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Except for the historical and present factual information contained
herein, the matters set forth in this filing, including statements as to the
expected benefits of the merger such as efficiencies, cost savings, market
profile and financial strength, and the competitive ability and position of the
combined company, and other statements identified by words such as "expects,"
"projects," "plans," and similar expressions are forward-looking statements
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties that may cause actual results to differ materially,
including the possibility that the anticipated benefits from the merger cannot
be fully realized, the possibility that costs or difficulties related to the
integration of our businesses will be greater than expected, the impact of
competition and other risk factors relating to our industry as detailed from
time to time in each of Chevron's and Texaco's reports filed with the SEC.
Chevron and Texaco disclaim any responsibility to update these forward-looking
statements.
Chevron and Texaco will file a proxy statement/prospectus and other
relevant documents concerning the proposed merger transaction with the SEC.
Investors are urged to read the proxy statement/prospectus when it becomes
available and any other relevant documents filed with the SEC because they will
contain important information. You will be able to obtain the documents free of
charge at the website maintained by the SEC at www.sec.gov. In addition, you may
obtain documents filed with the SEC by Chevron free of charge by requesting them
in writing from Chevron Corporation, 575 Market Street, San Francisco, CA 94105,
Attention: Corporate Secretary, or by telephone at (415) 894-7700. You may
obtain documents filed with the SEC by Texaco free of charge by requesting them
in writing from Texaco Inc., 2000 Westchester Avenue, White Plains, New York
10650, Attention: Secretary, or by telephone at (914) 253-4000.
Chevron and Texaco, and their respective directors and executive
officers, may be deemed to be participants in the solicitation of proxies from
the stockholders of Chevron and Texaco in connection with the merger.
Information about the directors and executive officers of Chevron and their
ownership of Chevron stock is set forth in the proxy statement for Chevron's
2000 annual meeting of stockholders. Information about the directors and
executive officers of Texaco and their ownership of Texaco stock is set forth in
the proxy statement for Texaco's 2000 annual meeting of stockholders. Investors
may obtain additional information regarding the interests of such participants
by reading the proxy statement/prospectus when it becomes available.
* * *
<PAGE>
[Transcript of Analyst Briefing - New York October 16, 2000]
CHEVRON-TEXACO MERGER EVENT
THE ESSEX HOUSE, NEW YORK
OCTOBER 16, 2000
------------------------------------------------------------
DAVID O'REILLY: Good morning everybody. Welcome to our
meeting. I'm Dave O'Reilly, Chairman and CEO of Chevron. And with me is Peter
Bijur, likewise Chairman and CEO of Texaco. And today we're here to talk about
Chevron-Texaco Corporation.
It is a very important day. I guess - I had a lot of things to
say but I've been reading about them in the paper this morning so I'm not sure
how much of this early part of the presentation is necessary, but I'm going to
do it anyhow.
So in the next 30 to 40 minutes I'll provide an overview of
the deal and present what I think is a very compelling story about this
combination which will increase our competitiveness, potential, capability and
profitability. And before we get on to today's agenda, for those of you who are
listening on the call or on the web, I will try to indicate when I change slides
so that you'll be able to follow the presentation.
And my first changed slide, is the Safe HarborStatement,
which I draw your attention to. It has all the normal words about
putting in proper context what I'm going to be covering today. So I draw your
attention to that and ask you to refer to it and remember that everything I say
today is in the context of that statement.
Let me start with the agenda. First of all we'll talk about
the strategic rationale for combining Chevron and Texaco to form this new
company, ChevronTexaco Corporation. We'll talk about the summary of the terms.
We'll talk about an overview of the two businesses and describe how well they
fit together. Then I'll turn to the financials of the combined company,
including discussion of the synergy. And then Peter will have some comments to
make near the end of the presentation, and then we'll have a question period so
that we can answer your questions.
<PAGE>
CHEVRON TEXACO MERGER
The Strategic Rationale. First of all, we're creating a second
U.S. based global energy company with industry leading scale, scope and skills.
As you'll see in a few minutes, we have a premier upstream portfolio, leading
positions in prime exploration and production basins around the world.
The combination will create a unified refining and marketing
business built around a family of three well-known international brands.
Texaco's power and gasification business and Chevron's 26% stake in Dynegy(sic),
give the combined company broader options for participating in the fast growing
power and energy convergence businesses. And the merger will certainly
strengthen the new company's capabilities and technologies, not only in our core
businesses, but also in the newer technologies, emerging technologies, the
internet and alternate energy.
The capabilities of the new company will be made stronger by
the combination of the skills and talents of both organizations - both
organizations focused on being a premier company and focused on number one
shareholder return.
Turning to the financial benefits. We expect upon closure of
the deal to achieve annual savings of $1.2 billion dollars, and rapidly achieve
that within six to nine months of merger completion. I am going to talk about
that later in the presentation.
The merger will result in accretive earnings and cash flow.
Immediately on the cash flow front and when synergies are achieved on the
earnings front, within six to nine months of close. The company also expects to
improve capital efficiency by funding the best growth opportunities of Chevron
and Texaco, resulting in improved ROCE over time. We think this deal is very
good for the shareholders. We'll be more competitive and cost efficient, leading
to better financial performance. We'll have a larger and stronger portfolio
which will enable Chevron and Texaco to better manage and absorb risk. And I
believe that as a result of that, the market will reward us with higher
valuation.
Let me turn to the transaction terms themselves. I'm now on
Slide #6. The deal
<PAGE>
CHEVRON TEXACO MERGER
is an exchange of stock with a ratio of .77 Chevron shares per one Texaco share.
We expect the merger will be tax-free to shareholders and the companies. The
exchange ratio represents approximately $64.87 for Texaco share, based on the
closing price of $84.25 for Chevron last Friday. The ratio represents an 18%
premium, based on the closing price on Friday, and a 24% to 25% premium, based
on the two companies averaged share prices over the last 20 to 30 days. The
principle conditions prior to closing are shareholder approval, pooling
accounting treatment and the receipt of required regulatory approvals of the
government agencies.
From a governance and management standpoint, the board
composition will be comprised of nine Chevron directors and six Texaco
directors. I'll be Chairman and CEO of the combined company. Peter will be Vice
Chairman, responsible for downstream power and chemical operations.
Dick Matzke, who is currently Vice Chairman of Chevron,
responsible for upstream, will retail that responsibility in the combined
company. The company will be headquartered in San Francisco.
We're committed to rapid integration. John Watson and Pat
Lynch from Chevron and Texaco respectively, will be responsible for planning the
integration and getting it implemented real early.
Let me now turn to the strengths of this combination. The
combined companies exploration and production assets will clearly be in the
league of the super majors. The fourth largest globally, with 11.2 billion
barrels of proved reserves and 2.7 million barrels per day of production. I
think this is a very compelling visual. If you look at where we are you'll see
that we have top tier positions in many areas of the world. They are shown in
these yellow circles. I am now on Slide #9. We'll talk more about North America,
South America, West Africa, Asia Pacific and the Caspian.
You can see also from the colors here, the white is Chevron
operations; the red is Texaco operation. You see that there's a lot of good fit
in the portfolio, providing opportunities for
<PAGE>
CHEVRON TEXACO MERGER
rationalization and synergy gains where we have operations side by side. You'll
also see that we're present together in growth areas, and I'll talk more about
that in the deep water Gulf of Mexico and in Brazil and in West Africa.
So we have complementary positions in many growth basins as
well as overlap and synergy in many of the mature and large operations around
the world.
Before I turn to talking about these in detail, let me draw
your attention to Europe, where we'll have 220,000 barrels of oil equivalent
production per day. In the North Sea, in the UK, Danish and Norwegian sectors,
with some good development opportunities and new exploration opportunities
there. Also in the Middle East. Texaco has operations in the neutral zone, which
they're continuing to grow successfully. We have the technical service agreement
on the Burgan Field in Kuwait and we both have a long history of association in
Saudi Arabia. As you know, we discovered the first oil in Saudi Arabia in 1938.
Our Caltex joint venture was really initiated around the need to line up a bunch
of marketing assets to deal with production from the Middle East and we have
well over 60 years of working together in this area. And we think this
combination enhances our presence in that area and makes us an even stronger
competitor for the long term.
What I would like to do now is turn to the U.S., where we'll
be the third largest producer. You can see from the chart here, the combination
will vault us into a very tight number three. Very good reserves position. We
will clearly be a number one producer in the Gulf of Mexico shelf, which we
already are. And this will make us even stronger there. The combined company
will have the largest acreage position in the deep-water Gulf of Mexico, with
existing production and future developments planned. The combined company will
be the largest and lowest cost producer in the San Joaquin Valley, which will
provide significant synergy value. We will also be a strong producer in the
Permian Basin. This will make us a very strong number two in the Basin, with
plenty of opportunity for synergy and growth and cost efficiency.
In addition to the San Joaquin Valley and Permian and the Gulf
of Mexico, we, of
<PAGE>
CHEVRON TEXACO MERGER
course, have good growth positions in Canada in the Jeanne d'Arc Basin, and
other exploration activities in off-shore Eastern Canada. The Fort Liard
exploration and production in the Northwest Territories, and we've recently
added some good lease positions in the McKenzie Delta, to strengthen our current
position and potential growth positions in gas in that area for North American
market.
