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. Last Updated: 07/27/2016

Mega Oil Merger Might Affect Russia




Chevron Corp. is reportedly discussing buying Texaco Inc. for about $42 billion in stock in a deal that would merge the third and fourth largest U.S. energy companies f both with projects in the former Soviet Union.


Both Chevron and Texaco have extensive involvment in oil projects in the former Soviet Union, although the impact of a potential merger on those operations wasn't immediately clear.


Chevron is involved in the Tengizchevroil joint venture operating the giant Caspian Sea region Tengiz oil field in Kazakstan. The company has a 45 percent share in the project allong with Mobil, Kazakoil and LukArco. Production is expected to reach 12 million tons a year, but transportation difficults have held profits down.


A 1,500 kilometer pipeline that would connect the oilfield with the port of Novorossiisk is expected to be completed in mid-2002. Chevron holds a 15 percent stake in the Caspian Pipeline Consortium leading the project.


Texaco has a 20% stake in the Karachaganak gas condensate field development project in Kazakstan. But the the joint venture with British Gas, Agip and LUKoil has not been very successful so far. The project operators have had trouble marketing the condensate in Russia, while transport costs to the world market have cut into margins.


Chevron also has a 30 percent stake in Azerbaijan's $3-billion Absheron oil project still under exploration in the Caspian Sea, formed in cooperation with the Azeri state oil company Socar, which holds 50 percent, and Total SA which holds 20 percent.


Chevron does not have any exploration or production projects in Russia, while Texaco has struggled with regulatory and political obstacles with several oil projects, including the Sakhalin 3 Kirinsky block production sharing agreement with Rosneft and Sakhalin Oil Co, and the the Timan-Pechora Co., a similar project in the Nenets region. Neither has pumped any oil.


The Wall Street Journal, citing unidentified people familiar with the talks between company officials, reported Monday that a series of meetings have taken place between the companies senior management, but the sides have not reached an ageement yet.


The Wall Street Journal said that the cost-cutting advantages of a Chevron-Texaco combination were not as clear as they were for other potential and completed mergers. Chevron and Texaco's CEOs have not ruled out seeking a merger, but have not said a merger is likely either.