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Unocal's Reserves May Be Appeal for ChevronTexaco

Unocal Corp.'s share price climbed steadily Thursday and Friday on the rumor that ChevronTexaco Corp. is considering making a bid for the company, according to a report Thursday in the Wall Street Journal. Neither company would comment.

A merger would combine two California-based energy giants. Unocal, with 6,700 employees, is based in Southern California in El Segundo. ChevronTexaco, the second largest U.S. energy company with 47,000 employees, is headquartered in San Ramon, in Northern California.

The Journal said it was not known whether ChevronTexaco would make a formal bid, and said its "consideration of Unocal is considered to be in its early stages." However, Wall Street has long considered Unocal to be a takeover target. Earlier this year, China National Offshore Oil Corp. (CNOOC), a state-owned company, was rumored to be interested in buying the exploration and production company (see Daily GPI, Jan. 10).

One reason ChevronTexaco may find Unocal attractive is its growing oil and gas reserves.

In January, ChevronTexaco reported that its natural gas and oil output fell 9% globally in 2004 (see NGI, Jan. 31), and according to a Securities and Exchange Commission filing on Thursday, the company replaced only 18% of its 2004 production, including asset sales. Excluding sales, the company replaced 49% of its production. If reserves were adjusted to account for "unusually high year-end prices and other factors," the replacement ratio would have been 63%.

ChevronTexaco CEO Dave O'Reilly said earlier this year that the company's 2004 reserves replacement rate would be low because the company has not had a "major project that has matured in the past year" to significantly boost reserves.

Unocal's production was up slightly last year, with worldwide liquids and natural gas production averaging 428,000 boe/d, up from 420,000 boe/d in 2003. CEO Charles R. Williamson last month said that the company "saw an upturn in our international liquids and natural gas production," that more than offset North American declines on a boe basis (see NGI, Feb. 7).

Unocal also is excited about five projects it is participating in worldwide, which together are expected to add significant production volumes by the fourth quarter. One of the new projects is the Mad Dog development in the deepwater Gulf of Mexico. The field, in which Unocal holds a 15.6% stake, is operated by BP (60.5% interest) and is also jointly owned with BHP Billiton (23.9%). It is expected to ramp up to about 100,000 bbl/d of oil and 60 MMcf/d of gas by the end of this year (see NGI, Jan. 24).

At the end of 2004, Unocal had 1.754 billion boe in reserves. Net daily production is 159,000 bbl/d of crude oil, condensate and natural gas liquids and 1.5 Bcf/d of natural gas. Last year, Unocal's international operations accounted for 62% of its natural gas production and 56% of its liquids production.

In North America, Unocal conducts exploration and production (E&P) activities in the Gulf of Mexico, the Permian Basin (through Pure Resources), Alaska's North Slope and Cook Inlet and in Alberta and Saskatchewan (through Northrock Resources Ltd. Overseas, Unocal has E&P operations ongoing in Thailand, Indonesia, Myanmar, Bangladesh, The Netherlands, Azerbaijan, Republic of Congo and in Vietnam.

ChevronTexaco's operations are extensive, both in North America and worldwide. Its major E&P operations overlap with Unocal overseas in Azerbaijan, Republic of Congo, Thailand and Indonesia.

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