On track to build a global natural gas business to complement its oil operations, ChevronTexaco Corp.’s executive team on Wednesday laid out an ambitious plan to grow its natural gas business by mid-decade with more core exploration and more development of its substantial reserves that will include, among other things, liquefied natural gas (LNG) regasification terminals along the West Coast and East Coast, as well as expanded exploration and production in shelf and deepwater Gulf of Mexico prospects.

Chairman Dave O’Reilly, joined by his executive team in New York for the second analysts’ meeting since Chevron and Texaco completed their merger late last year, reported that the synergies between the companies has gone so well, that the third largest major expects to achieve a 2-3% improvement in return on its capital employed within two years, by moving up its merger-related synergy target to $2.2 billion by next spring. Management detailed how it expects to meet its previously announced $1.8 billion annual synergy objective by October 2002, a full six months ahead of schedule.

O’Reilly emphasized that ChevronTexaco’s “overarching objective” is to be the first among its peers in total stockholder return by the end of 2004.

“In the eight months since completing our merger, ChevronTexaco moved swiftly and successfully to integrate its businesses and to put in motion aggressive plans to enhance upstream performance and improve downstream returns, said O’Reilly. As the two companies became one, O’Reilly said management was able to identify an additional $400 million in synergies that the company expects to capture by April 2003. “Since announcing the merger in October 2000, we have almost doubled our initial synergy target,” he said.

Peter Robertson, vice chairman for upstream, reaffirmed earlier forecasts that ChevronTexaco’s worldwide oil and gas production will increase at an expected compounded annual growth rate of 2.5-3% by 2006, with a big push toward improving its gas production worldwide, and especially in the United States.

The company, Robertson said, was already strategically well positioned across the globe’s major oil production areas, and plans to expand its business by creating “new entry options and by seeking to develop new core production areas.” He also cited a rigorous global evaluation process that has optimized ChevronTexaco’s exploration program.

“Our enhanced capabilities are delivering success, notably the recent Tahiti discovery in the deepwater Gulf of Mexico,” said Robertson, who estimated Tahiti holds 400-500 MM boe.

Robertson also spoke of plans to increase development of the combined company’s considerable natural gas reserves. Noting many of its international opportunities, Robertson said North America’s reserves, as well as its substantial success in the Gulf of Mexico, will help the company build a global gas business. “We’re also pursuing other gas-related opportunities including a gas-to-liquid facility in Nigeria, a liquefied natural gas facility in Angola and liquefied natural gas regasification terminals in North America.”

While not disclosing specific details or a timetable, Robertson said ChevronTexaco wanted to place one LNG regasification terminal along the West Coast, and most likely another one to serve North America, either also along the West Coast or along the East Coast.

On growing its gas portfolio, Robertson said, “we have a great opportunity here, with 50-plus Tcf in reserves and contingent reserves that could be a couple or triple times that. We have a very large reserve base and a multitude of options,” he said, especially in the U.S. market because of the company’s strategic alliance with Dynegy Corp., which markets all of the company’s U.S. gas (see related story).

Ray Wilcox, in charge of North American upstream operations, said the company is “clearly focused on the North American market,” and is ready to begin gas production from its assets in the Mackenzie Delta of Alberta, “with either a Canadian gas pipeline or one from Alaska.” Wilcox added that the company was “not standing still” in any of its core areas, including the Gulf of Mexico. It acquired 18 new blocks in the last Minerals Management Service lease sale, and added 14 new deepwater blocks, all part of its long-term plans.

Robertson said ChevronTexaco also has “huge undeveloped natural gas resources in Angola and Algeria,” adding that the company will “make a selection from those, combined with regasification in North America on the West Coast and accessible in the Atlantic or on the East Coast.”

When asked about any future asset transactions on the buy or sell end, O’Reilly said the company was “quite willing to sell assets,” and to acquire strategic assets. He said that if it was important to the company’s infrastructure, and the company was able to leverage its portfolio, that was most important in choosing what to keep, what to sell and what to buy. “Looking at the portfolio, it’s leveraged in the most exciting place in the world,” he said, speaking of the Gulf of Mexico. “We’re by far and away the largest producer in the Gulf, and it is important to our infrastructure.” He noted a “string” of exploration successes there, and said the company was not working on technology to “really understand the deepwater.”

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