ChevronTexaco Corp. and Devon Energy both announced plans to repurchase their company’s common stock last week. Chevron began its $5 billion stock repurchase on Thursday and will continue it up to three years, while Devon’s would begin once it pays down more debt.

Of Chevron’s repurchase, CEO Dave O’Reilly said that the company has had “a sustained period of strong cash flows from our company operations. As a result, we’ve been able to significantly reduce our debt levels and make voluntary funding contributions to our major employee pension plans.”

Share repurchases will be made from “time to time” at prevailing prices under securities laws and other legal requirements, and will be subject to market conditions. The company noted that the buybacks could be discontinued at any time.

Following Chevron’s announcement, Standard & Poor’s Ratings Services (S&P) affirmed its “AA” credit rating, noting that the company is “likely” to fund most of the repurchase from free operating cash flow.

“ChevronTexaco’s management has indicated that it will curtail the share-repurchase program if adverse events cause debt leverage to materially rise,” S&P analysts noted. “Management has substantial credibility on this matter as it has suspended prior share-repurchase programs during periods of adverse industry conditions.”

Nevertheless, said analysts, “the repurchase program will limit ChevronTexaco’s ability to build a financial cushion that could prove useful if the company experiences a prolonged period of depressed pricing or encounters an acquisition candidate. As such, without mitigating factors, future initiatives to increase the company’s growth rate with debt capital or to return capital to shareholders could negatively affect the company’s rating or outlook.”

Devon’s CEO said the share buyback could begin as soon as this year if the company can continue its debt reduction program.

Speaking at the Howard Weil Energy Conference in New Orleans, CEO Larry Nichols said the company ended last year with $7.9 billion of long-term debt and nearly $3.1 billion in cash on hand. Devon currently has $636 million in 2006 maturities that it could pay back early, Nichols said.

Once the debt maturities are paid, Devon plans to work on repurchasing its shares to boost their price, which currently is below other independent producers on a price-to-cash-flow basis, Nichols said. In the past year, Devon has traded between $45.25-57.46.

“We see the surplus cash flow rapidly de-levering the balance sheet,” Nichols said. That surplus cash would be used to buy back shares. “That’s what we fully intend to do.” He decline to discuss the amount of the potential share buyback.

Devon reduced its net debt-to-capital ratio last year to 39% from 2002’s 60%. And its excess cash flow this year is expected to match $1.3 billion that Devon generated in 2003, Nichols said.

Regarding acquisitions, Nichols said Devon was not looking at anything in the near term, and instead would concentrate on its debt and buyback plan. It purchased Ocean Energy last year, which he said was “the best acquisition we can find anywhere.”

S&P analyst John Thieroff wrote that the share repurchase plan would not immediately affect the ratings or outlook on the company.

“Standard & Poor’s expects that Devon will not repurchase shares until the company’s debt maturities through 2006 are addressed in entirety,” said Thieroff. “If the company redirects cash earmarked for debt reduction to share repurchases, or further increases dividends to a level that jeopardizes the company’s ability to fully repay outstanding debt maturing through 2006, Standard & Poor’s would likely lower its rating and/or outlook on Devon.”

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