Chevron to Sell Assets Worth Up to $6 Billion
ChevronTexaco Corp. said Friday that it would sell up to $6 billion in assets, including lagging oil fields, refineries and half its company-operated gas stations in the U.S., to streamline operations and boost returns.
The San Ramon, Calif.-based company sketched out its divestiture plans after reporting that profit in the second quarter quadrupled to $1.6 billion, or $1.50 a share, helped by high prices for gasoline in California, as well as increased crude oil and natural gas prices. In the same quarter a year earlier, profit was $407 million, or 39 cents a share.
Excluding a net special charge of $117 million to write down the value of assets slated for sale, the company said it would have earned $1.61 a share, well above the consensus analyst estimate of $1.52 compiled by Thomson First Call.
Sales rose nearly 16% to $29 billion, as average prices for oil and natural gas in some areas soared more than 68% over year-ago levels, more than offsetting the effects of a 4% decline in worldwide production in the quarter.
Despite the strong earnings, Wall Street analysts and investors were more interested in ChevronTexaco’s divestiture plans. The company, formed by the 2001 union of Chevron Corp. and Texaco Inc., is under merger-related restrictions on asset sales that expire Oct. 9.
With the restrictions about to expire, the company held a 90-minute presentation on its intentions at the Waldorf Astoria hotel Friday. Several analysts complained that it was short on details.
“I give them an incomplete grade. It really was more of a teaser,” said Fadel Gheit, industry analyst at Fahnestock & Co., who owns the stock and rates it a “buy.”
“I can assure you that they are in much more advanced negotiations [for sales] than we were led to believe,” he said.
Jacques Rousseau, an analyst at Friedman Billings Ramsey & Co., said people “are comfortable with what they’re doing,” but he warned that ChevronTexaco’s sell-off would reduce short-term earnings and production, which will remain flat until several major projects begin production.
Such concerns may have contributed to the reaction on the New York Stock Exchange, where the stock price of the nation’s second-largest oil company fell $1.06 Friday to close at $71.05, amid an overall downturn in the petroleum sector.
Chairman and Chief Executive David J. O’Reilly said ChevronTexaco had labeled $5 billion to $6 billion in assets as “non-strategic” and probably would sell $1 billion to $2 billion in assets in each of the next three years.
The company’s retail and marketing business will be “smaller and focused on the U.S. West Coast and Asia,” he said. Despite Asia’s economic struggles, he said Chevron would stay put, arguing that “at some point ... there will be an upturn.”
Pressed for more details, O’Reilly said, “There are very good reasons not to be specific,” adding that he didn’t want to tip the company’s hand as it negotiated to sell various properties.
Earlier this year, the company announced plans to sell its El Paso refinery, along with about 100 oil fields in North America, and its stake in a Papua New Guinea project.
At Friday’s meeting, O’Reilly said ChevronTexaco would sell an additional 300 oil and gas properties in North America, plus three fields in the North Sea.
Including the 100 fields previously announced, the properties for sale produce the equivalent of 115,000 barrels a day.
The company also said it would sell 1,450 gas stations that are owned or leased by the company. One analyst said the move would take less attractive properties off the company’s books, while it still profits as the gasoline supplier to the new Chevron station owner.
About 550 of the outlets targeted for sale are in the United States, representing about half of the company-owned or leased stations.
It has 7,900 branded outlets nationwide, including stations that are owned or leased by dealers or other third parties. The stations that are sold will continue to be branded as Chevron stations.
