Texaco Chairman Peter I. Bijur said industry observers shouldn’tbe surprised to see Texaco marching to a different drummer in theindustry’s high-stepping merger parade

“The industry we once knew is gone,” Bijur told attendees at theHoward Weil Energy Conference Monday in New Orleans. He noted thecommodity price collapse over the past year has led to nearunprecedented turbulence within the top tier of major oil and gascompanies. Lately, analysts have kept a close eye on Texaco forsigns it might follow the thinking of most of its peers, includingExxon-Mobil, BP-Amoco, BP Amoco-Arco, Seagull-Ocean and others, andjoin with another major or a large independent.

Although there have been few combinations between major electricutilities and major producers, other than the DominionResources-CNG deal now in the works, it has not quelled speculationof a possible Southern-Texaco combination or the joining of Texacowith another large electric company. More frequently, however,reserve-heavy independents, such as Burlington Resources, havetopped the list of potential candidates.

J.P. Morgan analyst Jay Wilson does not follow Texaco but said acombination with a large E&P company would not surprise him.”They’re looking for a company that would allow them to increasetheir exposure to natural gas. Maybe Unocal would make sense. MaybeEnron Oil & Gas.” Enron Corp. has been rumored to be close to adeal to sell its majority interest in Enron Oil & Gas.

Analyst John Olson of Sanders Morris Mundy noted Texaco’s assetsare about $28.5 billion. “That’s not big anymore.”

Unlike most of its peers, Texaco appears to be looking outsidethe upstream industry. Despite a 78% drop in net income and a 32%decline in revenues in 1998, the company had its best year indecades in exploration, said Bijur, targeting about $650 million inannual pre-tax cost savings through 2000, increasing production by5% in the U.S. and raising production by 14% overseas. The savingsthe company achieved were comparable to those resulting from themajor mergers that have taken place recently, according to Bijur.

“This does not mean Texaco is not considering a merger oracquisition. We are,” he said. “We don’t think you can saveyourself into prosperity.”

But the industry “needs a break from the legacy assets of thepast. The role of upstream is in decline,” he said. The Texaco ofthe future will be heavily into high-tech services, a”high-solutions provider. [that has] virtually integrated the valuechain.” Technology and knowledge base are becoming more importantthan the resource base, he said.

“The prospect of going outside the conventional M&A arena isinteresting because that would show some very original thinking andperhaps move them more toward the mainstream of the North Americaenergy arena,” said Olson, who has been a big proponent of E&Pcompanies re-engineering themselves for new times (see Daily GPI Jan. 29, 1999). “I mean the oldformulas have not worked. Spot prices in commodity markets havegenerated marginal returns to oil companies, and it’s time to followother leads, whether they be in the electric arena or in the pipelinearenas.”

Bijur focused on the tremendous value Wall Street has placed onideas and technical knowledge over revenues and resources. He citedthe soaring stock value of Internet companies, such as AmericaOnline, computer companies, such as Microsoft, and other high-techcomputer firms and technology solutions companies. It seemed lessthan coincidental that Halliburton, the largest drilling technologyand upstream energy services company in the world, was the next inline to speak at Howard Weil. However, there was no stated designin the line-up.

Nevertheless, Bijur indicated Texaco will not be left out of themerger frenzy. The question is when and with whom.

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.