Monday, Sep 15, 2003
ChevronTexaco, the world's fourth-largest listed energy company, is pressing ahead with plans for new exploration and production deals in Russia in spite of rapid consolidation in the country that has tightened control of the industry among a small group of companies.
David O'Reilly, chief executive and chairman of ChevronTexaco, says Russia and the Middle East remain the two most important strategic regions for the company's growth. ChevronTexaco has Dollars 10bn available to spend on new projects, analysts say.
Investors that lost faith in the company after the merger of Chevron and Texaco in October 2001 generated less savings and production benefits than expected, will be watching to see if it can now boost its presence in the consolidated Russian market and the Middle East, where talks over many projects with governments have dragged on for more than a decade.
Mr O'Reilly disputes the widely-held view that striking a corporate deal in Russia had become more difficult and argued that BP's partnership with TNK and the merger of Yukos and Sibneft this year point to a more transparent market.
"The trend in Russia seems to be that the Russian economy is beginning to behave more like a typical economy in the developed world," Mr O'Reilly says. He adds that there is still room for a corporate deal in Russia and that the business environment is improving. "I would have thought that in a transparent economy transactions would become more routine," he says.
Project-by-project investing and corporate deals were both "feasible and worth evaluating and considering" but had become more difficult under new laws governing production-sharing agreements, while corporate deals had been limited following the mergers.
He says: "The former Soviet Union, and Russia is a big part of that, are areas where there is oil and gas. These are areas of opportunity and of focus for us."
One high-profile tie-up ChevronTexaco has been pursuing is to take a stake in YukosSibneft but analysts said buying a large enough share in the newly merged company could prove too expensive and taking a small stake would be dangerous in a country where energy companies with too little control have been exploited.
ChevronTexaco - whose other major positions lie in
West Africa and in the deep waters of the US - so far has been left behind in Russia, with its major competitors having a bigger toe-hold in the world's second-largest oil producer, analysts said.
"Russia looks harder to come by after recent consolidation," says JJ Traynor at Deutsche Bank. "The long tail of privately-held Russian oils might well be acquisition targets for ChevronTexaco, (but) such deals are likely to be treated with caution by shareholders."
Mr O'Reilly hopes to build on ChevronTexaco's position as the largest oil producer in Kazakhstan, where it is involved in the Tengiz and Tarachaganak fields and the consortium that controls the Caspian pipeline, much of which runs through Russia.
In the Middle East, ChevronTexaco is one of the few companies with recent experience in Saudi Arabia and Kuwait, both of which have been reluctant to allow the major oil companies to exploit their abundant oil and natural gas supplies but are now showing signs of opening their doors.
Kuwait, Saudi Arabia and Iraq, which together hold almost half the world's oil reserves, have recently indicated their willingness to re-engage international oil companies for the first time since they nationalised their oil and gas sectors in the 1970s.
"I'm excited about them all but right now the opportunity on the table for us is not Iraq," says Mr O'Reilly, nevertheless adding that communications between Iraq and the international oil industry had just restarted.
"It appears to me we are going to hear a lot in the next few months about what their approach is and what their needs are," he says.
ChevronTexaco leads one of three consortia lining up for possible work in Kuwait's northern fields and is considering bidding for Saudi Arabia's newly launched natural gas exploration deals.
It also has some gaps to fill in its natural gas portfolio to fully take advantage of its large stake in Australia's gas fields, a need to counterbalance its waning oil production volumes in the US and to improve its poor refining and marketing performance, which has been dragged down by its exposure to Asia, analysts said.
However, Mr O'Reilly is non-committal about a major deal. "This is not a good time to be running out to buy barrels of oil, this is a good time to sell," he says.
Those sales are due to start in November - when post-merger restrictions on asset disposals expire - with fields in the US, the North Sea, Papua New Guinea and Indonesia coming on the block.
By CAROLA HOYOS
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