So overall I think you can see we have a very strong position
in North America in the upstream.
Turning to West Africa. We're really excited about the great
position that both companies have in this area. We will be able to expand a
number of excellent near-term, intermediate and long-term growth
opportunities, building on an extensive infrastructure and a
large present production position.
Starting with Angola, we are the largest - Chevron is the
largest producer there and will be strengthened by the addition of Texaco's
exploration and production position. We have production in Block Zero,
production - the first deep-water production in Block 14. Texaco has existing
production and a number of great positions in potential - in exploration that
have yet to be developed and explored. So we'll have a very very strong position
and enhance our position as the number one producer in Angola.
In Nigeria, Chevron has a very strong position in production
in Nigeria, the second largest producer. Texaco is the largest holder of
deep-water acreage in Nigeria, so we have the near-term production, the
infrastructure in Nigeria, coupled with Texaco's very strong position in the
deep-water. They had a recent discovery which has been well-publicized as
Agbami. A development plan is underway. So you take our current and their
deep-water position, I think you can see there is tremendous synergy and
long-term strengthening position in that area.
We also have operations and potential in other areas of West
Africa. Our participation in the Chad-Cameroon project, which will come onstream
in 2004. Our existing
<PAGE>
production in both Congos, the Democratic Republic of Congo and the Republic of
Congo. Gas discovery in Kutu in Namibia(sic), and exploration in Equatorial
Guinea which we recently acquired the rights to in the past year. So overall, a
very very strong position in West Africa and one that we think not only offers
good near-term potential but also long-term growth potential as well.
Now if we were strong in West Africa, we're even stronger in
the Caspian. The combined company solidifies Chevron's existing premium position
at Tengiz. Tengiz is now operating at 260,000 barrels a day, with Train 5 up and
running. We're intending to expand it to 700,000 barrels a day of production by
the end of the decade. The CPC pipeline is under construction and will be ready
to start up and ship oil in July, 2001.
Texaco brings its presence in the Karachaganak field, a 16 TCF
and 2.4 billion barrels of condensate reserve asset. They have contracts
recently to build a link from there, a pipeline link from Karachaganak to the
CPC pipeline, joining at Atyrau. We also have a good position in Absheron. We'll
be drilling our first well in the Azeri sector in 2001, right next to Shake
Deniz. And Texaco has a reactivation project at Buzachi(?), North Buzachi, a
heavy oil project just south of Tengiz.
This offers a wonderful opportunity to integrate the skills
and technology of both companies. We have a tremendous experience in the
logistics and marketing of crude very successfully from the Tengiz project,
which will be enhanced by the completion of these pipelines. And we think we can
add considerable value to Texaco's existing position and growth positions by the
combined skills of the company and our expertise in crude oil and product
marketing and logistics, as well as our relationships in the area.
So this really solidifies our leadership position in the
Caspian.
We're also excited about South America, positioned for growth.
Chevron is already the number one foreign producer in Venezuela. The Boscan
field is operating at 115,000 barrels a day. We're growing production at L-652,
in Lake Maracaibo. Texaco is a 30%
<PAGE>
CHEVRON TEXACO MERGER
participant in the Hamaca(sic) heavy oil project in the Orinoco belt. That
project is expected to initiate production in 2002, and ramp up 260,000 barrels
a day in 2004. It's a very solid, strong position in Venezuela, again one that
we can grow from and make even more profitable.
Brazil is a wonderful opportunity. You know Texaco has five
blocks and Chevron four blocks, that is nine deep-water blocks we're
participating in. We're operators together of four of those nine. We've an
active drilling program which, beginning this year, 2001, and I think this
represents a tremendous opportunity for upside, based on these attractive
prospects in the deep-water off Brazil.
Chevron has got a good position in Argentina. Our San
Jorge(sic), operation continues to grow and prosper. We're one of the top
producers in Argentina.
We also bring a gas position collectively in South America.
Texaco's participation in the Dolphin, one TCF reserves opportunity with
production that will grow in the next few years. There are operations in
Colombia, where they operate gross production of 400 million cubic feet a day,
day-to-day. And our San Jorge operation, particularly with the gas prospects and
growth from the Austral Basin in Argentina. So we have a growing gas position in
what's thought to be I think a very good area for long-term economic growth,
which will need that gas for its further economic development.
Asia-Pacific. We really got a set of oil opportunities, as
well as gas opportunities in Asia-Pacific. We start with Indonesia. There is a
tremendous benefit I think to unified ownership of Indonesia. We are producing
almost 750,000 barrels a day of oil and we will certainly be able to do that
more effectively and more efficiently with a unified company.
We also have tremendous position in China. We've had by far
the most successful, both companies together, the most successful operation in
off-shore China in the South China Sea. And we can build on that success from
our position in the Bohai(sic) Basin to the north where we have both active
exploration and producing programs. Texaco has recently had a discovery in the
Bohai Bay and we have a very active exploration program. Together we
<PAGE>
CHEVRON TEXACO MERGER
think we can leverage those two programs and grow a very attractive area for
long-term oil production and right adjacent to the biggest market in the world,
where there is likely to be lots of growth.
We also bring in Asia an enormous gas opportunity. We have
world class positions in the Northwest Shelf and in the Gorgon(sic) Complex,
where combined we will have 75% equity. Some of this is already tied to the
Northwest Shelf production. You probably recently heard about the MOU, which has
been signed, which we believe is the first critical step to constructing Train
4, in the Northwest Shelf. And the long-term position in gas right in the middle
of that Asian market, I think is a very good position for really long-term
growth for both companies.
We have, Texaco's involved - 45% equity in the Malampaya(sic)
Project, in the Philippines, which will be coming onstream in 2003. And, of
course, last year we acquired the position in the Gulf of Thailand where we're
growing gas and oil production, really focused on the gas market in Southeast
Asia, Thailand in particular.
So as you can see from this combined upstream picture, I've
given you the highlights. This is a very strong position and we're very pleased.
We think it's a leading position in many of these key areas. As you can see,
there are some areas where we have overlap, clear synergy, cost optimization,
technology optimization and there are some clear areas where we're complementary
positioned with good growth opportunities for the long-term.
What I'd like to do now is turn to the global R&M business,
refining and marketing. Let me talk about the portfolio for a minute. The
combination will create a unified refining and marketing business built around
the three key brands - Texaco, Chevron and Caltex. This chart, if I could just
show you a couple of things.
First of all, down here you'll see the - at the bottom
lefthand side, I guess we're on Slide #15 now, for those that are following
off-line. The dots, the white and red and yellow dots show where the refineries
are. White for Chevron, red for Texaco, yellow Caltex. The dotted
<PAGE>
CHEVRON TEXACO MERGER
circles, white, red and yellow, show the retail marketing areas. Now you can
see, for example, that both of us obviously have presence in North America, in
the United States. You see the strong position that Chevron has on the West
Coast, in the Southwest and then Texaco's presence in the two joint ventures
that they're involved in.
Texaco is a very vibrant and successful refining and marketing
business in Central America and in South America. A good position in Northwest
Europe. A marketing operation in West Africa. You can see Caltex's presence in
Southeast Asia, East and South Africa and the Middle East. So this is an
orientation of what we have. Now what's not shown on the chart, of course, are
the combined companies' presence globally in lubricants, aviation, marine
fields, marketing and global trading. So there are lots of - there's a lot of
presence here, and on the top right-hand side you can see the combined sales and
the combined refining capacity from both Chevron's and Texaco's interests,
including Caltex.
Now we do anticipate that the FTC will require certain
divestitures in the U.S., in order to address market concentration issues and we
intend to fully cooperate with the FTC in that process.
Let me turn now to the integration potential of this combined
R&M business. Clearly we have three wonderful brands to start with, Texaco,
Chevron and Caltex, and we certainly intend to lever those brands to our mutual
benefit. Clearly by integrating the operations of Caltex the combined company
will be able to realize major efficiencies from streamline decision-making and
simplified governance. The merger will also allow a global enterprise approach
to those products and businesses where it makes sense, such as lubricants,
trading, international markets and international customers.
For example, in lubricants we have two very strong brands -
Texaco's Havoline, which is very well known in the automobile market, and Delo
which is well-known in the heavy truck market. We have a very successful fuel
and marine lubes business, that we operate on a joint venture, that we will be
able to simplify and integrate better. And obviously in the area of
<PAGE>
CHEVRON TEXACO MERGER
trading and other activities we will be able to do a much better job at what
truly is becoming a more global business.
We will also be able to leverage the new company by our brand
presence in supporting the activities of upstream and the gas and power
business. So we think there's a lot of merit to this combination in the
downstream side of the business.
We will be represented in the chemical business. Turning to
the next chart by the new Chevron Phillips Chemical Company, which started up on
July 1. It is a very strong position in worldwide production of ethylene,
polyethylene, styrene and parazylene(sic). This chemical joint venture will be
our mechanism for getting into the chemical business and supporting our
operations throughout the world from a chemical perspective.
The company became official and operating in July. It's
successfully beginning its integration process and we're optimistic that this
will put us in a very strong position to deal with the chemical business in a
synergistic way moving forward.
Turning to gas and power. As I mentioned at the outset,
Texaco's power and gasification business and Chevron's 26% stake in Dynegy give
the combined company broader options for participation in the fast growing power
and energy conversion business.
