In a bold move to improve its competitive advantage, ChevronTexaco will sell some of its non-strategic U.S. assets, cut up to 200 U.S. jobs, consolidate several U.S. offices and consider whether to sell some of its producing and midstream assets in western Canada. The program, which only targets North American operations, is expected to be completed in 2004.
Longer term, the second largest U.S. energy producer said it would retain about 400 core fields across North America and offshore both the United States and Canada. The U.S. properties for sale are located in 15 states and the Outer Continental Shelf of the Gulf of Mexico. They represent more than 60% of ChevronTexaco’s total U.S. properties but only 5% of daily production. Most of these properties are non-operated joint ventures and royalty-only interests.
Canadian assets being considered for divestment consist of mature producing fields and midstream assets in western Canada, which currently produce 35 Mboe/d. The decision does not affect strategically significant assets, which include: the Athabasca Oil Sands Project, Mackenzie Delta gas, East Coast Canada exploration, development and production activities or the company’s refining and marketing operations. In western Canada, 2002 net production was more than 21,000 bbl/d of crude oil and natural gas liquids and more than 130 MMcf/d.
None of the announced changes affect international operations; ChevronTexaco is considered the fifth largest producer in the world.
Bruce Schwartz, an analyst with Standard & Poor’s Ratings Service, said ChevronTexaco’s ratings would not be affected by the announcement. “as it has been expecting such sales since the company announced its long-range plan earlier in 2003. Furthermore, the pruning of noncore assets reflects a prudent exploitation of heated property markets.”
An estimated 150 to 200 jobs will be eliminated directly or indirectly as a result of the U.S. organizational changes. Personnel impacts in Canada will be determined based on the ultimate actions around the disposition of the western Canada producing and midstream assets. Currently, ChevronTexaco employs more than 53,000 worldwide in 180 countries. Of that total, about 500 work for subsidiary Chevron Canada.
“We’re building a focused and efficient portfolio of assets composed of strategic core fields that represent the vast majority of our long-term value in North America,” said Ray Wilcox, president of ChevronTexaco Exploration and Production Co. “These efforts are part of our strategy to maximize and grow the value of our base business. We expect to retain nearly all of our current earnings, cash flow and resource base, and to improve our overall competitiveness.”
The San Ramon, CA-based major also is shaking up the organizational structure of several of its offices across the country. The Permian Business Unit, located in Midland, TX, and the Midcontinent Business Unit, located in Houston, will be consolidated and headquartered in Houston. However, some functions directly linked to operational needs will continue in Midland.
The Deepwater Gulf of Mexico Business Unit, currently based in New Orleans, will become the Deepwater Gulf of Mexico Exploration and Projects Business Unit and will focus exclusively on exploration and major deepwater development projects. It will be co-located with other ChevronTexaco worldwide deepwater and technology groups in Houston. Gulf of Mexico operations will continue to be located in Louisiana (New Orleans and Lafayette) and will manage all of ChevronTexaco’s operating activities in the Gulf of Mexico, including deepwater.
Because of the write-off on the U.S. assets, as well as estimated employee termination benefits, ChevronTexaco expects to record some fourth quarter charges. However, the company noted that the charges are not expected to be material to total corporate earnings in the quarter. Also, it noted that asset dispositions during 2004 “could result in net gains” for certain periods.
“ChevronTexaco will remain the No. 1 producer in California and the Gulf of Mexico Shelf,” said Wilcox. “We’re the No. 2 producer in the Permian Basin and the No. 3 natural gas producer in the United States, bolstered by our strong Midcontinent gas production,” and “these changes will enable our workforce to realign and focus on opportunities that can add the most value to ChevronTexaco and its stockholders.”
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