Chevron May Be in Pursuit of Unocal

Another oil giant -- this time, ChevronTexaco Corp. -- reportedly is eyeing a takeover of Unocal Corp., whose stock soared 12% on Thursday on the news.

El Segundo-based Unocal, the eighth-largest domestic oil company, long has been considered a buyout target. But the speculation has intensified this year because big energy companies are cash-rich from soaring oil prices and hungry to acquire petroleum and natural gas reserves to buttress their production.

ChevronTexaco, based in San Ramon, Calif., is the second-largest U.S. oil concern behind ExxonMobil Corp. and 19 times larger than Unocal by revenue. The company is considering a bid to buy Unocal, but it’s unknown whether a formal offer will materialize, the Wall Street Journal reported Thursday, citing unidentified sources.

In January, China National Offshore Oil Corp. and Royal Dutch/Shell Group also were reported to be looking closely at Unocal.

An actual offer hasn’t emerged from anyone, and representatives of Unocal and ChevronTexaco declined to comment Thursday. Even so, Unocal’s stock has surged as investors have bet that a deal is coming.

The shares rose $6.60 to $60.10 on Thursday on the New York Stock Exchange in response to the Journal report, putting the stock up 39% for the year and giving Unocal a stock market value of $16.3 billion.

As the major oil companies look to build their reserves, other mid-sized oil companies also are thought to be potential takeover candidates, including Westwood-based Occidental Petroleum Corp. Its stock rose $2.07, or 2.9%, to $73.01 on the Big Board.

A Standard & Poor’s index of eight oil exploration and production firms, which are mostly mid-sized operators, has shot up 27% in the early months of 2005. It stands 63% higher than a year ago.

Aliza Fan, a senior analyst with the energy investment firm John S. Herold Inc., said ChevronTexaco and Unocal would fit together well partly because they have overlapping projects in Thailand, Indonesia and the Gulf of Mexico.

By merging those operations, they could become more efficient, she said, adding that their combined size “gives you more power in getting contracts and in negotiating with governments.”

As a result, a suitor probably would need to offer at least $65 a share for Unocal, or a total of $17.6 billion, Fan estimated.

ChevronTexaco ended 2004 with $10.7 billion of cash, and its stock also has risen sharply over the last 12 months, making the shares a more valuable currency for an acquisition. The stock slipped 38 cents Thursday to $61.19 on the NYSE.

Unocal, once called Union Oil Co. of California, was founded in 1890 in Santa Paula in Ventura County. Known for its Union 76 brand, it was a major player in California’s oil and gasoline markets until the mid-1990s.

Then the company sold the gasoline business and the last of its California oil fields to focus on exploration and production elsewhere, mainly overseas. About 65% of Unocal’s oil and natural gas production -- which averaged the equivalent of 428,000 barrels of oil a day in the fourth quarter -- comes from foreign fields.

Unocal is active in, among other places, the Caspian Sea, Bangladesh and Myanmar. Many of its projects are still in early development.

The company has about 6,600 employees. Last year, it earned a record $1.21 billion, up 88% from $643 million in 2003, because of the surge in oil and gas prices. Its annual revenue climbed 26% to $8.2 billion from $6.5 billion.

Unocal boasted oil and gas reserves equivalent to 1.75 billion barrels of oil at the end of last year, nearly unchanged from the end of 2003. If purchased, that stockpile would swell the reserves at ChevronTexaco or another acquirer and thus would improve the outlook for future production.

ChevronTexaco ended 2004 with reserves equal to 11.25 billion barrels of oil from its operations and those of affiliates. That was down 6% from 11.96 billion barrels a year earlier, the company said in its annual report filed Thursday with the Securities and Exchange Commission.

The company has said, however, that it plans $10 billion of capital spending this year to develop projects in areas such as Nigeria and the Gulf of Mexico. That should significantly boost production and reserves.

ChevronTexaco’s profit last year soared 85% to $13.3 billion from $7.2 billion in 2003. The company’s revenue climbed 28% to $155.3 billion from $121.3 billion.