Texaco has a good gas and power business. A number one market
share in gasification technology. It has 69 plants under license, operating or
under construction. Dynegy has been Chevron's vehicle to participate in this
growing business, with a 26% interest. Dynegy has a large presence in the gas
and power convergence business, particularly in North America and it's
successfully executing its growth strategy. So we see opportunities for
continued growth in this area as a result of the combination.
Technology. Here's another area where we clearly strengthened
the combined companies. The merger will allow us to bring leading technologies
from both companies applying it not only to our core business but to emerging
technologies as well.
For example, we're well acknowledged as a leader in reservoir
management and
<PAGE>
CHEVRON TEXACO MERGER
we both bring expertise in visualization technology to reservoir management.
Texaco is a leader in licensing gasification technology and
we're a leader in hydrocracking(sic). The combined company will also have a
broader portfolio in emerging technologies and alternate energy. Chevron's
Sasol(sic) joint venture in gas to liquids, for example. And Texaco's ownership
in Energy Conversion Devices, which brings them into that energy conversion
battery and related businesses.
So we think there's a lot of synergy in new energy products,
new energy trends.
We also have stepouts. We're partners in Petrocosm(sic) in the
e-business area. We are participating in many B to B ventures and we have a
successful venture capital fund which is investing in new technologies, not only
in the internet area but also in material sciences and biological sciences,
where we think they are linked to our core businesses and can add value
improving the technology of our businesses in the process area. So we think we
bring combined technology strengths to the business.
Let me turn to a very important, I think, part of this
combined company and that is the people. We both bring diverse talented people
that have a lot of experience in this business to one company. We've a strong
leadership record of executing key strategic goals and delivering on results. We
will certainly apply our four plus one operating principles to improving the
performance of this company and those are operational excellence, which is a
clear focus. We've got to operate well, safe, reliable, efficient operations.
Cost reduction. We've had a long track record of improving
cost structures and we can see further opportunities through this merger.
Capital stewardship. Making good quality decisions and
executing those well. Very critical to our success in a capital intensive
business. And, of course, all of that combined and profitable growth.
The key here though is the hearts and minds of both
organizations and applying the skills and learning together to apply those
skills better to be world class in each of those four
<PAGE>
CHEVRON TEXACO MERGER
areas - operational excellence, cost reduction, capital stewardship and
profitable growth. And we believe that we have the assets, technology and people
to be number one through that mutual commitment to excellence and to achieving
number one performance and resulting in number one shareholder return.
Now I want to turn to some of the financials. This slide shows
the key financials. And all we've done here is combine first half results for
the year 2000.
Now you can see that the combined company has the ability to
generate strong earnings and cash flow. Now for the accountants in the group,
you're going to notice that one plus one doesn't add up here very well and
that's because Caltex has been carried on an equity basis in each of our
reporting books, so when you consolidate Caltex and take it from an equity basis
to a full accounting basis, you kind of get some one plus one equals more than
one, and every now and then a little bit less than one. But I'll leave it up to
the accountants to explain all that to you.
The important point though I think is that if you add up the
income that adds up to the right number, that's a good start. Because you'll see
the cash flow comes out even higher when you combine the two companies. Debt
comes out higher too when you combine the two companies. So believe me, the
numbers, even though they look wrong are kind of right.
Now I want to make a couple of comments about debt. It's clear
that these numbers will show some improvement at the end of the third quarter
and going forward because of the strong cash flow generation that we're
experiencing and we are certainly committed and expect fully to see this
combined company achieve a double-A credit rating, which is Chevron's current
credit rating.
Also I want to mention that in the ROCE line, you'll see that
because of the consolidation we have that same effect. You don't see the full
kick at the initial - and this does not show the benefit of the synergies yet.
So we expect that the ROCE obviously will improve with the achieving synergies
and we have the great opportunity then to improve ROCE even further by
<PAGE>
CHEVRON TEXACO MERGER
improving our capital stewardship, and high grading our projects. We'll have a
lot more choices that we can make, and with the achievement of the synergies of
$1.2 billion, we expect the ROCE to significantly improve within six to nine
months of closure with upside - considerable upside beyond that.
Turning to synergy on Slide #22, for those who are following
on the phones, I have a high degree of confidence that we can achieve the $1.2
billion dollars that we set out to do here. You'll see that $700 million is
estimated to be in the upstream. And I think you can see from the slides that
show where our assets are around the world, that there is a lot of opportunity
in this area to high grade the portfolio, and also to gain synergies from cost
reduction and more effective operations where we operate side by side.
We will see savings in other operations. About two-thirds of
the $200 million in other operations is in the downstream and the balance is in
the rest of the operations, and $300 million at the corporate level.
We expect 4,000 jobs will be lost out of the 57,000 combined
two companies, and that includes Caltex. That number represents about, as it
says in the press release, about 7% of the combined numbers of the combined
employee counts of the two companies. And we expect about a billion dollars one
time cost to achieve those synergies. So this we think is achievable. It's clear
that we have overlaps in many key areas and we're committed to getting those and
getting them fast.
I'd like to turn to that subject right now. We do believe that
we have an advantage here in integration. We have historic association. We've
worked together in joint ventures. I've mentioned - not only in Caltex, but we
worked together in the Middle East. We worked together in China, in Australia.
We have the fuel and marines joint venture. We cooperate and work together in
places like Nigeria. So we have a lot of opportunities where we have overlaps
and experience in working together.
We have significant systems opportunities. When we went
through the Gulf
<PAGE>
CHEVRON TEXACO MERGER
merger, one of the big problems we had 15 years ago or so, was merging systems.
The good news here is that we're on SAP, as our accounting and transaction
system and Texaco will be, I think, on January 1. So here is great opportunity -
this is a barrier that won't be quite as big in this merger.
And we have a history of cost cutting. We've both been very
successful in reducing our costs over the last few years and we can carry
forward that as we move forward together in this - as well as the experience we
bring from prior mergers. So I have a high degree of confidence that we can
accomplish this. In fact, I think there is an advantage here because we know
each other so well.
What I'd like to do before turning it over to Peter is to hit
on a couple of important points in closing.
As you can see from the chart and from our history, we are
historic partners. We have a lot in common. There is an excellent strategic
and geographic fit. This combination will provide integrated operations across
all energy markets, and hence, competitiveness around the world. Clearly,
we will improve our financial strength and flexibility. And we have two teams
of organizations that are going to become, and are already, talking like
one team and committed not only to excellence in this business but to achieving
superior returns, high profitability and clearly being the number one performer
from a shareholder's standpoint in this business.
And before we turn over to questions I'm going to turn the
podium to Peter, who has some comments. Peter.
PETER BIJUR: If there was ever a deal to be done in the
energy industry, if there was ever a consolidation that should take place, this
is it. We've been partners since 1935. We know each other better than any
other two companies in the industry know each other. We have the best
complementary assets of any two companies that have come together. David showed
you the compelling reasons why this is a great deal. It makes good
sense in the upstream. It makes good sense in the downstream. It makes terrific
sense in the midstream.
<PAGE>
CHEVRON TEXACO MERGER
At the very foundation of why we're doing this is because
David and I share a common vision and that is to put together the greatest
company in the world, to grow shareholder value, to take advantage of the
absolute brilliant talent that exists in both of our companies and to turn this
into a juggernaut, if you will, for successful earnings, cash flow and the use
of assets that we have.
David described the tremendous fit in the upstream between the
vision that Chevron had in getting into Kazahkstan(sic) early in the game. The
vision that they had even back in 1984, when they acquired Gulf(sic), and got
wonderful assets from the West Coast of Africa to what Texaco has been able to
do in getting itself now involved in mega-projects in the international arena
that will support for a long time into the future the production, the cash flow
and earnings of this company. This is a brilliant fit.
In the downstream part of the business, Caltex sits in an area
of the world that has the greatest growth potential. You saw how quickly the
Pacific Rim was able to recover from the problems that they had, the economic
problems that they had in 1998. That's just an indication of the true strength
of that part of the world. And we're blessed, our companies, by virtue of the
fact that we have outstanding representation. As David said, in Australia, look
at the gas potential that we have between Gorgon(sic) and between the Northwest
Shelf projects, these are tremendous assets that together we're going to be able
to make a very substantial amount of money out of it as we sell that gas into
the growing Pacific Rim market.
But consider as well the positions that we have in Indonesia,
in Thailand. Consider what we have in the downstream part of that business. In
Korea, in Thailand, all over the Caltex area with a brand that has been in place
and well-known since 1936.
Our European downstream assets, where we operate, are very
competitive and very profitable. Looking at our downstream in the Latin American
markets, we're either the number one or number two marketers wherever we
operate. Very strong position in the Caribbean, very strong position in the
retail market in Brazil, one of the real growing markets in
<PAGE>
CHEVRON TEXACO MERGER
Latin America.
So I think if you look at the fit between the two companies,
it just doesn't get any better than this. The U.S. obviously, were going to face
regulatory issues and we're prepared to face those regulatory issues. That's
just something that we're going to have to do to take advantage of these great
growth opportunities in bringing these two companies together.
I think this is a very good deal for Texaco shareholders.
We're getting a reasonable premium for our assets and our business. We're
joining with one of the great companies in the world and we're going to put
together the finest management team in this industry. I couldn't be more excited
and more pleased for the new company, Chevron- Texaco and what I think we're
going to be able to accomplish.
