Texaco Out Shopping for Merger Partner
Texaco Chairman Peter I. Bijur said industry observers shouldn't
be surprised to see Texaco marching to a different drummer in the
industry's high-stepping merger parade
"The industry we once knew is gone," Bijur told attendees at the
Howard Weil Energy Conference Monday in New Orleans. He noted the
commodity price collapse over the past year has led to near
unprecedented turbulence within the top tier of major oil and gas
companies. Lately, analysts have kept a close eye on Texaco for
signs it might follow the thinking of most of its peers, including
Exxon-Mobil, BP-Amoco, BP Amoco-Arco, Seagull-Ocean and others, and
join with another major or a large independent.
Although there have been few combinations between major electric
utilities and major producers, other than the Dominion
Resources-CNG deal now in the works, it has not quelled speculation
of a possible Southern-Texaco combination or the joining of Texaco
with another large electric company. More frequently, however,
reserve-heavy independents, such as Burlington Resources, have
topped the list of potential candidates.
J.P. Morgan analyst Jay Wilson does not follow Texaco but said a
combination with a large E&P company would not surprise him.
"They're looking for a company that would allow them to increase
their exposure to natural gas. Maybe Unocal would make sense. Maybe
Enron Oil & Gas." Enron Corp. has been rumored to be close to a
deal to sell its majority interest in Enron Oil & Gas.
Analyst John Olson of Sanders Morris Mundy noted Texaco's assets
are about $28.5 billion. "That's not big anymore."
Unlike most of its peers, Texaco appears to be looking outside
the upstream industry. Despite a 78% drop in net income and a 32%
decline in revenues in 1998, the company had its best year in
decades in exploration, said Bijur, targeting about $650 million in
annual pre-tax cost savings through 2000, increasing production by
5% in the U.S. and raising production by 14% overseas. The savings
the company achieved were comparable to those resulting from the
major mergers that have taken place recently, according to Bijur.
"This does not mean Texaco is not considering a merger or
acquisition. We are," he said. "We don't think you can save
yourself into prosperity."
But the industry "needs a break from the legacy assets of the
past. The role of upstream is in decline," he said. The Texaco of
the future will be heavily into high-tech services, a
"high-solutions provider. [that has] virtually integrated the value
chain." Technology and knowledge base are becoming more important
than the resource base, he said.
"The prospect of going outside the conventional M&A arena is
interesting because that would show some very original thinking and
perhaps move them more toward the mainstream of the North America
energy arena," said Olson, who has been a big proponent of E&P
companies re-engineering themselves for new times (see Daily GPI Jan. 29, 1999). "I mean the old
formulas have not worked. Spot prices in commodity markets have
generated marginal returns to oil companies, and it's time to follow
other leads, whether they be in the electric arena or in the pipeline
Bijur focused on the tremendous value Wall Street has placed on
ideas and technical knowledge over revenues and resources. He cited
the soaring stock value of Internet companies, such as America
Online, computer companies, such as Microsoft, and other high-tech
computer firms and technology solutions companies. It seemed less
than coincidental that Halliburton, the largest drilling technology
and upstream energy services company in the world, was the next in
line to speak at Howard Weil. However, there was no stated design
in the line-up.
Nevertheless, Bijur indicated Texaco will not be left out of the
merger frenzy. The question is when and with whom.