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There are now no plain old majors left, only independents
OPIS News
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| There's no question that Texaco marketers on the West Coast are going somewhere. When and where will depend on the terms of the original joint venture agreement between Texaco and Shell, and what the FTC requires in the way of divestiture. Some Texaco jobbers in the Southeast could also find themselves with a new supplier as a result of Chevron's plan to buy Texaco for $35-$37 billion, analysts say.
Chevron markets through 7,900 outlets in 17 western, southwestern and southern states and operates five refineries. But it is the company's market presence in the West that will attract most regulatory attention.
A combined Chevron-Texaco would have 35%-40% of the retail market in California, moving 370,000 b/d at the pump. With Chevron's Richmond and El Segundo refineries and Equilon's Bakersfield, Los Angeles and Martinez facilities, the company would have some 41% of California's refining capacity. Currently, Chevron has about 26% of the state's refining capacity.
The future of Texaco marketers depends on what Shell and Texaco do next. Shell is holding talks with Texaco about unraveling the 1998 venture that merged their downstream assets to create Equilon in the West and Motiva in the East.
The pact between the pair and Texaco's other downstream partner, Saudi Refining, gives Shell and the Saudis first refusal rights on Texaco's $3 billion minority stake in Equilon and Motiva, and Texaco has said it expects Shell to exercise those rights. If the contract between Shell and Texaco is anything like BP-Mobil's JV in Europe, Shell should be able to pick up Texaco's assets at a discount, notes marketer attorney Bob Bassman.
The prospect of being owned by Shell worries many Texaco marketers who fear that it will spell the end of the Texaco name. "Majors' contracts give them the right to assign franchises and there is little jobbers can do about it," says Bassman.
A way around anti-trust hassles for Chevron? But there may be a way that Chevron can avoid huge anti-trust problems, says Bassman. Chevron could purchase Texaco's 44% stake in Equilon and then sell it back to Shell in a swap that would see Chevron get Texaco's 32.5% share in Motiva. Shell is known to have been unhappy with Motiva's performance and Chevron operates mainly through jobbers east of the Rockies, where it has a much lower market share. The heaviest overlaps that could lead to a divestiture order for Chevron are in Texas, Louisiana and Mississippi, where analysts say a combined ChevronTexaco would have a 20% plus of the retail market.
There is no way that the FTC will let Chevron keep Equilon's Texaco outlets in California. Chevron holds No. 2 slot in the state - a 19% market share - just a hair under Arco. There are 1,414 Chevron units California and 724 Texaco outlets, with overlapping mainly in southern California. Equilon has about 16% of the market.
California Attorney General Bill Lockyer has said he will launch an investigation of the acquisition. Lockyer found in a study last May that six majors control more than 90% of the state's gasoline market, a lack of competition that has resulted in California having some of the highest gasoline prices in the nation, he said at the time.
The Shell-Texaco agreement may also allow Shell to keep one of the Texaco refineries on the West Coast as compensation for the refinery at Anacortes, Wash. it was forced to sell to Tesoro in order to get FTC approval for the Texaco deal.
Valero has already indicated interest. "I would hope that a refinery or two would shake out" of the deal, Valero CEO Bill Greehey said during a conference call last week. Ultramar Diamond Shamrock recently purchased Tosco's Avon, Calif. refinery and could also be a candidate for one of the Texaco plants - if it has cash available.
The CEOs of Texaco and Chevron have made no mention of how the merger would affect West Coast refining capacity but California is worried. The state is already expecting a 10% shortfall in gasoline supplies when new state gasoline specs take effect in 2003, making prices more volatile and imports more crucial. Prices in California, Oregon and Washington are already a target of antitrust investigation at federal and state levels.
The situation with Motiva could be different If Chevron were to swap Equilon's Texaco assets for Motiva assets in 26 Gulf and East Coast states, it could be ordered to divest one of the three refineries it would own -- Texaco's Port Arthur, Tex. and Convent, La. plants, or its own Pascagoula facility on the Gulf Coast. If Shell were to keep the Motiva assets, it would be unlikely to encounter FTC problems. If the merger wasn't complex enough, there's also the question of Saudi Refining's 32.5% stake in Motiva. If Chevron buys Motiva, are the Saudis to be compensated, or are they to be bought out of the Motiva and become part of Chevron Texaco?
Jobbers want to stay Texaco, despite its faults The news hasn't come as a surprise to Texaco marketers - such a deal had been rumored for several months and it was obvious to all that the joint venture that marketers dubbed "TexaHell" has been in trouble since it was launched in 1998.
"Our biggest fear is that Shell will get more outlets in some sort of buyout of Motiva assets," says a mid-Atlantic Texaco jobber. "Shell execs were behind the 'redlining' efforts for East Coast Texaco and Shell sites," he claims.
Says another Texaco marketer in the same region, "We'll take Texaco or Shell, but we won't stand for a sale that gives Tosco more units."
A Southeast jobber ranks Chevron several steps below both Texaco and Shell in his market. "Chevron doesn't have real marketing skills in the Southeast, and they don't have enough of a foothold in most markets," he maintains.