So with that I'm going to sit down and we'll take your
questions.
DAVID O'REILLY: If I could, we're trying to self-moderate
here and we'll do the best we can. If you'd wait for the microphone to come and
identify yourself, because we have people that are listening in and it would be
very helpful if you would do that and be patient with us. So, Paul.
PAUL: Thank you Peter. First I want to congratulate you guys.
DO: Paul, will you identify yourself for the listeners.
PAUL CHENG: Paul Chan, Lehman Brothers. First, Dave and Peter,
I want to congratulate you guys on a great combination that is both logical and
strategically significant. Just one question in my mind. This merger seems to be
more for the future growth than anything and from that standpoint when you look
at the future combined company what perhaps maybe the most significant and
important competitive edge that you may have to allow you to capture more than
your fair share of lucrative growth opportunity?
DO: There are really a few. The most - some of the most
obvious would be the deep-water position that the combined entity will have in
West Africa, Brazil and the deep-water Gulf of Mexico. Clearly, we also have a
great position and a history of working together in the
<PAGE>
CHEVRON TEXACO MERGER
Middle East. So as the Middle East opens up, as it undoubtedly will, we are
better positioned in this company to deal with that.
Thirdly, obviously, in the near-term, we have tremendous
synergy opportunities that will allow us to gain profitability, financial
flexibility and strength to deal with investments for the long-term, as well as
generating near-term and intermediate term profitability. So that all combined,
I think, gives us an edge, as well as the ability to rapidly integrate the two
companies because we know each other so well, we've done a lot of thinking about
this and we think we have a real competitive edge in that area as well.
DO: Next please, Fred.
FRED LEUFFER(SIC): Fred Luther at Bear Stearns. Let me add
my congratulations as well David and Peter.
A couple of questions if I may. I know you'll have a lot of
questions. But you listed in the slides that pooling treatment is a condition
to closing the deal. Are there any issues that stand in the way from you getting
approval on using pooling? And if you don't, is this something that could
cause the deal not to go through?
And then just secondly, maybe if you could talk to us a little
bit, it may be premature, but regarding how you might proceed with dispositions.
The, I guess obvious overlap of concern for the FTC, will be the West Coast,
refining and marketing situation. And Shell has indicated that it would really
like to reduce its exposure to refining over time. Against that backdrop, maybe
you could give us some idea of how you might want to proceed with dispositions?
DO:: There are two questions. On the first one, we're very
confident that this deal is pooled and it will be. We're highly confident. We've
looked at it and we're satisfied that will occur. It's clear that we have
overlaps on the downstream, on the second question, we will obviously deal with
the FTC on that issue. They will have some concerns we'll have to address and we
anticipate that we can successfully resolve that by working effectively with the
FTC.
<PAGE>
CHEVRON TEXACO MERGER
Thank you.
MATTHEW WARBURTON(SIC): Good morning. Matthew Warburton from
UBS Warburg). Again, congratulations. Two questions. On the savings, you talked
about the operational savings, can you give us any understanding as to how the
combined capital expenditure of the group may be reduced as a function of coming
together? And secondly, just a point of clarification, do I assume therefore the
share buy-backs that the companies have been undertaking up till recently are
now suspended to comply with pooling?
DO: Well on the second issue, I can assure you they have been
for obvious reasons. So back to the first one though. The question there is
capital savings -- let me start with exploration. We see a tremendous
opportunity to improve our exploration of the two companies. We're essentially
doubling the number of opportunities we have. By bringing the combined knowledge
and technical capabilities of both companies to our exploration programs we
should be able to select better and with a higher degree of success from that
broader portfolio. We clearly will be able to leverage both companies'
infrastructure, exploration infrastructure and capital expenditures and reduce
the input effectively per successful barrel because of our optimizing our rig
utilization. We both have rig activities, we have technology, we have well
technology, well completion know-how that we can bring to the party from both
companies. So that is just one example.
So I would expect that, coupled with greater emphasis on
capital stewardship by both companies, by applying good process to allow us to
grow this company on a leaner capital base and still be very successful in
meeting all of our other objectives. Thank you.
: Yes please.
STEVE PFEIFER(SIC): Steve Pfeifer with Merrill Lynch. Just a
follow-up there on the exploration spending(sic)..slide list have $300 million
dollars of savings, is that primarily reduced capital spending? Or is that more
operational in terms of head counts and things of that nature? And my second
question. I think there has been some news today on the joint ventures
<PAGE>
in terms of discussions beginning with Royal Dutch. Could you just maybe bring
up to speed on where you are in terms of discussions one, and two, could you
maybe talk about the difference between the East Coast joint venture and the
West Coast, since from a regulatory position it would appear that the West Coast
would be very problematic. Is there perhaps a better position on the East Coast,
where you may be able to do something different?
DO: Let me address the first question and then Peter will
address the second one. The $300 million combines a lot of things. There are
operational savings in the $300 million. There are technology savings, there are
better utilization of rigs, better well completions and hopefully, better
capital efficiencies. So it's a combination of three. That's about as well as I
can answer it. It's a very reasonable percentage though of the combined
exploration budgets of both companies. It is in the 25% range or so of the
combined budgets of both companies. So we think this is very achievable without
compromising in any way our growth prospects.
And on the second question -
PB: Steve, there's not a lot we can say about that right now.
Shell said in their statement this morning, and we have said as well, that there
are discussions that are now underway with Shell and Saudi Aramco concerning the
interests that we have in both Equilon(sic) and Motiva(sic). But this is going
to be subject to the FTC's review and we're going to have to be guided by the
FTC here. And there's really not much more I can tell you about that right now.
: Next one is Al. Please.
: On Caltex...
DO: Will you identify yourself for the outsiders, thanks.
AL ANTON(SIC): Al Anton...heimer Company. With regard to
Caltex, it's a great company but it has been, I think, a disappointment to a lot
of people and with the management shifts. You have had a management hire at the
top level who looked at the company and then presumably walked away. What can
you do as a 100% owner that you couldn't do as two 50% owners.
<PAGE>
CHEVRON TEXACO MERGER
DO: Well let me point out that Peter and I have spent a lot of
time working at Caltex together over the last six or nine months. This is very
important to us. And I think, first of all, you've got to keep in mind that
we've gone through a remarkable change in Caltex. We have changed the
management. We've moved the headquarters to Singapore. We've done a lot of
rationalization and positioning. And so to say that we're disappointed in it I
think would be unfair because we've taken a lot of steps this year. It's in a
very difficult market, as you know. You see our results more clearly because of
the way Chevron, for example, doesn't have a lot of international downstream, so
when you look at our international downstream, you kind of see what Caltex
performance has been. Others don't have quite that same exposure in the way they
disclose their international downstreams.
So I don't think anybody is doing very well in those markets,
given one of the primary issues in Caltex and in that whole area is the ability
of recovering the price in the marketplace, because you have either real price
control or de facto price control, where the national oil company kind of is
encouraged or guided by the government to maintain certain pricing posture,
which makes it a very difficult place to operate in a high or increasing crude
price environment.
The good news is the economies are turning around, as Peter
mentioned earlier in his remarks. And Caltex, our focus here is to have Caltex
well positioned. And we think in the basic R&M business they will be
well-positioned to take advantage of that.
The other important point though is that where we can add
value in unified management of Caltex is in the products that truly need to be
managed on a global basis, like lubricants, like trading of products and crude.
We think we can add significant value there and be more efficient as well.
So we see pluses on the things that we should manage globally, and we think
we're positioning the company well for growth and prosperity once the Asian
economies turn around and we get into a more reasonable balance between product
pricing and crude.
<PAGE>
CHEVRON TEXACO MERGER
STAN HARBISON(sic): Stan Harbison ... Scudder Stevens Kemper.
Both companies in the last 12 to 18 months have made fairly clear strategy
statements about either slowly or not so slowly exiting the U.S. E&P. And I
think by that you meant onshore or mature U.S. E&P. There have been sales by at
least one of you this year - you will be pound for pound the most leveraged U.S.
EMP on the completion, as you've stated it, I think, of all the major companies.
And you didn't mention anything about that prior strategy goal. What's going to
happen with U.S. E&P?
PB: I don't think this is inconsistent Stan the positions
that we've taken. Texaco has been involved, as you know, in some divestitures
of properties in the U.S., that heretofore were very profitable and today
They're beginning to play out. And I think that's the right strategy for our
company. I think it's going to be right strategy for the new company as well.
But remember that the U.S. is an exceptionally good place to do business. We get
good margins in the U.S., we have good opportunities still in the U.S., and I
wouldn't want to rule the U.S. out for any reason as being one of the best
places to do business anywhere in the world.
DO: If I could build on that Stan. Your comment is correct
about the mature and inefficient(sic) fields. We have done a lot of
rationalization in Chevron from 4,000 fields down to a core of just a few
hundred. But it's a constant transformation of shifting the portfolio from
mature declining opportunities to stable or growing opportunities where we can
get economies of scale. And if you look at our current structure, we have never
said we're exiting the U.S. upstream. What we have said is we're focusing on key
assets, rationalizing the portfolio which we've done. We've got a core asset in
the Gulf of Mexico Shelf, 40% bigger than most of the competition or more. We
have a core asset in the San Joaquin(sic) Valley. We have a good core asset in
Permian Basin(sic), which is very efficient. We have deep-water Gulf of Mexico
growth potential as well as in North America, the rest of North America growth
potential in the Fort Liard(sic) Northwest Territories, McKenzie Delta area, and
off-shore Eastern Canada.
