ChevronTexaco Corp.’s stock restructuring deal with Dynegy Inc. may help it realize a gain in its third quarter income, and also help it book an increase in the value of its Dynegy securities in its second quarter report, the company said after the Dynegy announcement last week (see related story).

On its books, ChevronTexaco currently carries its existing preferred Dynegy shares at a value of $300 million, and the shares’ value “likely” will increase on the second quarter balance sheet, according to a spokesman. The company is set to announce its second quarter earnings on Aug. 1, but it did not specify what its second or third quarter gains might total regarding Dynegy. In the third quarter of 2002, ChevronTexaco wrote off $1.55 billion on its Dynegy investments; it also wrote off more than $600 million on its investment in last year’s second quarter (see NGI, Nov. 4, 2002; Aug. 5, 2002).

Standard & Poor’s Ratings Services (S&P) said its ratings and outlook on ChevronTexaco (AA/Stable/A-1+) would remain unchanged following the Dynegy announcement. “Although the Dynegy investment represents a poor investment for ChevronTexaco (i.e., the preferred stock initially represented a $1.5 billion investment in Dynegy), Standard & Poor’s had incorporated a worse recovery into ChevronTexaco’s credit ratings.”

The exchange offer also “represents an improvement from ChevronTexaco’s March 31, 2003 carrying value of the preferred stock ($300 million),” said analysts. “Nevertheless, the value of the new securities, which is helped by Dynegy’s recent efforts to improve its long-term viability, is insufficient to move the rating.” As of March 31, ChevronTexaco’s investment in Dynegy represented about 1% of ChevronTexaco’s total assets and 3% of its common equity.

The debt swap proposed by Dynegy came one day after ChevronTexaco announced its own plans to restructure its global refining and marketing organization to lower costs, improve efficiency and achieve sustained improvements in its financial performance. The company plans to shift from a geographical to a functional structure with four operating divisions, which would be fully operational by early 2004. ChevronTexaco’s refining operations have performed poorly in the past year, and the company has hinted of asset sales in North America and worldwide before the end of this year.

In the first quarter, ChevronTexaco reported that higher commodity prices were partially offset by a decline in oil-equivalent production compared with 2002. More than half of its net changes in the first quarter resulted from lower oil production from its Indonesian operations. Production was also lower in the United States because of “normal field declines and production deemed uneconomic to restore following storm damages in the Gulf of Mexico” last summer. Net oil-equivalent production in the first quarter had declined 6%, or about 66,000 bbl/d from the first quarter of 2002, mostly because of normal field declines.

“While we are seeing improved performance across our company, we must continue to strengthen our businesses to accomplish our objective of being the leader in total stockholder return,” said CEO Dave O’Reilly. “This new downstream organization will enable us to achieve the additional improvements needed to build a truly competitive refining and marketing business.”

The new Global Downstream management team will be under the leadership of Patricia A. Woertz, executive vice president.

“We have established as our goal the transformation of our global downstream into one that is competitive everywhere we do business,” said Woertz. “We are confident that a functional alignment will bring us greater efficiencies in this extremely competitive sector. The management team assembled for this new organization is prepared to take a solid downstream business — featuring our strong brands — and transform it into a great one.”

Also last week, the company’s Upstream Europe business unit announced it would offer to market its equity in three producing fields in the North Sea. The company’s net share of production from the properties offered totals approximately 21,500 boe/d. The company expects to complete the disposals process by the end of the first quarter of 2004.

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