Despite repeated cost cuts, Motiva and Equilon never achieved their expected profits. For the first six months of this year, Equilon profits were a miserable $18 million or so, down from $30 million a year earlier. Motiva did better, earning $217 million, up from $20 million a year earlier. But analysts say it's still a poor return when Motiva's $6.6 billion worth of assets is considered. Only last week, Shell CEO Steve Miller said Equilon and Motiva would cut a further 15%-20% of their 23,500 branded stations over the next five years as part of a restructuring of the alliance companies.
Chevron a winner? Chevron would acquire Texaco in a stock deal worth $35 billion-$37 billion. But while the combined company would operate nearly 50,000 stations worldwide, it would still be less than half the size of ExxonMobil, based on revenue.
Chevron would swap a 0.77 share of its stock, trading at $64.87/share, for every share of Texaco stock, representing a premium of 18% over the $55.13 at which Texaco closed before the deal was announced. Chevron would also assume $7 billion of Texaco debt. The company will be based in San Francisco and plans to cut 4,000 jobs to save $1.2 billion a year. Currently, the two companies employ a total 55,000 people.
In June last year, Texaco rejected a better, $37.5 billion offer from Chevron, insulted by Chevron's then $70/share offer - Texaco thought its shares should be valued at $80 each. The two also clashed over who would run the new firm, with then-Chevron CEO Kenneth Derr insisting he should be top man. But Derr retired earlier this year. Under the new plan, Chevron chairman Dave O'Reilly would be chairman and CEO and Texaco CEO Peter Bijur would be vice-chairman.
Who has what Motiva and Equilon and affiliates Equiva Trading and Equiva Services operate nine refineries with a total capacity of 1.6 million b/d - making them the No. 2 refiner in the U.S. with a 9.6% share of U.S. refined product requirements.
As of the end of 1999, they had 23,500 Shell and Texaco stations and market share of about 14.5%, marketing in 49 states. They also ran 116 terminals, seven lube plants, 30,000 miles of pipeline, and traded 7 million b/d.
Equilon markets in all or parts of 31 western states, supplying 9,600 stations and is the fourth largest gasoline retailer, and the seventh largest refiner in the U.S., according to the company. Gross revenues in 1999 were $29.4 billion, with total assets worth $11.4 billion. Refineries: Bakersfield, Calif. (70,000 b/d) Los Angeles 100,000 b/d), Martinez (165,000 b/d) and Puget Sound, Wash. (145,000 b/d). It also operates seven lubes plants, owns all or part of 65 terminals, and operates or owns 30,000 miles of pipeline nationwide through which it moves 3 billion bbls/yr of various products.
Motiva markets under the Shell and Texaco brand in 26 East and Gulf Coast states, supplying 13,500 outlets, and is the third largest gasoline retailer in the U.S. Gross revenues in 1999 were $12.2 billion, with total assets of $6.6 billion. Its four refineries are capable of producing 825,000 b/d and it has ownership or partial ownership in 50 terminals. Refineries: Convent, La. (225,000 b/d), Delaware City (140,000 b/d) Norco Refinery (225,000 bd) and Port Arthur, Tex. (235,000 b/d).
Chevron has 7,900 outlets in 17 states and about 40 terminals and a refining capacity of about 820,000 b/d. Refineries: El Segundo, Calif. (273,000 b/d), Richmond, Calif. (240,000 b/d), Pascagoula, Miss. (340,000 b/d), Salt Lake City (49,000 b/d), and Honolulu (57,000 b/d).
And then there were none With the announcement that Chevron intends to buy Texaco, there are now no major oil companies left, as that term was once understood. In their place, marketers are presented with a quartet of behemoths - Shell/SaudiAramco, ExxonMobil, BPAmocoArco, and now ChevronTexaco.
The next purchase? It could just be Chevron-Texaco buying Phillips for its crude oil assets, some marketers believe.
Ironically, it was Chevron and Texaco that started the merger trend. In 1985, Chevron bought Gulf Oil and Texaco acquired Getty, and everyone said then that it was only because Ronald Reagan was president that such huge mergers were being allowed, Bassman recalls. Ten years later, in 1995, marketers still had an impressive array of suppliers to choose from - 26 in all. Exxon, Mobil and Chevron held the top three slots by asset-size. Amoco, Shell and Texaco came next, followed by Arco, BP America and Conoco, then Phillips, Coastal and Marathon, and Unocal, Hess and Ashland.
Who's left?
Phillips has made it clear it wants a joint venture for its downstream operations. Invested most of its net worth in buying Arco's Alaska assets from BPAmoco.
Conoco, spun off from parent DuPont, has plenty of cash and could buy Phillips - the two tried to do a joint venture before.
Coastal has largely withdrawn from branded marketing following its merger with El Paso.
Marathon-Ashland already merged, but Ashland has said it would like to out of the deal.
Unocal quit refining and marketing in 1997.
Hess growing through jobber JVs.
Sunoco not in good shape, acquisition target.
Citgo has no oil of its own, but is owned by crude-producer Venezuela.
Pennzoil and Kerr-McGee have gone, and Fina has been purchased by Israelis.
UDS bought Total Petroleum and Ultramar. Tosco is buying everything it can but may soon reach FTC's tolerance limit.
Murphy is mainly interested in its marketing deal with Wal-Mart.
Tesoro is a small, regional supplier.
Valero: Merchant refiner, it acquired Exxon's West Coast retail in FTC-ordered spin-off in order to buy Exxon's Benicia refinery. Previously purchased Mobil's Paulsboro, N.J. refinery. |
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