So what we have done is really focus on the core assets.
We think those core
<PAGE>
CHEVRON TEXACO MERGER
assets are very important. There is an opportunity to continue to improve our
cost structure(sic) and our efficiency in those areas. The gas market is
obviously helping us a lot as well from those assets. And if you combine that
with the long-term growth, the U.S. isn't off the table by any means. The U.S.
needs energy. It is very important that this company will be well positioned to
provide energy to the U.S., by not only doing it inside the U.S., but also
outside the U.S. to help the global markets and improve the supply to the U.S.
So we think this is a good balance here between U.S.
production and international upstream production as well.
Thank you. Here please.
JACK AYIDIN(SIC): Jack Ayidin from MacDonald Investment. I'm
looking at the cost cutting of $1.2 billion that is to be achieved over six to
nine months. Is this a soft number? If you look down there, about two years,
three years, assuming you achieve - you know you acquire the company - you know
combine it, what kind of cost saving we could look for from capital expenditure
and assuming that divestiture take place, what kind of saving we could see? Even
on the production side your operations are complementing each other. What are
the potential you see in cost saving?
DO: Well we put up a number Jack that we are confident that we
can deliver. We intend to deliver that. We intend to deliver it in that time
frame. These gentlemen here, John and Pat, have been given the job of leading
the integration effort and I would be very disappointed if they don't meet or
exceed those expectations. I fully expect them to do better. But we're
committing to $1.2 in that time frame and we think we've got upside. But without
getting the merger integration teams working in detail on this, it's hard to
predict how much more or when. But we think there's great opportunity.
GENE NOWAK(SIC): Gene Nowak of ABN-AMRO. This question is
directed to Mr. Bijur. You spoke very glowingly about this combination, which I
concur with. However, a year or so ago you rejected an offer from Chevron.
What's happened in the last year to change Texaco's position?
<PAGE>
CHEVRON TEXACO MERGER
PB: Well Gene, I think we've got a lot more experience today
than we had a year ago with the super majors and what it means to have that kind
of size. The industry has continued to evolve and we've been evolving with it.
And I think a year ago the timing, the circumstances, the situation just wasn't
right for that deal. There wasn't a deal a year ago but there is a deal today
and it creates really a very significant company here in the United States and
around the world. We are not looking back at all. We're looking forward and
we're looking forward to what I think is going to be just a tremendous
combination.
DO: By the way Gene, I agree with Peter's observation. You
only make a deal when you have a deal and we have a deal now and his point is a
very good one.
TOM SCHMIDT(SIC): Tom Schmidt, Alliance Capital. What's the
break-up fee, number one? Number two, what's the new production growth with the
combined entity? And number three is the JV(sic), in the refining marketing,
would you consider melding(sic) Chevron in to the JV or is the JV considered a
long-term entity in the U.S.?
PB: I'm sure David will answer the first two, I'll answer the
last one. That is a matter to be reviewed by the Federal Trade Commission,
that's all we can say about that.
DO: You asked a lot of questions. The break-up fee,
production growth were the other two questions I think. Break-up fee is up to
one billion dollars and it will be in detail - we filed the documents, it will
be available to you on the web. You can see the terms and the details.
The production growth, we're going to have to sit down and
have the integration team look at our production growth plans before we give you
a number on that. We have not yet had a chance to look at that opportunity but
we certainly, at the time that we put the two companies together, and closed the
deal, we will be disclosing what our production growth plans are at that time.
PB: There is a question over here.
TIM GARY: Tim Gary from Okasett(sic) Management. I was a
little bit confused about the $1.2 billion dollars of savings. The first
question is this all cost savings or does it also
<PAGE>
CHEVRON TEXACO MERGER
include some kind of revenue enhancements in those numbers?
DO: The $1.2 is on the cost and efficiency side of the
business. Revenue enhancements we have not taken any credit for in this.
There is a follow-up and then we have a question down here.
TIM GARY: In the follow-up question. Is the $1.2 billion,
will all that show up on the income statement or are there some capital savings
as part of the $1.2 ...
: Could you repeat the question, I'm sorry.
TIM GARY: In the $1.2 billion, will all that show up on the
income statement or are there some capital costs savings built into that number
that actually show up in the balance sheet?
DO: There will be some capital savings that will show up as
depreciation. So it will show up one way or another on the income statement.
But these are all cost oriented. Thank you.
We're going to take a question from the outside? Could you
hold back for a moment. We are going to take a question or two from the
telephone lines and then you'll be next. Is that okay? Thank you.
(INAUD.)
: Hi David and Peter. Just two quick questions for
clarification. First of all, as discussed, (inaudible because voice is
continually interrupted). I am wondering if you can give us some quantification
of what incremental improvement of return on capital ... might be beyond the 12%
that you have stated previously?
And secondarily, you spent quite a bit of time talking about
opportunities in the upstream, yet if you look at a merger synergy, over half of
that is going to come from upstream. I'm wondering, what is the take away
message on upstream? Are you going to increase your capex fairly dramatically
after the first year of the combination? Or are you going to have a very
cautious outlook for upstream Capex X(sic)?
<PAGE>
CHEVRON TEXACO MERGER
DO: Well let me kind of start with the last question. It isn't
coming through very clearly but clearly we're going to get better capital
efficiency out of this venture. We're going to be able to select not only
selection but a more efficient deployment of capital. So I anticipate that our
growth profile, our barrels will grow with less capital input. And beyond that
it's hard to speculate because we still have to do the details of the planning.
I think your other question was about ROCE and it was getting
cut off. I didn't quite catch - I heard a reference to 12% in there. Maybe I
should put that in context. That 12% that Chevron, that I've talked about from a
Chevron perspective has been the minimum at flat prices that we will achieve in
a growth scenario under ...
(END SIDE A, START SIDE B)
...turning capital employee growing. Obviously, there's a book adjustment you
have to make. It's merely accounting as you consolidate Caltex into our combined
balance sheet and income statement. When you've accomplished that though, the
going forward prospects are very good because we're going to get synergy gains,
better capital efficiency and more profitable growth. So I see ROCE going up
with time and that will become much more clear to you, I guess, when we actually
combine the two companies and communicate how we're going to go forward at the
time we close.
Q: (Previous questioner): But you can't quantify the impact
of ROCE incrementally how many percent?
DO: Well if you start from this, the new basis, we're going
to get a half a percent ROCE improvement just through the synergies alone.
The known $1.2 synergies. As we apply better management
processes and more efficient management processes and better selectivity to our
capital program, it will undoubtedly improve on that as well. Thank you.
Q: (Can't get name) Can you be a little bit more specific as
to how much you think this will improve your return on capital employed(sic)
versus as it would have been on a stand alone basis?
<PAGE>
CHEVRON TEXACO MERGER
DO: It's going to be better than the starting point. It's
going to improve. To quantify it, because of the consolidation accounting is
very difficult to do, but let me put it this way, as I said before, we will
immediately get an improvement upon achievement of synergies of .5% to .6% ROCE,
and there will be more to come as we apply capital efficiency and disclose our
plans going forward at the time that we close.
DO: Okay, have we got a question in the room. Back here,
have a commitment here? Thank you.
Q: (Can't get name) Toronto Dominion. The last super major
deal that incurred substantial anti-trust scrutiny was BP Arco(sic) and that
took 54 weeks to be completed. I wonder if you might have some guesstimate as
far as it will take this deal to come to fruition? And as a second part, who are
using for anti-trust counsel please?
DO: Okay, it's very hard to predict how long this will take
but as you rightly pointed out, the other comparable deals have taken the six to
12 month range to accomplish, so I think it's reasonable to assume that it will
take in something of that range from a regulatory standpoint. We intend to be
fully cooperative. We intend to do all the appropriate filings. We have very
good counsel. Pillsbury, Madison, Sutro(sic) and what's the other one? Howie
Simon(sic) are working with us on this with us. So I expect that we're going to
do all the filings at the earliest possible time and I expect that we're
optimistic that we will get this deal done. But we can't predict exactly how
long it will take because it is subject to regulatory approval. You had a
follow-up?
Q: Just a quick follow-up if I may. Do you anticipate the
divestitures will be required to be completed prior to completion of the
transaction? Or simply agree to divest within some time period?
DO: You know that's an issue that the FTC is going to have
deal with. I don't want to speculate except that we'll cooperate with them and
we think we will resolve this issue successfully. Al? Do you have another
question?
<PAGE>
CHEVRON TEXACO MERGER
AL ANTON: Al Anton (inaudible Company). The power business,
Chevron has chosen Dynegy as it's vessel and Texaco has chosen to go essentially
into - or on its own or individual joint ventures. Are there potential conflicts
there between Dynegy's interests and now Chevron-Texaco's interest? Or would you
consider merging the assets inherited from Texaco into Dynegy on a stock for
stock in Dynegy or have you given much thought to that? DO: Well we don't see
conflicts because Dynegy's core presence is in North America, particularly the
United States, where Texaco's activities in the gas power business has been
international and tied to their leading technology in the gasification, etc. So
we don't see conflicts. And I really don't want to speculate about what we might
do beyond that for the moment other than to acknowledge that there are options
here for us to go forward to build on our current positions. You know Dynegy's
is a publicly traded company. We are an equity holder. We are very happy with
the performance of Dynegy. It has been very successful in executing its strategy
and we will just have to evaluate how we go forward on these businesses as part
of the integration and post-integration process. Thank you. Yes?
