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Chevron Scours for Proof That Pennzoil Lied to SEC


SAN FRANCISCO — Chevron Corp., hoping to salvage its lawsuit against Pennzoil Co., argued Tuesday that it needs Pennzoil internal documents to prove that Pennzoil bought an 8.8% stake in Chevron in order to gain control of certain oil and gas assets as part of a tax strategy.

The argument is contained in a memorandum, filed in U.S. District Court here, in support of Chevron's motion for greater access to Pennzoil documents in connection with Chevron's legal challenge to Pennzoil's stake. That motion is scheduled to be heard today.

The discovery effort was one of the few options remaining to San Francisco-based Chevron after a federal judge last week dismissed all but one section of its lawsuit, which analysts now give little chance of succeeding. The surviving part of the suit accuses Pennzoil of lying about its intentions.

Pennzoil disclosed last month in a Form 13-D filing with the Securities and Exchange Commission that it had bought Chevron stock with $2.1 billion it received in its settlement with Texaco Inc. in the battle for Getty Oil Co. Pennzoil, which is headquartered in Houston, called its investment in Chevron passive.

Today, Chevron will seek permission to view Pennzoil documents related to Pennzoil's overall strategy in acquiring a stake in Chevron and any other oil company.

Chevron believes that Pennzoil intends to force Chevron to restructure in such a way that Pennzoil will gain control of some oil and gas assets for the purposes of deferring an estimated $800 million in federal taxes on Pennzoil's $3-billion settlement with Texaco.

Chevron hopes to find a document summarizing Pennzoil executives' discussions about investing in 30 to 40 other oil companies, especially as they reveal Pennzoil's tax strategy. "We think those documents will provide further demonstration that Pennzoil is not a passive investor," said William I. Edlund, a lawyer representing Chevron.

Edlund said Pennzoil had so far agreed to only a "sparse production of documents" amounting to a couple of boxes of papers specifically related to Pennzoil's acquisition of Chevron stock.

Under an agreement between Chevron and Pennzoil lawyers, the documents remain sealed from public view, and Edlund would not say whether any of those documents revealed any ulterior motives for Pennzoil's Chevron investment.

But Chevron argued in its filing Tuesday that "if Chevron is denied discovery of all steps in Pennzoil's investment strategy, Pennzoil will avoid disclosure of its true purpose."

Pennzoil's lawyer, Stephen V. Bomse, has called Chevron's document quest "a fishing expedition."

Pennzoil has admitted that it bought its stake in Chevron in part to defer taxes. Since the settlement arose from Pennzoil's unsuccessful attempt to gain a controlling interesting in Getty oil, the settlement funds must be reinvested in a similar way within two years to avoid taxes.

But some tax experts doubt that a passive investment in Chevron is enough to satisfy the Internal Revenue Service, and Edlund argued that Pennzoil really intends to gain control over some Chevron oil and gas assets to meet IRS requirements.

Analysts, however, doubted that Chevron would be able to support its legal claim that Pennzoil lied on the 13-D.

Even U.S. District Judge Thelton Henderson said last week in allowing Chevron to pursue its last remaining claim that Chevron's case was "unquestionably weak."

Frederick P. Leuffer, an analyst with C. J. Lawrence, Morgan Grenfell Inc. in New York, said, "At this point, the filings of Pennzoil have declared them to be passive, and they haven't acted in any way to show otherwise, which is why Chevron will have a tough time proving their contention.

"I think the expectation on Wall Street was that the case didn't have much validity to it and that Chevron had basically thrown up every anti-takeover provision and smoke screen it can find," he said.

But Edlund, far from seeing the lawsuit in jeopardy, called the remaining complaint "the heart of the case."

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