FINANCIAL TIMES: Chevron starts takeover talks with Unocal: “Chevron's fresh position as a front-runner to buy Unocal could spur other suitors, such as CNOOC, Royal Dutch/Shell, BP, or others, to make last-ditch counter-offers.” (ShellNews.net) 7 March 05

By James Politi in New York and Doug Cameron in Houston

Published: March 7 2005

ChevronTexaco, the US oil major, has entered discussions to take over Unocal, the California-based "independent" oil and gas company worth $16bn in market capitalisation.

For a number of months, Chevron and other international oil groups, including China National Offshore Oil Corporation (CNOOC), have been considering bids for Unocal, long labelled a takeover target in the energy industry.

But in recent days, Chevron's interest has gathered pace, leading it and Unocal to actively engage in merger talks, according to people familiar with the matter.

Although negotiations could still fall apart, a transaction was possible within a matter of weeks, they said.

Chevron's fresh position as a front-runner to buy Unocal could spur other suitors, such as CNOOC, Royal Dutch/Shell, BP, or others, to make last-ditch counter-offers. Unocal is considered to be particularly attractive because of its international assets.

The presence of CNOOC among the bidders for Unocal has made the auction uncomfortable for a number of the suitors, which have had to balance any desire to mount an offer with the need not to upset the Chinese government.

Chevron's move suggests the group run by Dave O'Reilly is less worried than others about competing for Unocal with CNOOC, and potentially damaging its standing in Beijing.

Because of its soaring demand for energy, China is emerging as an increasingly important customer and place to do business for many international oil companies.

Chevron has $9bn in cash and the fit of Unocal's assets with its existing production profile is viewed positively by analysts.

While Chevron has one of best long-term development profiles in the industry, Unocal would also fill a gap in its reserves profile, following a 6 per cent dip in production last year.

Unocal's position in Asia, and particularly Azerbaijan where fields are operated by BP, is viewed as the main prize for potential suitors.

While the company was long seen as an industry laggard, long-term projects are due to come on stream soon.

Chevron and Unocal already overlap in the Gulf of Mexico, Thailand and Indonesia.