PHIL KAUKONEN: Phil Kaukonen, Lord Abbott. Dave could you
address your thought process in terms of how you looked at Texaco's recently
declining E&P production and your ability to grow your upstream? You've been
growing your production. You've had a target of 4%, Texaco has had a less
attractive asset base in the upstream and declining production. How are you
going to work to make sure that you can maintain that 4% plus over time? And
could you also discuss what kinds of projects could you do, as a combined
company, that you could not do individually? Given as Chevron by itself, given
that you are already in Tengiz, already in West Africa, etc?
DO: Okay, two questions. I think what Texaco has been doing is
basically similar to what we have done just a few years ago in rationalizing
their upstream operations. They've taken marginal fields out of the portfolio to
build a stronger base of core assets. So that part, I think, would be something
that we would have done also. It makes a lot of sense.
<PAGE>
CHEVRON TEXACO MERGER
What Texaco brings to the table here is some great upstream
growth potential in the deep-water Gulf of Mexico, Brazil and in West Africa.
Those are just some examples of great upward potential with the successful
exploration program. Clearly the advantage here, that we bring, is sure - there
are projects that we could do on our own, absolutely. You're absolutely right.
But what this brings to the table are more options - more options for growth.
Instead of four blocks in Brazil we'll have nine. We have no current deep-water
position essentially. I think we have one block in Nigeria currently. They have
five. So it brings more opportunities in Angola. So we now have a broader set of
opportunities to apply our expertise in.
In the case of West Africa, we have leading positions, we have
relationships, we have skilled employees, we can really help bring these
opportunities to maturity and add long-term growth to the company that we
probably would not have been able to achieve because we didn't have as many
options as Texaco brings.
So I see a good fit here. In the near term, I see it is very
consistent with what they've done in North America, it's absolutely right. Get
to the core assets, eliminate the marginal stuff which is what they've been
doing and bring to the table and mature some of these growth prospects that we
have in those three areas, as well as others that I mentioned on the slides.
So we're very bullish about it. We think it's a great
portfolio combination that brings the right mix of current, intermediate and
long-term future production.
PB: One more question?
DO: This is great. I think we'll wind it up. Paul you want
another question. We'll take just one more.
PAUL CHENG: Paul Cheng, Lehman Brothers. Dave and Peter,
in a sense that after you join the super major...you will be a little bit
smaller than Exxon (inaud.) In the sense that do you think
that that will be an advantage that you will be less intimidating and dominating
in the eyes of some of the host countries, and that allow you perhaps steal some
additional market share from the other?
<PAGE>
CHEVRON TEXACO MERGER
DO: Well let me put it this way Paul. We see rapid
integration, we see great alignment, because we work together so effectively. So
we see a great opportunity to bring two sets of minds and hearts and connections
to the table. We've advertised ourselves as the partners of choice - Chevron has
around the world, and we've been very successful. I think we are the partners of
choice together and we will certainly build on that scene, because we'll have
more opportunities and more collaboration. And I'm confident that we'll be very
successful.
PB: Let me just make a comment here. Wherever each of us
operates today around the world, we're a very formidable competitor. When we
get together we'll be even better.
DO: Thank you all. Appreciate it.
--------------------------------------------------------------------------------
Private Securities Litigation Reform Act Safe Harbor Statement
-----------------------------------------------------------------
Except for the historical and present factual information contained herein, the
matters set forth above, including statements as to the expected benefits of the
merger such as efficiencies, cost savings, market profile and financial
strength, and the competitive ability and position of the combined company, and
other statements identified by words such as "expects," "projects," "plans," and
similar expressions are forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially, including the possibility
that the anticipated benefits from the merger cannot be fully realized, the
possibility that costs or difficulties related to the integration of our
businesses will be greater than expected, the impact of competition and other
risk factors relating to our industry as detailed from time to time in each of
Chevron's and Texaco's reports filed with the SEC. Chevron and Texaco disclaim
any responsibility to update these forward-looking statements.
Additional Information
----------------------
Chevron and Texaco will file a proxy statement/prospectus and other relevant
documents concerning the proposed merger transaction with the SEC. Investors are
urged to read the proxy statement/prospectus when it becomes available and any
other relevant documents filed with the SEC because they will contain important
information. You will be able to obtain the documents free of charge at the
website maintained by the SEC at www.sec.gov. In addition, you may obtain
documents filed with the SEC by Chevron free of charge by requesting them in
writing from Chevron Corporation, 575 Market Street, San Francisco, CA 94105,
Attention: Corporate Secretary, or by telephone at (415) 894-7700. You may
obtain documents filed with the SEC by Texaco free of charge by requesting them
in writing from Texaco Inc., 2000 Westchester Avenue, White Plains, New York
10650, Attention: Secretary, or by telephone at (914) 253-4000.
Chevron and Texaco, and their respective directors and executive officers, may
be deemed to be participants in the solicitation of proxies from the
stockholders of Chevron and Texaco in connection with the merger. Information
about the directors and executive officers of Chevron and their ownership of
Chevron stock is set forth in the proxy statement for Chevron's 2000 Annual
Meeting of stockholders. Information about the directors and executive officers
of Texaco and their ownership of Texaco stock is set forth in the proxy
statement for Texaco's 2000 Annual Meeting of stockholders. Investors may obtain
additional information regarding the interests of such participants by reading
the proxy statement / prospectus when it becomes available.
Investors should read the proxy statement/prospectus carefully when it becomes
available before making any voting or investment decisions.
* * *
<PAGE>
[Transcript of Chevron Texaco Merger Conference Call - October, 16, 2000]
Chevron/Texaco Merger Conference Call
October 16, 2000
12:15 p.m. EDT
Chairperson: Dave O'Reilly, Chairman and CEO, Chevron Corp.
[OP = Operator DO = Dave O'Reilly PB = Peter Bijur
SP = Unidentified Speaker]
OP: Good morning, everyone, and welcome to the Chevron/Texaco Press
Teleconference. With us today we have Dave O'Reilly, Chairman and Chief
Executive Office of Chevron Corporation, and Peter Bijur, Chairman and Chief
Executive Officer of Texaco Incorporated. After the opening remarks, we will be
taking questions. At that time, if you have a question, you will need to press
the "1" followed by the "4" on your push-button phone. As a reminder, today's
conference is being recorded. I would now like to turn the call over to Mr.
O'Reilly. Please go ahead.
Dave O'Reilly
Thank you. Both Peter Bijur and I are here in New York, and we would
like to make some comments before turning it over to you for questions.
This is a very exciting day, the formation of Chevron-Texaco
Corporation. I've sure you've seen in the press release many of the details, but
I'd just like to cover a few of the high points. This is a $100 billion merger,
which will join two of the world's leading energy companies. And of course we've
been long-time partners.
The combination of the two companies creates an U.S.-based global
enterprise that will join the ranks of the world's largest and most competitive
international energy companies. As you've seen in the press release, we will
have world-class upstream positions and reserves, production and exploration.
We'll have an integrated worldwide refining and marketing position, global
chemicals business, and expanded growth platforms in natural gas, power, as well
as leading skills in technology and a plan for a rapid integration to achieve
these mergers. We estimate $1.2 billion worth of synergy, which we plan to
achieve within six to nine months after closing.
We plan to be a powerful new competitor, very strong U.S.-based
competitor, which we think is very important in this era of concern about energy
supplies in the United States. We have a very strong presence here, and with our
global presence, we should be able to work productively together to enhance the
supply situation around the world. We'll have 11.2 billion
<PAGE>
barrels of reserves, daily production of 2.7 million barrels, assets of $77
billion, and we'll be the U.S. third leading producer of oil and gas, and
third-largest reserve position.
We expect the combination to produce a much stronger company, because
of the leadership position in upstream, the world-wide downstream platform, the
strength and scales of our chemical business, and a significant presence in
power and gas, as well as technology, all driven by organizational capability.
We feel we're natural partners, we have great organizations. The
combined skills of both companies should serve us very well in achieving not
only the near-term objectives we have in obtaining synergy, but also the
intermediate- and long-term growth plans which we plan to achieve promptly,
following the closure of the merger and the formation of the new company.
Now I'd like to turn it over to Peter to say a few words, and then
we'll take your questions.
Peter Bijur
David, thank-you very much. This is clearly an era of consolidation
within the energy industry, and there could not be two better partners that
could come together for purposes of improving shareholder value, for growing
earnings and cash flow into the future.
Obviously, there could be many partners that one could consolidate
with, but Chevron and Texaco have been partners since 1936. We operate jointly
around the world, particularly in the Pacific Rim area, through Caltex and
Caltex Pacific Indonesia. We have vital and important opportunities in West
Africa, in Brazil, in the Gulf of Mexico in the United States, and we're very
excited that this is going to be very, very accretive in the long-run, to the
earnings of the new company.
In the downstream part of the business, we will use the three brands,
Chevron, Texaco and Caltex - which we have around the world - to maximize our
position as a competitor wherever we operate. We both do a good job today where
we do operate independently, and the synergies and the combination of the talent
of our two companies and the great brand names that our two companies have will
make this an even stronger institution in the future.
