ChevronTexaco seen taking big charge on Asian unit

Fri June 20, 2003 04:26 PM ET By Joseph Giannone

NEW YORK, June 20 (<a href=reuters.com>Reuters) - ChevronTexaco Corp. CVX.N will put dozens of oil and gas properties on the block as merger-related restrictions on asset sales expire this fall.

At the same time, a comprehensive business review by the company is expected to trigger a massive write-off in its overseas refining and marketing businesses.

Oct. 9 marks the two-year anniversary of the combination of Chevron Corp. and Texaco Inc. -- and the starting point for sweeping changes by the second-largest U.S. energy company. In August the company will unveil plans to divest assets and boost returns from exploration and production.

Some analysts say the company also may announce changes to its international refining and marketing business, comprised of its CalTex business in Asia and Africa and Texaco's assets in Europe. Changes may include the shutting down or sale of some assets.

Those assets have deteriorated in value since the merger, analysts said, and could result in a write-down of as much as $3 to $5 billion as early as this year.

"These assets are severely over-capitalized and of a quality and of a competitive nature that leaves something to be desired," said analyst Mark Gilman of First Albany, who has a "sell" rating on ChevronTexaco shares.

A spokesman said the company won't comment on its plans until its investor meeting in August, although ChevronTexaco executives have said sales would be on par with the $1 billion to $2 billion in assets sold annually before the merger.

Because ChevronTexaco used pooling of interests accounting for the merger, it has not been allowed to sell significant assets. At the same time, rivals have shed properties in North America and the North Sea, freeing cash for reinvestment in more promising regions, such as Southeast Asia, Africa and Russia.

Now, with those restrictions soon to expire, analysts said, the company will announce plans to shed properties in the United States, Canada, the North Sea and the Gulf of Mexico. Even in emerging hot spots like Indonesia, ChevronTexaco may divest some mature fields.

ChevronTexaco might also pull the plug on holdings in Colombia, Venezuela, Argentina and Brazil, where the company may lack sufficient scale.

This year the company has announced minor sales, including the disposal of 100 North American properties. ChevronTexaco also announced the sale of its stakes in a Papua New Guinea venture and a refinery in El Paso, Texas.

"It looks like the company may bite the bullet and take some write-downs," John Herold analyst Lou Gagliardi said. "They're being forced to take a hard look at their overweight exposure in the Far East."

That means even CalTex, formed by the two companies in 1936, is at risk. The division has 10 refineries and service stations in 60 countries across Asia, the Middle East and Africa, but many of its markets suffer from a glut of refining capacity and sluggish demand growth.

So, as painful as these steps may be, the company needs to convince investors it is taking all necessary steps to boost financial performance, analysts said.

"If the changes are seen as half-hearted, or not doing enough to reposition the company and boost profitability, the market will be disappointed," Herold's Gagliardi said.