NEW YORK — Pennzoil upped the ante in its settlement demands on Texaco this week, proposing that the oil giant pay Pennzoil a non-refundable $1.5 billion in exchange for a promise that Texaco's total liability in the $10.3-billion battle over Getty Oil won't exceed $5 billion.
Pennzoil's last settlement offer, made four months ago, was $4.1 billion. In the interim, the Texas Supreme Court upheld two lower court rulings in Pennzoil's favor, leaving Texaco with one last avenue of appeal--the U.S. Supreme Court.
Texaco--which filed for bankruptcy reorganization in April to forestall enforcement of the $10.3-billion judgment in Pennzoil's favor--characterized Pennzoil's latest proposal as "totally out of the question." And Stephen Karotkin, one of Texaco's outside bankruptcy lawyers, said that if Pennzoil's plan is ever filed with the U.S. Bankruptcy Court, "all you're talking about is additional litigation."
Pennzoil Chairman J. Hugh Liedtke made his latest proposal to the chairman of the committee representing Texaco's non-energy industry creditors earlier this week.
This committee, and a second comprising oil industry creditors, have been trying to get the two warring parties back to the bargaining table. In addition, committee chairman Charles F. Luce, a special counsel to the Metropolitan Life Insurance Co., had sought Pennzoil's offer as ammunition for his committee's case that Texaco has had ample time to prepare a reorganization plan and that it is now the creditors' turn. The industry creditors' committee is scheduled to be disbanded Dec. 18.
Pennzoil's proposal carries no weight whatsoever as long as Texaco's so-called exclusivity period continues. During this period in Chapter 11 reorganization, only the bankruptcy petitioner can file a plan of reorganization with the court.
But the exclusivity period, already extended once, is scheduled to expire Dec. 8. Texaco will argue at a bankruptcy hearing in White Plains, N.Y., on Dec. 2 that it should be extended again and the Texaco creditors' committees, Pennzoil included, will fight it.
"With those numbers (provided by Pennzoil), we can float a general creditors' plan of reorganization," said George Weisz, the committee's attorney. "And if we can go before the judge and propose a plausible plan and if we can say that both creditors' committees and Pennzoil agree to it, then I think we have a better argument to end exclusivity."
U.S. Bankruptcy Judge Howard Schwartzberg has given no indication of how he is leaning on Texaco's request to extend its deadline. But when he extended it for the first time in July, Schwartzberg implied that he would continue to grant extensions until Texaco's dispute with Pennzoil is resolved.
Pennzoil's outside bankruptcy counsel, Kenneth Klee, said Pennzoil will withdraw its offer if Texaco's exclusivity period is further extended. If the proposal is still on the table come Dec. 8, he said, interest payments at 9% per year will be added to the cap.
If the court does give Texaco's creditors a green light to file their own reorganization plan, it would take a majority vote of Texaco's creditors and shareholders for Pennzoil's latest proposal to win approval.