We look forward to it, we're both excited about it, and we are the company for
the 21st century.
SP: Operator, we're ready for questions.
<PAGE>
Questions and Answers
OP: Ladies and gentlemen, we will now begin the question and answer
session. If you have a question, please press the "1" followed by the
"4" on your push-button phone. You will hear a three-tone prompt
acknowledging your request. If your question has been answered and you
wish to withdraw your polling request, you may do so by pressing the
"1" followed by the "3". If you are on a speaker phone, please pick up
your handset before entering your request. One moment, please, for your
first question.
Your first question is from Katherine Mosely with WBRZ TV.
Please, proceed with your question.
KM: Yes, it's WBRZ TV. What will happen to the local gas stations? Will
they be changing... their names will stay Chevron/Texaco. What will
happen to the management? Will some of these local jobs be lost
in the process?
DO: We... as far as the local gas station's concerned, there should be
really no change. The gasoline business is very competitive and
broad. Many of the local businesses that are on the street corner
should stay exactly the same irrespective of what happens to the
ownership of companies.
So, you've probably seen a lot of merger activity already,
around the United States and around the world, but the local gas
station's basically still there, and there to serve the customer.
SP: Operator?
OP: Yes. Your next question is from Peter Behr with Washington Post. Please
proceed with your question.
PBr: Good afternoon. Can you tell us what discussions, and what thinking
has already gone on about divestiture to meet FTC concerns about this,
and particularly how that affects the Texaco/Shell relationship?
PB: This is Peter Bijur. I'm CEO of Texaco. The matter of divestitures
will be the subject of regulatory reviews in the U.S. There have
been discussions, as reported by Shell today, between Texaco, Shell
and Saudi Aramco, and at the present time those discussions are
continuing, but as I said, it will be subject to the regulatory
reviews in the U.S.
OP: Your next question is from Kelly Doolan with Platts. Please proceed
with your question.
KD: Good afternoon. My question is about the Chevron/Dynegy natural gas
marketing agreement. How would this merger affect that agreement,
and would Texaco's gas marketing... or, Texaco's gas become folded
into that agreement?
DO: Dave O'Reilly at Chevron. We have... we certainly will have no
change in our existing agreements with Dynegy. I think it's too
soon to speculate about what we are going to do
<PAGE>
overall in the gas and power business. We're proud of the position
we have in Dynegy. Texaco has a great international business based on
coal gasification and power, and this creates some new opportunities
for growth for the new company.
KD: Thank-you.
OP: Your next question is from Mike Ledke with Associated Press. Please
proceed with your question.
ML: Yeah, hi. My question relates to the timing of this deal. Obviously,
right now, we're seeing gas prices a lot higher than they were a year
ago. Politically, do you feel like this merger is going to be a
little more difficult to be done right now than if you'd been able to
get together a year ago? Can you talk a little bit about that?
DO: Yeah, Mike, Dave O'Reilly here. We think this is actually a great
time for considering a merger of our two companies. It's acutely
apparent, I think, to everybody in this country, that energy
supplies are very, very important to our economic health and
well-being. This company will be the strong U.S.-based company,
it will be able to grow... invest and grow better in the business,
not only in the U.S. but globally, as well. Increases in supply in
the U.S., and increases in supply globally, will help the total
market. So this is the ideal time for us to address this issue, and
we are confident that the regulators will see it that way, and that
we can successfully put this merger together.
So I think this is a politically good time for us to address
this issue. Thank-you.
ML: Thanks.
OP: Your next question is with Jim Miguel with FT Energy. Please proceed
with your question.
JM: Yes. Good afternoon, gentlemen. I wanted to know what you thought
this merger would do as far as the upstream natural gas segment.
DO: It will clearly put us in a very, very strong position in the
upstream and natural gas segments. Just looking at the U.S., for
example, we both have good positions - great positions - in the
Gulf of Mexico shelf. We are going to be even stronger in the Gulf of
Mexico shelf. That's a key source of gas and oil for the United
States. We both have premier positions, and the combined company
will have the number one position in the deepwater Gulf of Mexico.
We also have excellent positions in the Permian and San Joaquin
Valley, and also in Canada, near-term as well as long-term, great
exploration positions in North West Territories and in the Mackenzie
Delta, as well as existing production, and more prospects for
exploration and production of gas in offshore eastern Canada.
<PAGE>
So, all in all, this is a very powerful combination in the
North American... in North America.
Thank you.
OP: Your next question is with Hillary Durgin from Financial Times. Please
proceed with your question.
HD: Good morning. You talked about how being together makes you more
competitive than you would be separately.
Can you discuss a little bit - both of you - the disadvantages you may
have been at, being separate, in the last year or so?
DO: I think the best thing to do is to talk about the advantages of being
together. It's clear that the advantages of being together are a
multitude. One, we will be stronger financially from the synergy
combinations that we will achieve. Secondly, we, as you probably saw
from the briefing and the materials, we have complementary growth
opportunities in deepwater Gulf of Mexico, in West Africa, in Nigeria
in particular, also in Angola, and in Brazil, where we have a premier
position in the deep water in Brazil. So, there are great opportunities
for long-term growth.
And the final point is that we have a great position as far as
integration is concerned. We know each other well, we've been
long-standing partners together, and we think we have an opportunity to
rapidly integrate the companies and achieve the synergies and get on
with achieving our growth ambitions effectively within six to nine
months after closing.
PB: Hillary, just a couple of additional points, there. These two companies
have outstanding talent that work for us around the world. By putting
them together, we're going to have the ability to pick and choose the
very, very best, and I think we're going to be a formidable competitor
as we face the very difficult energy development situation of the
future. As David said, we have excellent opportunities in the upstream
part of the business. We have a wonderful global reach in the
downstream part of the business. With the talent of both companies, and
the management teams of both companies, I think we're going to be, as I
said, formidable in the future.
HD: Thank-you.
OP: Your next question is with Pamela Moore with Business Week Magazine.
Please proceed with your question.
PM: Hi. my question is about the exploration budget, and what you're going
to be doing to increase exploration and production. I'm interested in
getting specific numbers. By what percent would you increase your
exploration and production budgets? And if you don't have specific
numbers, do you absolutely commit to increasing production and
exploration?
<PAGE>
DO: Thank-you for the question. I mean, the key issue here is successful
exploration. In order to effectively grow production, you have to have
successful exploration. We're confident that with the combined skills
and competencies of both companies, applied to a larger portfolio of
exploration opportunities, we will continue to grow production.
You may recall that Chevron, during the downturn of 1998,
maintained a very strong exploration and production budget, and we've
been successfully growing our production during that period of time.
And I'm confident that both of us together will achieve production
growth and success in exploration going forward, as well. So, we think
we're in a stronger position to accomplish this, and in addition to
growing our production, we believe that this combination will achieve
that growth in a more profitable manner.
So, we're very bullish about this combination. Thank-you.
OP: Your next question is with Paul Tomasch with Reuters. Please proceed
with your question.
PT: Yeah, Peter, you said at the beginning of the conference call that the
deal comes amid an era of consolidation. Do the two of you see this as
the end of the consolidation in the energy industry, one, and two, as
Chevron-Texaco, would you be interested in buying any other companies
or any other assets, and where do you stand on your size, now?
PB: Paul, good question. I'll tell you what. David and I are going to
concentrate on putting the best company together that we could possibly
put on the competitive front. That's really what we're concerned about.
We always look at opportunities, but that's what we're concerned with
right now, that's what we're doing.
PT: And as a follow-up... are you still there?
PB: We're still here.
PT: Could you give us some idea of, geographically, where the job cuts
are going to come from? Are they going to be mostly here in the U.S.,
or do you have any breakdown yet?
DO: Well, let me field that. We've estimated 4,000 jobs. It's a very
sensitive issue. Obviously we have some overlaps in key areas. We
have a merger integration team headed up by our respective CFOs.
They're going to take on the chore of looking at our operations,
assembling experts and team members from both companies,
and when we get through that process, we'll have a much better handle
on this. Thank-you.
OP: Your next question is from David Ivanovic with Houston Chronicle.
Please proceed with your question.
DI: Gentlemen, can we get a better explanation as to why this deal makes
sense now, when it didn't make sense a year and a half ago, for $70 a
share?
<PAGE>
PB: Well, David... how are you today? This is Peter.
DI: Hi, Peter.
PB: We didn't have a deal a year ago. The circumstances, the timing, the
situation then, simply was not right to make a deal, so we didn't have
a deal. We have a deal today. We think it's a good deal for everybody.
It's certainly a good deal for our shareholders. It's a good deal for
Chevron shareholders. It's going to be a powerful company, and it
creates a U.S.-based global enterprise that is highly competitive
across all the energy sectors.
OP: Your next question is from Nancy Rivera-Brooks with Los Angeles Times.
Please proceed with your question.
NR: Hello. The whole question of mergers between oil companies has
become very political - the term "big oil" is thrown around a lot -
and I'm wondering how you answer critics of these mergers who
contend that they're bad for consumers.
DO: Nancy, Dave O'Reilly. I think consumers are acutely aware, today,
that energy supply is very, very critical to our economic well-being.
In California, we've experienced higher energy prices because of
supply problems. I'm sure you're probably aware of the problems
with power supply in the States. This is a critical issue.
