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Senior Energy Analyst, Julian Lee
"In the longer term, it is likely to put a downward pressure on oil prices"
 real 28k

Monday, 16 October, 2000, 13:25 GMT 14:25 UK
Oil giant Chevron buys rival Texaco

US oil giant Chevron says it will buy rival Texaco for about $35bn, in a move that will create the world's fifth largest oil company.

Chevron is the second-largest oil company in the US, and Texaco the third-largest, and their merger will create a firm with a combined market value of up to $90bn.

Both companies hope that the all-share deal will create cost savings of $1.2bn, but say it could result in about 4,000 jobs being cut.

But fears exist that as the merger will leave fewer oil companies competing for customers, the upward pressure on petrol prices will remain long after the current oil crisis has been resolved.

Pressure on petrol

Last week, the price of a barrel of oil was over $35 in London pressured by violence in the Middle East, which raised fears that oil supplies could be interrupted.

The oil price surge follows a wave of protests last month after the surging oil price sent the price of petrol sharply higher.

With a presidential election approaching in the US, President Clinton's administration is facing increasing pressure to act to bring down prices at the pump.

World's biggest oil companies
Exxon Mobil, $315bn
Royal Dutch/Shell, $221bn
BP Amoco, $209bn
TotalFinaElf, $113bn
Chevron-Texaco, $85bn
ENI, $45bn
Repsol, $21bn
The merger will be likely to face strong interest from regulatory authorities in the US.

The news comes in the wake of increasing consolidation in the oil sector and the merged group will - along with Exxon Mobil, Royal Dutch/Shell, BP Amoco and Totalfina Elf - become one of the world's largest oil companies.

Texaco has 848 branded retail outlets in the UK and owns a refinery in Pembroke in Wales. It is unclear how many of its 18,500 employees are UK based and what implications the takeover will have for them.

The deal

Texaco shareholders will be offered 0.77 Chevron shares for each Texaco share, valueing each share at $64.87 - a premium of 18%.

Chevron will now have about 8.26bn barrels of oil and gas reserves and produce about 2.7m barrels a day of oil.

The two companies held talks a year ago, but these negotiatons faltered. Since Texaco rejected Chevron's previous offer, Chevron has acquired a new chief executive, Dave O'Reilly, more amenable to some of Texaco's demands.

Mr O'Reilly is widely expected to lead the new company.

However the deal could be seen as a coup for Chevron, which last year wanted to pay $70 per share for the company and has now secured a deal at about $64.87 per share.

That premium is close to Texaco's closing NYSE price on Friday of $55.13.

Chevron will exchange 0.77 of a share for each of Texaco's 545m outstanding shares.

Chevron will also assume $8bn of Texaco's debt.

"It's a great buy for Chevron. They are certainly paying a very low price for these assets," Fred Leuffer, analyst at Bear Stearns said.

The two companies have strong exploration and production positions in West Africa, the former Soviet Union, and Latin America.

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See also:

13 Oct 00 | Business
Oil price climbs back to $35
09 May 99 | The Company File
Oil merger rumours
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