Texaco Wins More Time to File Bankruptcy Reorganization Plan

Capping an already satisfying week for Texaco, U.S. Bankruptcy Judge Howard Schwartzberg on Friday granted the company an additional 120 days to prepare the reorganization plan that it must have to emerge from bankruptcy proceedings.

In the 15-page ruling, the judge also implied that he will continue to grant Texaco extensions until its bitter dispute with Pennzoil over the ownership of Getty Oil is resolved. Additionally, he denied Pennzoil’s requests to file its own version of a Texaco reorganization plan and to reduce--rather than extend--Texaco’s filing period.

Pennzoil caused a stir earlier this week when it filed a proposed plan with the court offering to settle its $10.3-billion court judgment against Texaco for $4.1 billion. Texaco filed for bankruptcy protection April 12, citing its failure to reach a “reasonable” settlement with Pennzoil.

Schwartzberg didn’t give Texaco everything it wanted in extending the plan deadline to Dec. 10 from Aug. 8. Its lawyers had argued that because this is the largest court-assisted reorganization in history, they need until next March 31 to formulate a plan.

But Texaco was “extremely pleased” nevertheless. Everyone else who addressed the issue at a 5 1/2-hour court hearing in White Plains, N.Y., on Thursday argued for no extension or a much shorter one on grounds that Texaco would use the delay to hide out in bankruptcy court until its legal fracas with Pennzoil is resolved.

The Texas Supreme Court is expected to decide in September or October whether to hear Texaco’s appeal.

Schwartzberg’s ruling marks the fourth time this week that things have gone Texaco’s way. Earlier, the oil giant’s largest shareholder, Robert Holmes a Court, wrote Texaco a letter of support; members of a newly formed Texaco shareholders’ committee backed Texaco’s stance on the Pennzoil fight, and the Securities and Exchange Commission told the Texas Supreme Court that any contract that Pennzoil might have had with Getty Oil would have “plainly violated” federal securities laws.

Schwartzberg’s ruling cited the constitutional issue raised by the SEC and seemed to suggest that this question alone justifies Texaco continuing in bankruptcy court. “Until this substantial constitutional issue is resolved,” he said, “Texaco cannot be faulted for refusing to compromise its indebtedness under the Pennzoil judgment by agreeing to pay $4.1 billion in settlement of a liability it legitimately disputes on appeal.”

More time also is needed because the “heightened tension” between Texaco and Pennzoil has slowed the reorganization process, Schwartzberg said. A shareholders committee formed just last week “should also be afforded an opportunity to participate in the formulation of a plan,” he said, and the two Texaco creditors’ committees need more time “to review and negotiate an acceptable plan.”

Pennzoil was disappointed by the ruling. “We feel that this materially reduces the possibility of settlement,” the company said. “Our proposal was a good-faith effort to resolve the issue, and at present we are no longer committed to the plan.”

Pennzoil called a strategy meeting for next week among its management and advisers to discuss its next move.