It takes strong, competitive companies to compete in today's
business, to be able to invest, to grow energy supplies. We think
that this combination will create a U.S.-based global enterprise
that's highly competitive, that will allow us to invest to grow
effectively in the U.S. and abroad, and all of that will increase the
supply picture and improve - ultimately improve - the availability
to supply to consumers.
So, that's critical. That's the business we're in, and it's
absolutely critical that we do it well. We think this combination will
allow us to do it better. Thank-you.
NR: Okay. Thank-you.
OP: Your next question is from Barbara Shuk, Energy Intelligence Group.
Please proceed with your question.
BS: Yes, I have two questions on the natural gas side, and one's on the
technology side, actually. Could you clarify exactly what is the...
how you're going to deal with the Dynegy and... consolidating the
Dynegy and Texaco natural gas operations?
DO: I covered that question in an earlier question. I think the key issue
there is we both have good positions:
Texaco's international gasification and power position, Dynegy is
a North American, primarily, gas and power convergence player.
We're very satisfied with Dynagy's performance. Texaco is in an
excellent position. It gives us some options for the future. We
have to look at what those potential growth opportunities will be.
That's something we'll evaluate during the merger integration process.
Thank-you.
<PAGE>
BS: Okay. The second question has to do on the technology side. Both of
you have different gas to liquids exploitation efforts in
progress. You announced today the formation of your joint venture
company with Sasol. Texaco has an existing arrangement with Rentech.
How are those going to be reconciled?
DO: We're going to sort that out in the merger integration process. We
have... we clearly have big commercial plans for the first gas to
liquids plant, a big plant in Nigeria, which the Sasol joint venture
is involved in. We're very committed to that, and the question of
integrating the technologies and what we can do there is something
that the merger integration process will take care of. Thank-you.
BS: Okay. Thank-you.
OP: Your next question is from Christina Cheddar with Dow Jones. Please
proceed with your question.
CC: Hello. I was just curious about whether or not any additional
approvals need to be received from Phillips as far as the chemical
venture, and I was also wondering about any other adjustments to the
venture once the deal is completed.
DO: No, the chemical venture is totally independent of this. There are no
additional approvals there. I think, in fact, the Chevron/Phillips
joint venture is our vehicle for chemicals growth, and I think this is
a good thing for the Chevron/Phillips joint venture because it offers
more opportunity to link up with not only Chevron's existing portfolio
around the globe, but Texaco's existing portfolio around the globe. So
this is a very positive thing for that venture, and I know they feel
good about it. Thank-you.
CC: So will Texaco's chemical assets then be folded into the venture as
well?
DO: Texaco doesn't really have any chemical assets. They exited the
business a few years ago. Thank-you.
OP: Your next question is with Sam Fletcher of Oil & Gas Journal Online.
Please proceed with your question.
SF: I had a couple of sort of related questions, here. One is the fact
that these super mergers have usually taken a year or longer to
get put together, get through all the approval processes, then
there's a while the two cultures are sorted out and merged, and
meanwhile, during much of that time, a lot of you upstream operations
just come to a standstill. Y'all plan to get around this in some
unusual way, do something different this time? Also, what
effect does the cut-backs on the R&D spending going to have on the
industry?
DO: Let me just deal with this. These companies... the big advantage here
is truly integration. We're natural partners. We've been working
together. Many of the activities around
<PAGE>
the world we're doing together.
So, we are confident. There is no coming to a standstill, here. We
both have committed ourselves to getting the merger process done.
It will take a little of time, but 6-12 months is not unreasonable
for a deal like this. Once we get closure, we will be moving very,
very rapidly to achieve the full integration. I don't anticipate
things coming to stop. In fact, we're confident that because of our
partnership, our historic relationship, we have an execution
advantage. Thank-you.
SF: What about the R&D?
DO: Well, R&D is a very minor point. We clearly have overlapping
opportunities there. There's no diminished interest on either of our
part. All we're talking about doing is integrating our technology, and
this is truly a case where one plus one will make three, so while
there's savings involved in R&D, it doesn't in any way diminish our
commitment to it. We're just going to be able to do it more effectively
and more efficiently because of the larger scale of our operations.
Thank-you.
OP: Your next question is from Demetrius Patterson of Gannett Newspapers.
Please proceed with your question.
DP: Yes. Recently Texaco has shown a lot of interest in fuel cell
technology, and alternative fuel technology, and I'm wondering how is
that going to play with this proposed merger.
Is there equal interest on the Chevron side?
DO: Well, I'd better answer that question. I though it was going to
be one for Peter. But yes, there is tremendous interest. Chevron
has been involved, actually, in working on reforming technology
around fuel cells. We just haven't taken an interest in an outside
venture the same way as Texaco have. But if you look at our
combination, not only... in the last question I responded to the base
technology - core technology - issues, but we bring to the party new
technologies, technologies around environmentally-friendly fuels,
around alternative energy fuels, and Internet businesses, and the
like. So, this is a great combination from that standpoint, and we
think this is very complementary. Thank-you.
DP: Thank-you.
OP: Your next question is from Eve Mitchell with Oakland Tribune. Please
proceed with your question.
EM: Hello. In view of the high prices for gas in California, what do you
see as the regulatory challenges in this proposed merger, given
that some critics have said that there's just too much concentration
on the energy business, here?
DO: Eve, we are certainly aware that there is a concentration issue in the
United States downstream, and we anticipate that the FTC will require
us to do something about it.
<PAGE>
We are going to file our application with the FTC right away, the
appropriate paperwork. We're going to cooperate with them, and I'm
confident that this issue will be resolved.
The downstream market is a very competitive business. The FTC
will ensure that it remains competitive, so I anticipate refining and
marketing staying competitive. The important thing here, though, is
look at the big picture beyond that, and look at the combination, the
valuable attributes that this combination will have in creating a
U.S.-based global enterprise that's highly competitive, and should be
able to provide oil and gas and other energy resources to U.S.
consumers in a better way than either of us could have done
individually.
So, we're very bullish about our ability to be a better
supplier, overall, of energy, and look forward to the opportunity.
Thank-you.
EM: Thank-you.
OP: Your final question is with Justin Cole with AFX News. Please proceed
with your question.
JC: Yes, hello. It looks as though there might have to be some
restructuring or some divestments in the refining and marketing on
the west coast, but are there any other areas that you think are
going to... will come under close scrutiny from the FTC? And in
particular, do you feel that you have any significant
overlaps or controlling interests in the U.S. upstream sectors?
PB: Well, with respect to the downstream, as we've said, we anticipate that
the Federal Trade Commission, or other regulatory agencies, may well
require some divestitures in the U.S. downstream to address market
concentration issues, and the companies fully intend to cooperate with
the FTC.
DO: And as far as the upstream is concerned, there's nothing at all that
should be an impediment to this, and in fact, as I said earlier, the
combination is going to improve energy supply to the U.S. consumers
because we'll have stronger positions, we'll be better able to invest
and grow, and this is good for the American consumer. Thank-you, all.
JC: Thank-you.
[End of Recording]
================================================================================
Private Securities Litigation Reform Act Safe Harbor Statement
-----------------------------------------------------------------
Except for the historical and present factual information contained herein, the
matters set forth above, including statements as to the expected benefits of the
merger such as efficiencies, cost savings, market profile and financial
strength, and the competitive ability and position of the combined company, and
other statements identified by words such as "expects," "projects," "plans," and
similar expressions are forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially, including the possibility
that the anticipated benefits from the merger cannot be fully realized, the
possibility that costs or difficulties related to the integration of our
businesses will be greater than expected, the impact of competition and other
risk factors relating to our industry as detailed from time to time in each of
Chevron's and Texaco's reports filed with the SEC. Chevron and Texaco disclaim
any responsibility to update these forward-looking statements.
Additional Information
----------------------
Chevron and Texaco will file a proxy statement/prospectus and other relevant
documents concerning the proposed merger transaction with the SEC. Investors are
urged to read the proxy statement/prospectus when it becomes available and any
other relevant documents filed with the SEC because they will contain important
information. You will be able to obtain the documents free of charge at the
website maintained by the SEC at www.sec.gov. In addition, you may obtain
documents filed with the SEC by Chevron free of charge by requesting them in
writing from Chevron Corporation, 575 Market Street, San Francisco, CA 94105,
Attention: Corporate Secretary, or by telephone at (415) 894-7700. You may
obtain documents filed with the SEC by Texaco free of charge by requesting them
in writing from Texaco Inc., 2000 Westchester Avenue, White Plains, New York
10650, Attention: Secretary, or by telephone at (914) 253-4000.
Chevron and Texaco, and their respective directors and executive officers, may
be deemed to be participants in the solicitation of proxies from the
stockholders of Chevron and Texaco in connection with the merger. Information
about the directors and executive officers of Chevron and their ownership of
Chevron stock is set forth in the proxy statement for Chevron's 2000 Annual
Meeting of stockholders. Information about the directors and executive officers
of Texaco and their ownership of Texaco stock is set forth in the proxy
statement for Texaco's 2000 Annual Meeting of stockholders. Investors may obtain
additional information regarding the interests of such participants by reading
the proxy statement / prospectus when it becomes available.
Investors should read the proxy statement/prospectus carefully when it becomes
available before making any voting or investment decisions.
# # #
