Talk of Unocal being an easy morsel for one of the big boys is not new. In January, Royal Dutch/Shell and China National Offshore Oil Corp (CNOOC) were tipped as potential bedtime partners for Unocal, the eighth biggest U.S. oil company.
The advent of ChevronTexaco is a variation on a theme, but one Slugcatcher reckons has the tongues wagging faster than usual and the cheque books flipping open very quickly on Wall Street.
Late last week, Unocal’s share price jumped by more than 10% on speculation of an imminent ChevronTexaco move. The stock soared by $US6.60 to $US60.10 on Thursday alone, talking the share price gain since January 1 to almost 40%, and valuing Unocal at more than $US16 billion.
That price, however, falls into the chicken feed category for big oil as it wallows in loose change. To put it into perspective it is less than 12-months earnings for BP and about six months for ExxonMobil.
In the case of ChevronTexaco, which posted a profit for 2004 of $US13.3 billion from sales of $US155 billion the Unocal market capitalisation is about 15 months worth of earnings.
Price, in the current oil boom, is not the issue. Reserves are, and for ChevronTexaco they have become a bit of an embarrassment.
As the Slug reads the numbers, ChevronTexaco ended 2004 with around $US11 billion in spare cash – nice!
But, in the oil reserves department, the cupboard was almost bare with tough rules which govern reserve replacement calculations achieving a ratio of just 18% -- in other words it produced far more oil and gas than it found.
Boffins and beancounters will argue till the cows come home about what is a both a fair and accurate system for calculating RRR. Slugcatcher, in the interest of never letting facts get in the way of a story, notes that an 18% RRR falls into the appalling category, not matter what spin the company PR man puts on the number.
Even when measured against its peers, ChevronTexaco is a laggard. ExxonMobil achieved 83% using strict U.S. standards, so it can at least argue that it’s going out of business slower. BP achieved 89%, which can also be described as disappearing slower again.
The point of looking at the RRR numbers, and then matching them against action on the Unocal share register, is that even the Slug can see something happening, and the finger points right at ChevronTexaco.
And, to finish off this observation, if ChevronTexaco does not do something (anything?) to dress up its appalling reserve performance, it might become a tasty morsel for someone even bigger because big oil has a common problem – how to find oil, and if it can’t be done in the ground, it will be done on the stock market.
