Tenneco to Sell Huge Reserves of Oil and Gas
Tenneco Inc., the energy and industrial conglomerate long rumored as a possible takeover target, said Wednesday that it would sell its oil and gas business, whose huge reserves could bring a price of $7 billion or more.
Proceeds from the sale will be used to reduce debt and, possibly, to repurchase shares of the company’s common stock, Tenneco said.
The news sent Tenneco shares up $4.375 to $45.75 on the New York Stock Exchange.
Houston-based Tenneco has long been rumored as a target of a possible buyout in which an outside investor could finance its acquisition by selling various units of the firm. The sale appeared to be aimed at averting such a takeover.
Analysts said the company’s rich reserves could mean a price tag of between $7 billion and $8 billion. Tenneco said its proved reserves of crude oil and natural gas liquids totaled 407 million barrels at Dec. 31, 1987, while natural gas reserves totaled 2.95 trillion cubic feet.
Analysts said cash-rich potential bidders include Exxon Corp., Dutch Shell Group, British Petroleum Co., or Pennzoil Co., which recently won $3 billion in a lawsuit from Texaco.
Analysts said another possibility lies in the company’s ongoing talks with Iraq. Iraqi Oil Minister Issam Abdul Rahim, now visiting the United States, was scheduled to fly to Houston today for discussions with Tenneco and other companies.
Among the company’s other major diversified businesses are the Case heavy machinery division and Newport News shipbuilding in Virginia.
Should Improve Earnings
James L. Ketelsen, chairman and chief executive, said the sale would make Tenneco a financially stronger and more focused company.
“With significantly reduced debt and capital expenditure needs, the company’s earnings should improve materially and its intrinsic value to shareholders will be secured and enhanced,” Ketelsen said.
“It’s about time they did something,” said Alan Gaines of Gaines Berland Inc. “The question now is what the shape of the company will be after the sale. I still don’t know if this is good, bad or indifferent.”
Managing the sale will be Morgan Stanley & Co. and First Boston Corp. Tenneco said consideration will be given to the sale of the business either in major segments or as a whole. It did not say whether any talks were under way at present.
Regarding the oil and gas unit, Ketelsen said, “At prevailing oil and gas prices we can neither earn an adequate return on our existing investment nor justify the future capital expenditures required to match past levels of success.”
“We believe Tenneco’s shareholders will best be served by selling this business, so as to unlock its underlying value now, rather than waiting an indeterminable period for higher oil and gas prices,” he said.
Tenneco Oil Co. is engaged in both exploration and production and refining and marketing.
