producer in the United States, saw off other bidders for Unocal, including the state-owned China National Offshore Oil Group and Italy’s Eni. Unocal is the ninth-largest producer of oil and gas based in the US and the deal adds 15% to ChevronTexaco’s reserves.
Unocal was a particularly attractive target for bidders because of its assets in the Asia-Pacific region, where economic development in China and India is driving the rapidly growing demand for energy.
Oil prices have been reaching record highs as instability in Iraq, Nigeria and Russia, some of the world’s biggest producers, has sparked fears of possible supply shortages in the summer.
Oil prices have gained almost 70% in the past year, although when adjusted for inflation they are still lower than the peaks hit in the early 1980s.
Unocal shares had climbed 60% since the end of last year as speculators piled in on rumours of a possible takeover.
Many of the large energy firms are finding it difficult to replace the oil and gas they pump each year with new supplies. Last year, ChevronTexaco found reserves to replace only 18% of the oil and gas it produced. Output has declined for the past three years.
Unocal’s most attractive assets include large natural-gas reserves in Indonesia. It has other interests in Thailand, Bangladesh, Burma, Brazil, The Netherlands, the US and Azerbaijan, giving it a total of 1,75-billion barrels of proven reserves.
”If you look at where all the assets are, they are pretty close to hot markets,” said Subash Chandra, an analyst at Morgan Keegan.
Unocal recently cleared up one possible liability when it agreed to settle a long-running human rights abuse case brought by Burmese villagers who claimed that local troops forced them to work on a pipeline owned by the company and committed abuses including rape and murder.
The company, which agreed to compensate the villagers with an unspecified sum last month, strongly denied taking part in any alleged abuses.
The price ChevronTexaco agreed with Unocal includes the assumption of $1,6-billion in debt. The remainder is made up of 25% in cash and 75% in shares. It is paying $62 a share.
ChevronTexaco chairperson David O’Reilly said Unocal will ”fit like a glove” with the existing business. ChevronTexaco already owns exploration and production assets throughout Asia. The acquisition will lift production to an average of three million barrels a day.
The 1990s saw a series of large-scale mergers in the energy sector, including the combination of Exxon and Mobil and BP’s acquisition of Amoco. Chevron acquired Texaco for $46-billion in 2001. But the Unocal takeover is the largest the industry has seen in a number of years.
With both companies’ share prices and cash piles rising, further deals are likely. Chevron Texaco made $13,3-billion profit last year and ended the year with $10,7-billion in cash.
Unocal began in the 1890s as the Union Oil Company of California. It is based in El Segundo, California, and employs 6 000 people. ChevronTexaco said it expects the deal to bring $325-million annual cost savings. — Guardian Unlimited Â