Texaco Looking for Surprise Merger Candidate
Industry observers shouldn't be surprised to see Texaco marching
to a different drummer in the industry's high-stepping merger
parade, Texaco Chairman Peter I. Bijur said last week. Unlike many
of its peers, Texaco appears to be looking outside the upstream
industry for a merger partner.
"The industry we once knew is gone," Bijur told attendees at the
Howard Weil Energy Conference last week in New Orleans. The
commodity price collapse over the past year has led to near
unprecedented turbulence within the top tier of major oil and gas
companies, and many smaller companies will be lucky to get out of
this downturn alive. Texaco has not been immune to effects of the
tumultuous change. Net income fell 78% last year. Revenues declined
But Bijur said the company had its best year in decades in
exploration and is 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."
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-Arco, Seagull-Ocean and others, and join with
another major or a large independent. But Bijur's comments
confirmed earlier reports that Texaco wouldn't be playing that
game. (See NGI, March 29)
Although there have been few outright combinations between major
electric utilities and large producers, other than the Dominion
Resources-CNG deal now in the works, it has not quelled speculation
of a possible Texaco combination with the likes of Entergy Corp.
which operates in Louisiana where Texaco has a lot of its
operations, or with Columbia Gas with its Mid-Atlantic outlets for
It has been noted that other major producers, while not actually
marrying downstream entities, have formed alliances such as
Duke/Mobil in Duke Energy and Trading and Vastar/Southern Co. in
Southern Company Energy Marketing, and Chevron, which is part owner
of Dynegy, which markets Chevron's gas. Some analysts, however,
still favored a combination with a reserve-heavy independent, such
as Burlington Resources.
J.P. Morgan analyst Jay Wilson said a combination between Texaco
and 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."
Bijur, however, said the industry "needs a break from the legacy
assets of the past. The role of upstream is in decline." The Texaco
of the future will be heavily into high-tech services, a
"high-solutions provider...[that has] virtually integrated the
value chain." The technology and knowledge base is 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 NGI, Feb. 1,
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 arenas."
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.
Texaco probably will not be left out of the merger frenzy, but
Bijur has successfully clouded the picture of who might be the
candidate for a combination.
Rocco Canonica, New Orleans
(Other NGI staff members contributed to this report)