"It was inevitable," said Philip K. Verleger Jr., a Newport Beach-based energy economist and a principal with the Brattle Group consulting firm in Boston.
"Putting Texaco and Chevron together, you almost have a super-major. They're an economy-size super-major."
The Texaco acquisition would bring Chevron cost savings--layoffs, elimination of duplicate facilities--but it also would give it greater heft in Kazakhstan, site of the California firm's massive Tengiz project, because Texaco is there too.
The combination would give the resulting company greater strength in Africa. Texaco has a major new offshore development in Nigeria called the Abgami field; Chevron has new developments in Nigeria and Angola. Texaco also is big in Venezuela and has natural gas interests in the Philippines, while Chevron has big gas properties in Indonesia.
$72 Billion in Revenue Between the Two
If they had operated together in 1999, the two companies would have generated $72.3 billion in revenue and would have produced about 2.7 million barrels of oil and natural gas daily. Their proven reserves would be 11 billion barrels, including the largest concentration of oil reserves in the United States of any oil company.
"We will be a strong and formidable upstream competitor," one Chevron executive said. "This is about making our companies more competitive. When you put the two companies together, we are better able to absorb risk."
What the combination would do to refining and retailing of gasoline in the U.S. is unclear. Texaco is the largest seller of gasoline in the nation through two joint ventures: one in the West with Shell, called Equilon, and another in the East with Shell and Saudi Aramco, called Motiva. Chevron is fifth in the nation but is No. 2 in California, where Equilon ranks fourth in terms of gallons sold.
But the Chevron and Texaco executives said Sunday that they expect the FTC to require them to sell off significant refining and retailing assets, and they already have begun talks with Shell about buying the Texaco piece of the joint ventures. If that happened, market concentration in gasoline and refining would remain the same as before the deal.
In fact, Chevron and Texaco are operating on the theory that the FTC would support the merger, with divestitures, because it would create a strong U.S.-based competitor to Royal Dutch/Shell of the Netherlands and BP of Britain. What's more, the two U.S. companies would be able to find oil and natural gas more easily and more cheaply than they could on their own, which ultimately would be good for consumers, the executives said.
