Chevron Swaps Oil Fields for Its Own Stock : Energy: The firm will get back $1.17 billion of its stock in deal with Pennzoil Co.

Chevron Corp. will buy back $1.17 billion worth of its own stock from Pennzoil Co. in exchange for some Gulf of Mexico oil and gas fields, the companies said Wednesday.

The deal solves a number of problems for both parties. It will enable Chevron to trim its U.S. oil-production business while reducing unease over Pennzoil’s intentions as owner of almost 10% of San Francisco-based Chevron.

For Pennzoil, based in Houston, the deal doubles oil and gas production, strengthens its position in a $600-million tax dispute with the Internal Revenue Service and settles three years of legal wrangling with Chevron.

“It makes sense,” said energy analyst James K. Wicklund of Rauscher Pierce Refsnes Inc., a Dallas brokerage.

In the tax-free exchange, Chevron will give Pennzoil 266 oil and natural gas fields primarily located in Gulf of Mexico, the adjacent coast and in western Texas. Like many U.S. oil companies, Chevron has been trimming assets and restructuring its business in oil and gas production.

Overall, U.S. energy companies have been able to unload only $3 billion of about $14 billion in domestic oil and gas reserves recently on the market.

The Pennzoil trade will leave Chevron with about 400 of its core fields, a target announced previously this year. Chevron Chairman Kenneth Derr said the deal “clearly results in the highest value for our stockholders,” predicting a profit of $375 million in Chevron’s fourth quarter, when the trade will close.

Pennzoil, which will retain a 5.3% holding in Chevron, had been in the market for more gas and oil reserves. Most of the Chevron properties are adjacent to Pennzoil fields, making them cost-effective to incorporate into Pennzoil production.

“This deal is a perfect fit,” said Pennzoil President James L. Pate. He estimated that Pennzoil’s pre-tax cash flow from the new fields will be four times the current dividend income from the Chevron shares involved in the trade.

Pennzoil also expects to be helped in a tax dispute over its $2.6-billion investment in Chevron in 1989 and 1990.

The investment money came from a lawsuit Pennzoil won against Texaco Inc. in a separate matter. To defer paying taxes on its investment in Chevron--a liability that even Pennzoil figures could reach $600 million--Pennzoil was required to invest in assets similar to those in dispute in the Texaco lawsuit.

But the Internal Revenue Service contends that the Chevron stock doesn’t qualify as a similar investment. Pennzoil’s tax bill comes due at the end of this year.

Wicklund expects that Wednesday’s deal--which effectively moves much of Pennzoil’s investment into “similar” assets--could substantially lower any tax liability. A Pennzoil spokesman agreed.

The 1989 investment also brought speculation that Pennzoil might try to take over Chevron. Wednesday’s deal settles litigation related to that and includes an agreement that neither company will buy stock in the other for five years.