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Phillips to Stay Independent But Wants to Sell GPM

September 27, 1999
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Phillips to Stay Independent But Wants to Sell GPM

Wild speculation last week that Chevron was courting Phillips Petroleum proved to be false as Phillips management told analysts the company is not interested in marriage. The Bartlesville, OK-based major producer is, however, interested in selling GPM Gas Corp., its natural-gas gathering, processing and marketing subsidiary, and may form joint ventures with other companies on chemicals and refining and marketing so that it can concentrate mainly on exploration and production.

Jim Mulva, who became Phillips' CEO July 1, has vowed to cut the company's costs. Last year, Phillips spent $12.78 for each barrel of oil found and produced, more than double the $4.91 average for other major oil companies, according to PaineWebber.

Rob Phillips, a Phillips spokesman, said there is no time frame for the GPM sale or any joint ventures. "To remain independent, but also to remain competitive with companies of comparable size, our management decided that we couldn't grow all these companies on our own. Instead, we will keep some interest in the chemicals and refining and marketing divisions and sell GPM. We will then use the proceeds to expand our E&P ability, which is what we will be predominantly focused on." Currently, the E&P division is Phillips' largest, with assets of $6.2 billion as of year-end 1998 and producing in seven different countries.

Phillips has not entirely shut the door on GPM, saying a joint venture is still possible. "The company will reduce its GPM interest one way or the other," Phillips said. GPM is one of the largest domestic producers of natural gas liquids, producing 170,000 gross b/d. It also has over 28,000 miles of gathering pipeline mainly based in Texas, New Mexico and Oklahoma, processes 2 Bcf/d and markets over 1 Bcf/d. Overall, GPM has 7 Tcf of supply.

Although acknowledging that no merger has taken place, Phillips would not comment on another rumor that Chevron is lined up to be the buyer of GPM and the partner in the chemical joint venture. "I would characterize that as market rumor and Phillips has a policy not to comment on that," he said. A Chevron-Phillips chemicals joint venture would create a business with about $5.4 billion in annual sales and link plants on the U.S. Gulf Coast, and in Europe and Asia.

One reason Phillips may be taking such drastic measures is that it had a major transaction fall through earlier this year, an $8 billion refining and marketing deal with Ultramar Diamond Shamrock. It may be looking for a major move to continue the upward momentum triggered by crude oil's recent recovery. On the other hand, Chevron is still trying to find a partner since it was spurned by Texaco earlier this year (see NGI, June 7).

When the rumors first erupted early last week, the companies would neither confirm nor deny them. Given the heated merger activity taking place in the petroleum producing sector, with BP combining with Amoco, and the pending BP Amoco-Arco, TotalFina-Elf Aquitaine, and Exxon-Mobil transactions, Phillips was regarded as a viable candidate for Chevron.

"It's clear that Chevron is talking to basically everybody and Phillips is the instigator in this in terms of looking for someone to do joint ventures with," said Edward Jones Analyst Katie Warne. "This doesn't make as much sense to me as some of the other ones we've talked about in this industry. There had been rumors out there about Chevron and Occidental, which I think makes more sense... While Conoco may have a difficult time merging in the two-year waiting period after its spin-off [from DuPont], it has much better assets than either one of these companies."

As a result of the merger rumors, Phillips shares closed up $2.81 to $56.56/share Monday, well above its 52-week high, and reach a high of $57.25 before closing on Friday down sharply at $49.50. Chevron stock, meanwhile, took a slight 88-cent dip to $92.12/share Monday following the initial rumor, and sunk to $88 by Friday.

Phillips has assets worth $15 billion and a market capitalization of $12.54 billion, while Chevron has $36.5 billion in assets and a market cap of $57.77 billion.

John Norris

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