ChevronTexaco announces buyout of Unocal

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MARKETPLACE – Minnesota Public Radio

DAVID BROWN, anchor: Great to have you with us on this April 4th, a day when more people seemed to be buying the argument that there’s an oil bubble. Speculators appear to be running up prices and taking quick cash off the table. That would certainly explain today’s volatility. Well, this much we know: rising crude prices are not hurting the big oil companies. No indeed. ChevronTexaco has decided to use some of its profit to buy out a competitor. Today the nation’s second-biggest oil company announced it’s buying number-nine Unocal. The deal’s worth more than $16 billion. As Matthew Algeo reports, today’s merger could signal a gusher.

MATTHEW ALGEO reporting: ChevronTexaco’s profits are rising, but its oil reserves are dropping. CEO David O’Reilly says buying Unocal is one way to fix that.

Mr. DAVID O’REILLY (CEO, ChevronTexaco): Unocal will bring an additional 1.7 billion barrels of oil equivalent, increasing our total crude reserve base by about 15 percent.

ALGEO: The merger will also significantly increase ChevronTexaco’s natural gas holdings. Analyst Phil Verleger says the merger makes sense for Unocal.

Mr. PHIL VERLEGER (Analyst): Unocal probably could stay competitive overall, but it was a relatively small fish in a big pond, and it had been a relatively less successful fish than, say, most of the bigger companies, so it’s a really natural fit with Chevron.

ALGEO: Verleger predicts there will be more mergers in the oil industry. That’s because most companies are in the same boat as ChevronTexaco. They have plenty of cash but dwindling oil reserves. And they can’t go drilling for oil just anywhere.

Mr. VERLEGER: They’re not being allowed to go look in places like Saudi Arabia or Iraq, for obvious reasons, or Iran, and so the alternative is to go buy companies.

ALGEO: Verleger says the merger probably won’t have much impact on consumers, but consumer advocate Jamie Court’s not so sure. Court worries that the world’s oil and natural gas supplies are in the hands of a shrinking number of companies.

Mr. JAMIE COURT (Consumer Advocate – FTCR): This merger could have tremendous impact on the future electricity market, and I think it could have an impact on the current gasoline market.

ALGEO: The ChevronTexaco-Unocal merger could be completed by the end of the year. I’m Matthew Algeo for MARKETPLACE.

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