NGC, Chevron Sign Final Pact to Merge Units

NGC Corp. and Chevron Corp. said Thursday that they have signed a final agreement that would make NGC the largest natural gas and natural gas liquids wholesaler in North America.

The agreement to merge natural gas operations, first announced in January, calls for NGC to pay $300 million in cash and notes and to issue Chevron 38.6 million new common shares and 7.8 million preferred shares. Based on NGC’s closing stock price of $15.375 on Wednesday, the shares would be worth $713.4 million.

After the merger, expected to be completed in the third quarter, San Francisco-based Chevron would hold a 25% stake in NGC. British Gas and Canada-based Nova Corp., which each previously held a third of the company, agreed to reduce their stakes to 25% to make room for Chevron.

NGC’s shares rose 50 cents to $15.875 on Thursday, while Chevron’s shares fell 12.5 cents to $61.75. Both trade on the New York Stock Exchange.

Houston-based NGC, which buys gas from producers and sells it to utilities, industrial companies and other wholesalers, said the merger will raise its daily sales volume to between 10 billion and 11 billion cubic feet a day, from 7 billion cubic feet.

“The higher volume is expected to lower our unit costs and increase earnings,” said Katherine Putnam, a spokeswoman for NGC.

NGC would buy and resell nearly all of the natural gas, natural gas liquids and electricity produced by Chevron and resell it to chemical plants, corporate facilities and Chevron refineries. Liquids refined from natural gas include propane, butane and natural gasoline.

NGC also provides services that help widen its otherwise razor-thin natural gas sales margins. These include arranging for gas to be transported and storing gas for producers.

“A big component of our margins is the providing of services,” Putnam said.